SECURITIES AND EXCHANGE COMMISSION

Washington, D.C 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1999

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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
incorporation or organization) identification No.)

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:

Title of Class
None

Indicate by check mark whether the registrant (I) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days Yes__X__ No____

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
 to the best of the issuers knowledge, in definitive proxy or information statements
 incorporated by reference in Part III of this Form 10-KSB or in any amendment
to this Form 10-KSB [ ]

Issuer generated revenues for the year ended December 31, 1999 as shown in the
attached financial statements.

During the year ended December 31, 1999, there was no established public trading
market for the issuers Series A Preferred Stock. On December 31, 1999, there were 6,572,424
shares of Series A Preferred Stock of the Issuer issued and outstanding.

COATES INTERNATIONAL LTD.PART I

ITEM 1. DESCRIPTION OF BUSINESS

Background

Coates International Ltd. (CIL) has completed the basic
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
CIL's 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 foreign patents with respect to
various aspects of the Coates System and has patent applications
pending in several foreign jurisdictions. See Patents and
Licenses.

CIL holds 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 CIL 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.

CIL has concentrated its efforts since the inception of its
predecessor entity in August 1988 to the present date in
the research and development of the Coates spherical rotary valve
combustion engine technology and has realized insignificant
revenues throughout this period. In 1996 CIL realized $73,375 US
dollars in revenues paid by Nicholson McLaren in partial payment
for 2 high performance racing car engines utilizing the Coates
system, which was shipped to Nicholson McLaren by CIL in April
1996. CIL executed a license agreement and a sales
representative agreement with Nicholson McLaren. See Patents and
Licensing.

Since its inception, the bulk of the development costs and
related operational costs of CIL 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. As a
development stage company, CIL has incurred losses from the
inception of the predecessor entity in August 1988 through
December 31, 1999 of $10,565,795 and at December 31, 1999, had a
net worth of $432,601 and a negative working capital
of ($322,220). In 1999 CIL signed a license agreement with an
oil and gas company in Canada and received a $300,000 deposit on
the license for Canada and $250,000 on the first prototype, which
is in the process of being built.

BUSINESS PLAN

On September 29, 1999, the Company entered into a License
Agreement with Well to Wire Energy, Inc. (WTW), a Canadian
corporation, whereby the Company granted to WTW a license
exclusive in Canada for the use of the Coates spherical rotary
valve system in connection with a natural gas fueled engine that
generates electricity. The licensing fee is $5,000,000, and the
Company is also to receive a royalty equal to 5 percent of the
gross profits which WTW derives from all sources. The Company
(CIL), which retains the exclusive right to manufacture the
engine for WTW, received in October, 1999 a $41,000,000 order
comprising both co-generation systems and engines. The
consummation of the License agreement with WTW and finalization
of WTW's orders for the generator engines is contingent upon the
successful validation of the prototype generator engine
incorporating the Coates System.

The company does not have experience
or assembly in the volumes that may be necessary for the company to generate
significant revenues from its sales of engines. The Company may encounter
difficulties in the scaling of production or hiring and training additional
personnel to manufacture its engines in commercial quantities. In the event
there would be future interruptions, as a result of production problems, such
interruptions could have a material adverse effect on the Company's business,
financial conditions and results of operations.

The private offering reported in the previous QSB was cancelled
by the Company, and all other arrangements and pending
arrangements other than WTW Energy licensing agreements have been
put on hold because management believes that the co-generator
opportunity in Canada is the most significant. WTW has paid a
$550,000 deposit and signed a $5,000,000 license. CIL management
expects to start production of its co-generator engine for the
oil and gas companies on a significantly large scale. Both WTW,
CIL and another oil and gas company are in high level talks
regarding a joint venture.

It is the intention of CIL to fund its business plan by
borrowings and the sale of equity and/or debt instruments, and
through the sale of sub-licenses. All of these financing
vehicles will be pursued simultaneously. It is not presently
known which, if any, of these alternatives will be utilized,
whether they are available to CIL, and if available, in what
mixture or in what amounts.

THE COATES SRV SYSTEM

The Coates System 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 System 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 System will
promote less engine wear and will require less lubrication over
the life of the engine. In addition, because the Coates System
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 System, 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 System will produce more power than
similar engines utilizing the poppet valve system. However, there
can be no assurance that the Coates Systems 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 caused the
poppet valve engines 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 system which leads to a loss of power, lower MPG and
production of pollution.

The poppet valves' stems are lubricated with engine oil
which is burnt off after a short period of running. 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.

REMEDY

It is the management's belief that, The Coates Spherical

Rotary Valve Engine is the most advanced in the world, with

the most positive valving system ever built. The breathing capabilities
of the system are almost double that of a poppet valve. For instance: a
static test of a five-liter poppet valve engine on an airflow machine
produced a reading of 133 cubic feet per mixture (CFM) with valve fully
opened. The five-liter Coates Spherical Rotary Valve Engine on the same
machine produced a reading of 319 CFM's fully opened- a colossal advantage
in airflow comparison. A five-liter poppet valve engine tested on a
dynamometer under full load at 5500

RPM's produced 260 BHP and 214 foot pounds of torque. The
maximum RPM's on the poppet valve were 5700 RPM's; the Spherical
Rotary Valve Engine in comparison reached 14,850. The Coates
Spherical Rotary Valve comprises two spherical rotary valves
assembled on two separate shafts- one for inlet and one for
exhaust. They rotate on ceramic carbon bearings with no oil
lubrication; the spheres do not make contact with any part of the
housing. The seals are a floating type and are also made of a
ceramic material. They have two piston rings and float in a
small cylinder-type chamber; they are activated by the
compression and the combustion strokes of the engine which allows
100 percent sealing effectiveness, when compressed.

Because the 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 run at 12 to 1, 13 to 1, 14 to 1, and 15 to 1 compression
ratios depending on the application.

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 system 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 system. Between 1990 and 1994, George J. Coates was
issued seven United States patents (the Coates Patents) with
respect to various aspects of the Coates Systems including the
Mark II and Mark III version. The Coates Patents are as follows:

US PATENT NO. DATE DATE
APPLICATION FILED OF PATENT
 
4,989,579(Mark I) July 26,1982 February 5,1991
4,953,527Mark II) November 14,1998 September 4,1990
4,989,558 September 14,1998 February 5, 1991
4,944,261(Mark IIB) October 16,1989 July 31,1990
4,976,232 December 6,1989 December 11,1990
5,109,814 May 10,1991 May 5,1992
5,361,739(Mark III) May 12,1993 November 8,1994

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
Austria, Belgium, Denmark, France, Germany, Great Britain,
Greece, Italy, Luxembourg, The Netherlands, Spain, Sweden and
Switzerland as well as by Australia, Brazil, Canada, Hong King,
Japan, Korea, Mexico, Singapore, South Africa and Taiwan. Mr.
Coates continues to have patent applications pending in some of
these as well as other foreign countries.

In February 1995, George J. Coates and his son Gregory
Coates each granted CIL a non-exclusive license to manufacture,
sell and grant sub-licenses with respect to products based on the
Coates Patents within the United States, its territories and
possessions. On December 27, 1997, George J. Coates and Gregory
Coates amended the existing license agreement and previous
amendments thereto, modifying them from a non-exclusive license
to an exclusive one. The licenses expire in the event of
bankruptcy or similar insolvency of CIL. George J. Coates and
Gregory Coates have also agreed, as long as CIL remains
independent and viable, not to compete with CIL in the
manufacture, assembly, use or sale of internal combustion engines
utilizing the technology falling within the scope of the Coates
Patents in the Licensed Areas, or to grant any other exclusive or
non-exclusive license in the Licensed Areas except through CIL.
In addition, George J. Coates and Gregory Coates have executed an
agreement granting CIL the right to retain any 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. CIL agreed to pay $5,500,000 license fee to George J.
Coates in consideration for his grant to CIL of the non-exclusive
license payable at management's discretion but in no event later
than February 17, 1998. In September 1998, this arrangement was
modified. CIL and George J. Coates agreed that instead of the
$5,500,000 payment, CIL would issue 275,000 shares of Series A
Stock to Mr. Coates as the license fee. The shares were issued
to Mr. Coates in November 1998.

His appearance at the Birmingham (U.K) Autosport Show in
January 1996 resulted in George J. Coates receiving a letter of
intent from Nicholson McLaren to acquire a license to distribute
the racing engines modified with the Coates System within the
European Patent Community upon a commission or royalty basis to
be negotiated. Also, as a result of George J. Coates appearance
at the same show, CIL received a $1,000 check from Motorsport
U.S.A, a subsidiary of Ascari Cars Ltd. (UK) (formerly Noble
Motor Sport Ltd.) and a $28,000 order to install a high
performance racing car engine modified with the Coates System in
an Ascari racing car. The car was delivered in March 1996 to the
CIL plant in Wall Township, New Jersey, but to date, an engine
modified with the Coates System has not been installed in the
car. This was presently put on hold by CIL for business reasons.

In April 1996, CIL executed a license agreement with
Nicholson McLaren granting Nicholson McLaren a non-exclusive
license to assemble, sell, use and lease internal combustion
engines incorporating the Coates Spherical Rotary Valve within
the European Patent Community, which includes but is not limited
to Austria, Belgium, Denmark, France, Germany, Greece, Ireland,
Italy, Portugal, Spain, Sweden, Switzerland, and the United
Kingdom. In consideration of the rights granted under the
license agreement, Nicholson McLaren agreed to pay CIL a
licensing fee of $5 million, $37,375 upon receipt of the first
demonstration model by Nicholson McLaren from CIL; another
$37,375 upon receipt of the second; with the balance to be paid
out of sales (if any) of internal combustion engines modified
with the Coates Spherical Rotary Valve System assembled by
Nicholson McLaren with components purchased from CIL. The
balance is payable pursuant to a payment schedule to be mutually
agreed between both parties.



EMPLOYEES

At December 31, 1999, CIL employed seven (7) full-time
employees, including George J. Coates and his son Gregory Coates
who perform both management, assembly and research and
development functions; George J. Coates' wife Bernadette who is
involved in administrative functions and a bookkeeper.

ITEM 2. DESCRIPTION OF PROPERTY

CIL's 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. CIL acquired this property from the
George J. Coates 1991 Family Partnership, L.P in 1995. On March
22, 1999, CIL refinanced its property and gave a first mortgage
in the amount of $900,000 to Eastern Savings Bank, FSB of New
York. The first mortgage requires monthly payments of $12,521
accrued interest at the rate of 15.99 percent, per annum, and its
outstanding principal balance and accrued interest become due and
payable in March, 2004.

In its development operations, CIL owns and utilizes 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

SEC Complaint

In July 1994, the SEC filed a complaint in the United State
District Court for the Southern District of New York (94 CIV.
5361) against George J. Coates, CIL and certain affiliated
companies seeking injunctive and other relief. In its complaint,
the SEC alleged that CIL and George J. Coates raised almost $6.5
million from almost 400 investors through offers, purchase and
sales of CIL securities which the SEC alleged were fraudulent.
The SEC alleged that CIL and George J. Coates misrepresented the
capabilities of the Coates engine; omitted to disclose negative
results of independent tests on the engine; falsely claimed that
CIL had sold licenses and received orders and other commercial
opportunities; and misrepresented that George J. Coates had
assigned all patents related to the Coates engine to CIL. The
SEC also alleged that CIL and George J. Coates had failed to
disclose to shareholders that certain of the shares sold by Mr.
Coates were not authorized by CIL; that George J. Coates
misappropriated or misused approximately $2 million of investors
funds for his personal benefit; and that CIL had engaged in
several related party transactions with other entities controlled
by George J. Coates.

At the time of the filing of the SEC complaint, the Court
issued an order freezing the assets of CIL and George J. Coates
(although George J. Coates was permitted to use future income for
living expenses). The Court appointed Donald H. Steckroth, Esq.,
a New Jersey attorney, as Temporary Receiver, to take possession
and control of CIL's assets and properties, to preserve the
status quo and to prevent any misuse, encumbrance or disposal of
CIL's corporate property and assets.

At the same time as the SEC complaint was filed in July
1994, an inspector for the United States Postal Inspection
Service swore out a criminal complaint against George J. Coates
in the United States District Court for the Southern District of
New York, based on allegations similar to those contained in the
SEC complaint. As a result, Mr. Coates was arrested, but he was
released after four days of incarceration. On May 30, 1995, a
United States Magistrate Judge of the United States District
Court for the Southern District of New York signed an order to
response to a request by the office of the United States Attorney
for the Southern District of New York dismissing without
prejudice the criminal complaint against George J. Coates.

Settlement of the SEC Complaint

On February 6, 1995, CIL and George J. Coates, without
admitting or denying the allegations contained in the SEC
complaint, consented to the entry of final consent judgments
enjoining them from effecting sales of any security unless a
registration statement is in effect as to such security or an
applicable exemption from registration is available and from
engaging in fraudulent activities in connection with the offer or
sale of any security. CIL was also ordered to provide an
accounting of its assets and liabilities; its financial
statements and a list of all purchasers of CIL stock from CIL,
George J. Coates or any other source during the period commencing
April 24, 1990 to the date of the consent judgment including the
number of shares purchased and the purchase price. George J.
Coates was ordered to provide an accounting of his assets and
liabilities; as to any money, property, assets or other revenue
received by him or for his benefit from January 1, 1990 to the
date of the accounting; and as to all assets, funds, securities
or real or personal property of investors in CIL which were
transferred to or for George J. Coates' benefit during such
period.

George J. Coates was also ordered to cause the transfer by
The George J. Coates 1991 Family Partnership, L.P. to CIL of the
real property and building used by CIL as its principal facility
located at Highway 34 and Ridgewood Road in Wall Township, New
Jersey. This transfer was effected on February 21, 1995. George
J. Coates guaranteed repayment of the mortgage loan on this
property and CIL was obligated to indemnify George J. Coates from
any liability based on the mortgage loan on the property. The
consent judgment permitted George J. Coates to retain title to
the Coates Patents provided that he reimbursed CIL for all of the
monies it expended in the preparation, application and
prosecution of the Patents. Such sums in the aggregate amount of
$335,805 were paid to CIL by February 15, 1995 so that George J.
Coates retained title to the Patents. Mr. Coates was also
ordered to cause the transfer to CIL of all licensing fees and
other funds paid to persons or entities other than CIL in
connection with the acquisition by the payor of an interest in
the Patents or in the technology embodied in the Patents,
including the $500,000 licensing fee paid by Millwest Corporation
and held in a bank account entitled Coates International
Licensing. On February 24, 1995, the $500,000 license fee and
$12,144 of interest was paid to CIL.

Rescission and Exchange Offer

The consent judgment also required CIL to file a
registration statement with the SEC to effect a Rescission and
Exchange Offer, as follows:

Purchasers of Series A Stock who purchased such stock from
CIL or George J. Coates during the period commencing April 24,
1990 through November 13, 1995 and who continued to own their
shares at such date were afforded the option to choose one of the
following two forms of consideration in exchange for his or her
shares of Series A Stock.

Option One- Subject to the availability of same, the right
to receive such cash or assets equal in amount to the
consideration such Purchaser paid for his or her shares of Series
A Stock, in exchange therefore, plus simple interest calculated
at an annual rate of five (5) percent from the date of payment
for the Series A Preferred Stock; or

Option Two- The right to receive one share of newly issued
Series A Stock in exchange for each share of Series A Stock held
by such Purchaser.

Pursuant to the consent judgment, CIL filed a registration
statement on Form S-1 with the SEC (File No. 33-94884) to effect
the Rescission and Exchange Offer. The registration statement
was declared effective by the SEC on November 13, 1995.



Pursuant to the consent judgment, Donald H. Steckroth, Esq.
the Temporary Receiver, was appointed Special Master, to continue
in possession and control of any and all assets of CIL until a
distribution was made pursuant to the Rescission and Exchange
Order and until he was discharged by order of the Court. The
consent judgment required by CIL to mail a copy of the November
13, 1998 Prospectus together with a cover letter prepared by the
Special Master advising the Purchasers of the allegations
contained in the SEC complaint, the terms of the final CIL
consent judgment, the fact that the Prospectus contained detailed
information concerning the status of CIL's business and efforts
to develop and commercially exploit the Coates engine technology,
and explaining the above two options, and an Election Form, by
certified mail return receipt requested, to each Purchaser.

After the November 13, 1995 effectiveness of the above
registration statement, the Prospectus and the required cover
letter and Election Form were mailed to each of the Purchasers.
Of the 328 persons to whom the Rescission and Exchange Offer was
directed (who had invested approximately $6,500,000 in CIL), an
aggregate 32 Purchasers elected to rescind their prior purchases
of an aggregate 48,500 shares of Series A Preferred Stock
entitling them to be paid an aggregate $1,270,000 plus interest.
Two of the 32 Purchasers invested $900,000 of the $1,270,000 in
CIL with respect to which rescission was elected. In the second
quarter of calendar year 1996, a group of investors advanced
funds in order to purchase Series A preferred Stock. These funds
were used by CIL to repurchase Series A Preferred Stock owned by
the persons who accepted the 1995 Rescission and Exchange Offer.
An aggregate $1,260,000 of the funds and $65,000 of interest was
paid to 31 of the 32 Purchasers who elected to accept Option One
of the Rescission and Exchange Offer and their 48,000 shares of
Series A Preferred Stock were cancelled. No shares were issued
to the investors who advanced said funds at such time.

By letter dated July 31, 1996, the Special Master filed a
report with the United States District Court recommending that
CIL be permitted to undertake a private offering. A successful
private offering would generate sufficient funds to permit
reimbursement of those investors (the Potential Investors) who
advanced funds in the second quarter of calendar year 1996 in
order to purchase Series A Preferred Stock, which funds were used
by CIL to repurchase Series A Preferred Stock owned by persons
who elected pursuant to the Rescission and Exchange Offer to
rescind their prior purchases of Series A Preferred Stock. On
August 19, 1996, United States District Court Judge Kimba Wood
signed an order permitting a Private Offering to proceed and
ordered CIL and George J. Coates to reimburse the Potential
Investors for the amounts they advanced by them.

George J. Coates had consented to pay up to the first
$773,500 of the amounts payable pursuant to the Rescission and
Exchange Offer to those Purchasers who elected Option One using
all of his personal assets other than his personal residence. To
the extent that he was unable to pay any such amounts, CIL was
required to pay same and would retain its rights to assert claims
against George J. Coates personally to recover its payment of any
such shortages. CIL also consented to pay any additional amounts
required to fund the Rescission and Exchange Offer.

The Private Offering permitted by Judge Wood's August 1996
order was completed in July 1997. Pursuant to the terms of the
Private Offering, each of the Potential Investors was offered the
right to elect to receive shares of Series A Preferred Stock
value of $20 per share for the amounts advanced in the second
quarter of calendar year 1996 or to have the amount of the
advance refunded. Of the $1,270,000 advanced, one Potential
Investor elected to have his advance of $10,000 refunded and the
remaining Potential Investors elected to receive Series A
Preferred Stock. George J. Coates made the $10,000 cash payment
to the Potential Investor who elected the refund and transferred
38,175 shares of his Series A Preferred Stock to the remaining
Potential Investors. CIL issued the balance of 24,825 shares of
Series A Preferred Stock to the Potential Investors. CIL also
received $960,000 in cash proceeds from the Private Offering
(paid to purchase shares of Series A Preferred Stock at $20 per
share) which it applied to the payment of outstanding payables
including the final bill of the Special Master who was then
discharged by Judge Wood. There are no lawsuits against CIL or
pending against CIL.

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

CIL did not submit any matter to a vote of its stockholders
during the calendar year 1999.

COATES INTERNATIONAL LTD.

PART II



ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for CIL's only
outstanding class of capital stock, its Series A Preferred Stock.
At December 31, 1999 the approximate number of holders of record
of the Series A preferred Stock is 755. CIL has not paid any
dividends with respect to its Series A Preferred Stock and
anticipated capital requirements make it highly unlikely that any
dividends will be paid by CIL in the year 2000.





ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF

OPERATION

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

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

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

RESULTS OF OPERATIONS

Revenues of $550,000 were recognized during the year ending
December 31, 1999 with net income of $ 279,675 for the year ending
December 31, 1999. CIL has signed a license agreement with an oil
and gas company, Well to Wire Energy (WTW) of Canada, and received
a $300,000 deposit on the license and $250,000 on a prototype,
which is currently being designed and built at the Coates Wall Township,
New Jersey facility. See description of Business  Business Plan.

All other arrangements and business matters, pending and
otherwise, have been put on hold. Management believes that the
arrangement with the oil and gas company for its industrial
engines will yield significant revenues for the company over the
short and long term periods for this technology. CIL is also
negotiating with WTW and another international oil and gas
company regarding a joint venture, which is at this time under
the strictest confidentiality agreement. CIL is expecting the
first 855 CI engine to be completed and running in late April
2000.

LIQUID AND CAPITAL RESOURCES



CIL plans to raise additional capital through a combination of

NOTE REGARDING FORWARD-LOOKING STATEMENTS

CAUTOINARY 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 CIL's actual results in future
periods to be materially different from any future performance
suggested herein. CIL wishes 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, CIL's actual results
and could cause CIL's acutal consolidated results during 2000,
and beyond, to differ materially from those expressed in any
forward-looking statements made by or on behalf of CIL.

Forward-looking statements include, but are not limited to,
statements under the following headings; (i) "Business Plan," about
inquires from potential customers and the Companys 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 sub-
licenses; (iii) "Results of Operations," about the Company's
plans to place on hold its potential transactions concentrating
its efforts in the transaction with Well to Wire Energy, a
Canadian company; (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 consumation of any
agreements with Well to Wire Energy.

COATES INTERNATIONAL LTD.

PART III

ITEM 7 DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT



At December 31, 1999 the executive officers and directors of

NAME /AGE /POSITION

Richard W. Evans /68/ Secretary and Director

Michael J. Suchar /46/ Director

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.

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. Dr. Evans will not devote a substantial
portion of his working time to the business of CIL.

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. Dr. Suchar will
not devote a substantial portion of his working time to the
business of CIL.

Compliance with Section 16(a) of the Exchange Act

CIL's only class of outstanding capital stock, its Series A
Preferred Stock, is not registered pursuant to Section 16(a) of
the Exchange Act so that fillings of Forms 3,4, and 5 in
compliance with such Section are not required.

ITEM 8 EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

Annual Compensation
Year ended
Name December 31 Salary

1999 $183,548

George J. Coates 1998 $186,947

Chief Executive Officer 1997 $183,550

1996 $184,908

CIL had agreed to pay a $5,500,000 license fee to George J.
Coates in consideration for his grant to CIL of a non-exclusive
license. See Item 1 Business Patents and Licenses. The fee was
payable at management's discretion but in no event later than
February 17, 1998. In September 1998, this arrangement was
modified. CIL and George J. Coates agreed that instead of the
$5,500,000 payment, CIL would issue 275,000 shares of Series A
Preferred to Mr. Coates as the license fee. The shares were
issued to Mr. Coates in November 1998. To date, no employee
stock options have been granted by CIL.



ITEM 9. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth as of December 31, 1999 the
ownership of CIL Series A Preferred Stock by (i) each person
known by CIL to be beneficial owner of more than 5 percent of the
outstanding Series A Preferred Stock, (ii) each director and
executive officer of CIL who owned shares, and (iii) all
directors and executive officers as a group.



Shares of Series A

Name of Stock Beneficially Owned

Beneficial Owner

Number Percent



George J. Coates* 4,994,000 shs 76 percent

Gregory Coates* 318,150 shs 5 percent

Richard W. Evans 12,000 shs .002 percent

Michael J. Suchar 6000 shs .001 percent

All directors and executive 5,325,150 81 percent

Officers as a Group (four persons)

*c/o CIL, Highway 34 & Ridgewood Road, Wall Township, New Jersey
07719



ITEM 10 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Through the first half of calendar 1997, CIL subcontracted
for its project labor expense with Coates Precision Engineering
Inc., an entity controlled by George J. Coates. The amounts paid
to such subcontractor with respect to 1995, 1996 and 1997 were
$187,889, $181,500 and $212,626, respectively. These payments
constitute a direct pass through to the subcontractor of
payroll, workers' compensation and hospitalization insurance
expense; and management believes the arrangement was in CIL's
best interests. For the fiscal year ended December 31, 1998, CIL
did not pay for any project labor expenses through Coates
Precision Engineering, Inc. For the fiscal year ended December
31, 1999, please see the accompanying financial statements.

In the second half of calendar 1995, and during calendar
years 1996,1997 and 1998, CIL was primarily dependent for its
working capital on contributions made by Gregory Coates, the son
of George J. Coates, a principal (5 percent or greater)
stockholder and until January 1996, an executive officer and a
director of CIL. Such capital contributions advanced by Gregory
Coates in 1995, 1996, 1997 and 1998, aggregated $404,549,
$1,132,523, $953,834 and $384,961, respectively. The funds for
such advances were obtained from sales of Gregory Coates' shares
of CIL Series A Preferred Stock at price of $20 per share.

On October 9, 1998, George J. Coates and his son Gregory
Coates executed and delivered a certain Exclusive Conditional
Worldwide License Agreement to CIL in connection with an
arrangement to raise private equity funding on or before January
17, 1999. The placement agent failed to perform, and this
license automatically terminated on January 17, 1999.

ITEM 11 EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit No. Description of Exhibit

The following listed Exhibits are hereby incorporated by
reference into this Form 10-KSB for the fiscal year ended
December 31, 1999, and from CIL's Registration Statement
filed on Form S-1 with the Securities and Exchange Commission on
November 1, 1995, File No. 33-94884:





The following Exhibit is hereby incorporated into
this Form 10-KSB for the fiscal year ended December
31,1999 from CIL's Form 10-KSB for the fiscal year ended
December 31, 1998, filed with the Securities and Exchange
Commission on June 17, 1998:

EXHIBIT 27

THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE DECEMBER 31, 1999 FINANCIAL
STATEMENTS OF COATES INTERNATIONAL, LTD. AND IS QUALIFIED
IN ITS ENTIRETY BY REFRENCE TO SUCH FINANCIAL STATEMENTS.

Item No.	Item Description			December 31, 1999

5-02(1)	Cash and cash items		468,163.00

5-02(2)	Marketable securities		 -



5-02(3)	Notes and accounts

(a)(1)	 receivable  trade		 -

5-02(4)	Allowances for doubtful

accounts				 -

5-02(6)	Inventory				 -

5-02(9)	Total current assets		726,052.00



5-02(13)	Property, plant and

equipment			 1,992,020.00

5-02(14)	Accumulated depreciation	406,858.00

5-02(18)	Total assets	 2,368,845.00

5-02(21)	Total current liabilities 1,048,272.00

5-02(22)	Bonds, mortgages and

similar debt			887,972.00

5-02(28)	Preferred stock

mandatory redemption		 -

5-02(29)	Preferred stock

no mandatory redemption	 6,572.00

5-02(30)	Common stock			 -

5-02(31)	Other stockholders equity	 432,601.00

5-02(32)	Total liabilities and

stockholders equity	 2,368,845.00

5-03(b)1

1. Net sales of tangible

Products				 -

5-03(b)1	Total revenues			 551,400.00

5-03(b)	Cost of tangible goods

2(a)	 sold					 -

5-03(b)2	Total cost and expenses

applicable to sales and

revenues				 -

5-03(b)3	Other costs and expenses	748,156.00

5-03(b)5	Provision for doubtful

accounts and notes		 -

5-03(b)(8)Interest and amortization

of debt discount	 (133,471.00)

5-03(b)(10)Income/loss before

taxes and other items	279,675.00

5-03(b)(11)Income tax expense			 -

5-03(b)(14)Income/loss continuing

operations			279,675.00

5-03(b)(15)Discounted Operations		 -

5-03(b)(17)Extraordinary items		 -



5-03(b)(18)Cumulative effect

changes in accounting

principles			 -

5-03(b)(19)Net income or loss			279,675.00

5-03(b)(20)Earnings per share

primary				0.04

5-03(b)(20)Earnings per share

fully diluted		 0.04



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 report to be signed on its behalf by the
undersigned,
thereunto duly authorized.



DATE COATES INTERNATIONAL LTD.

April 14, 2000 By/s/George J. Coates

George J. Coates, President

Chief Executive Officer and

Chief 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 (Principal) April 14, 2000

Executive Principal

Financial Officer,

Principal Accounting

Officer



/s/Richard W. Evans

Richard W. Evans Director April 14, 2000



Director April 14, 2000

Michael J. Suchar











Coates International, Ltd.

(A Development Stage Company)

Financial Statements

December 31, 1999 and 1998



Coates International, Ltd.

(A Development Stage Company)

Index to the Financial Statements

December 31, 1999 and 1998









Page

Auditors Report 		1

Financial Statements

Balance Sheet		2

Statements of Operations		3

Statement of Stockholders Equity		4

Statements of Cash Flows		5-6

Notes to the Financial Statements		7-11

Coates International, Ltd.

(A Development Stage Company)

Balance Sheet

December 31, 1999



|Assets                                                                                                                                                |  |  |   |             
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | - | ------------
|Current Assets                                                                                                                                        |  |  |   |             
|Cash                                                                                                                                                  |  |  | $ | 356,163     
|Restricted cash                                                                                                                                       |  |  |   | 112,000     
|Prepaid insurance                                                                                                                                     |  |  |   | 6,889       
|Deferred tax benefit                                                                                                                                  |  |  |   | 251,000     
|Total Current Assets                                                                                                                                  |  |  |   | 726,052     
|Property, Plant and Equipment -
Net of $406,858 of accumulated depreciation                                                                           |  |  |   | 1,585,162   
|Other Assets                                                                                                                                          |  |  |   |             
|Mortgage loan costs, net of accumulated
amortization of $9,729                                                                                        |  |  |   | 55,131      
|Deposit                                                                                                                                               |  |  |   | 2,500       
|Total Assets                                                                                                                                          |  |  |   | 2,368,845   
|Liabilities and Stockholders Equity                                                                                                                   |  |  |   |             
|Current Liabilities                                                                                                                                   |  |  |   |             
|Current portion of mortgage payable                                                                                                                   |  |  |   | 7,595       
|Accounts payable                                                                                                                                      |  |  |   | 38,220      
|Accrued expenses                                                                                                                                      |  |  |   | 867,965     
|Accrued interest payable                                                                                                                              |  |  |   | 118,492     
|Due to stockholders                                                                                                                                   |  |  |   | 16,000      
|Total Current Liabilities                                                                                                                             |  |  |   | 1,048,272   
|Mortgage payable, net of current portion                                                                                                              |  |  |   | 887,972     
|Total Liabilities                                                                                                                                     |  |  |   | 1,936,244   
|Stockholders' Equity                                                                                                                                  |  |  |   |             
|Preferred stock, Series A, $.001 par value
14,000,000 shares authorized - voting,
non-cumulative convertible, 6,572,424 shares
issued and outstanding |  |  |   | 6,572       
|Common stock, $.001 par value, 20,000,000
shares authorized - no shares issued                                                                        |  |  |   | -           
|Additional paid-in capital                                                                                                                            |  |  |   | 10,991,824  
|Deficit accumulated during the development stage                                                                                                      |  |  |   | (10,565,795)
|Total Stockholders' Equity                                                                                                                            |  |  |   | 432,601     
|Total Liabilities and Stockholders' Equity                                                                                                            |  |  | $ | 2,368,845   

See notes to the financial statements.



























Coates International, Ltd.

(A Development Stage Company)

Statements of Operations

|                                               |   |           |   | Period From August 31, 1988
(Date of Inception) Through December 31, 1999
|---------------------------------------------- | - | --------- | - | -------------------------------------------------------------------------
|Years Ended December 31,                      
|1999                                           |   | 1998     
|                                               |   |           |   |                                                                          
|Revenue                                        | $ | 550,000   | $ | -                                                                        
|Operating Expenses:                            |   |           |   |                                                                          
|Research and development costs                 |   | 235,906   |   | 274,522                                                                  
|Research and development costs - related party |   | 211,589   |   | 344,798                                                                  
|General and administrative expenses            |   | 240,070   |   | 375,145                                                                  
|Depreciation and amortization expense          |   | 60,591    |   | 49,073                                                                   
|Total Operating Expenses                       |   | 748,156   |   | 1,043,538                                                                
|Loss From Operations                           |   | (198,156) |   | (1,043,538)                                                              
|Other Income (Expense):                        |   |           |   |                                                                          
|Interest income                                |   | 1,400     |   | 898                                                                      
|Interest expense                               |   | (133,471) |   | (59,113)                                                                 
|Total Other Income (Expense)                   |   | (132,071) |   | (58,215)                                                                 
|Loss Before Benefit From Income Taxes          |   | (330,227) |   | (1,101,753)                                                              
|Benefit From Income Taxes                      |   | 609,902   |   | -                                                                        
|Net Income (Loss)                              | $ | 279,675   | $ | (1,101,753)                                                              
|Earnings (Loss) Per Share                      | $ | 0.04      | $ | (0.17)                                                                   
|Weighted Average Number of Shares              |   | 6,572,424 |   | 6,572,013                                                                













See notes to the financial statements.

Coates International, Ltd.

(A Development Stage Company)

Statement of Stockholders Equity

Inception (August 31, 1988) to December 31, 1999





|                                                                                           |  | Common Stock
Class A |   |  | Common Stock
Class C |  | Series A Preferred Stock |           |   | Preferred Stock |  |           | Additional Paid-In Capital |        | Treasury Stock |  | Deficit Accumulated During the Development Stage |   |         | Total Stockholders Equity (Deficit)
|------------------------------------------------------------------------------------------ |  | -------------------- | - |  | -------------------- |  | ------------------------ | --------- | - | --------------- |  | --------- | -------------------------- | ------ | -------------- |  | ------------------------------------------------ | - | ------- | -----------------------------------
|                                                                                           |  | Shares               |   |  | Amount               |  |                          | Shares    |   | Amount          |  | Shares    |                            | Amount |                |  | Shares                                           |   | Amount  |                                    
|August 31, 1988 (Date of Inception)                                                        |  | -                    | $ |  | -                    |  |                          | -         | $ | -               |  | -         | $                          | -      |                |  | -                                                | $ | -       | $                                  
|Issuance of Shares                                                                         |  | 854,500              |   |  | 854                  |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Issuance of Stock Pursuant to Private
Placement Offering                                   |  | 100,000              |   |  | 96                   |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Net Loss for the Period from August 31, 1988
(Date of Inception) Through
December 31, 1988 |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31, 1988                                                                |  | 954,500              |   |  | 950                  |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Stock Dividend                                                                             |  | 50,000               |   |  | 50                   |  |                          | 450,000   |   | 450             |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Issuance of Stock for Services Rendered                                                    |  | 12,000               |   |  | 12                   |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Net Loss for Year Ended December 31, 1989                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31, 1989                                                                |  | 1,016,500            |   |  | 1,012                |  |                          | 450,000   |   | 450             |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Issuance of Stock Pursuant to Private 	
Placement Offering                                 |  | 76,000               |   |  | 76                   |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Issuance of Stock                                                                          |  | 962,500              |   |  | 962                  |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Net Loss for Year Ended December 31, 1990                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance December 31, 1990                                                                  |  | 2,055,000            |   |  | 2,050                |  |                          | 450,000   |   | 450             |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Exchange of Preferred Stock for Common
Stock Class A                                       |  | (2,055,000)          |   |  | (2,050)              |  |                          | -         |   | -               |  | -         |                            | -      |                |  | 2,055,000                                        |   | 2,050   |                                    
|Exchange of Preferred Stock for Common
Stock Class C                                       |  | -                    |   |  | -                    |  |                          | (450,000) |   | (450)           |  | -         |                            | -      |                |  | 450,000                                          |   | 450     |                                    
|Cancellation of Common Stock Class C                                                       |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | (225,000)                                        |   | (220)   |                                    
|Issuance of Stock in Connection with
Reorganization                                        |  | 100                  |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Dissolution of Coates International, Ltd.                                                  |  | (100)                |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Exchange of Series A Preferred Stock for
Preferred Stock                                   |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 2,280,000 |                            | 2,280  |                |  | (2,280,000)                                      |   | (2,280) |                                    
|Issuance of Stock                                                                          |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 102,000   |                            | 102    |                |  | -                                                |   | -       |                                    
|Purchase of Treasury Stock                                                                 |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Stock Split 2:1                                                                            |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 2,382,000 |                            | 2,382  |                |  | -                                                |   | -       |                                    
|New Loss for Year Ended December 31, 1991                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance -December 31, 1991                                                                 |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 4,764,000 |                            | 4,764  |                |  | -                                                |   | -       |                                    
|To Correct Balance at December 31, 1991                                                    |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 772,500   |                            | 772    |                |  | -                                                |   | -       |                                    
|Issuance of Stock for Service                                                              |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 500       |                            | -      |                |  | -                                                |   | -       |                                    
|Issuance of Stock                                                                          |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 115,850   |                            | 116    |                |  | -                                                |   | -       |                                    
|Private Placement Costs                                                                    |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Net Loss for Year Ended December 31, 1992                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31, 1992                                                                |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 5,652,850 |                            | 5,652  |                |  | -                                                |   | -       |                                    
|Issuance of Stock                                                                          |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 82,250    |                            | 83     |                |  | -                                                |   | -       |                                    
|Purchase of Treasury Stock                                                                 |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Prior Period Adjustment                                                                    |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Adjustment for Redeemable Preferred Stock                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | (479,950) |                            | (480)  |                |  | -                                                |   | -       |                                    
|Net Loss for Year Ended December 31, 1993                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31, 1993                                                                |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 5,255,150 |                            | 5,255  |                |  | -                                                |   | -       |                                    
|Issuance of Stock                                                                          |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 2,000     |                            | 2      |                |  | -                                                |   | -       |                                    
|Purchase of Treasury Stock                                                                 |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Adjust Treasury Stock for Redeemable
preferred Stock                                       |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | (1,000)   |                            | (1)    |                |  | -                                                |   | -       |                                    
|Adjust Remaining Redeemable Preferred
Stock Issued in 1994                                 |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | (1,000)   |                            | (1)    |                |  | -                                                |   | -       |                                    
|Restoration of Shares Not Redeemed by
Stockholders                                         |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 415,200   |                            | 415    |                |  | -                                                |   | -       |                                    
|Net Loss for Year Ended December 31, 1994                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31, 1994                                                                |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 5,670,350 |                            | 5,670  |                |  | -                                                |   | -       |                                    
|Restoration of Shares Not Redeemed by
Stockholders                                         |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 18,250    |                            | 18     |                |  | -                                                |   | -       |                                    
|Issuance of Stock in Exchange
for U.S.
Patent Rights                                       |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 275,000   |                            | 275    |                |  | -                                                |   | -       |                                    
|Adjustments to Paid-in Capital                                                             |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Treasury Stock Adjustment                                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Net Loss for Year Ended
December 31, 1995                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31, 1995                                                                |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 5,963,600 |                            | 5,963  |                |  | -                                                |   | -       |                                    
|Adjustments to Paid-in
Capital                                                             |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Net Loss for Year Ended
December 31, 1996                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31,
1996                                                                |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 5,963,600 |                            | 5,963  |                |  | -                                                |   | -       |                                    
|Issuance of Stock                                                                          |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 48,000    |                            | 48     |                |  | -                                                |   | -       |                                    
|Restoration of Shares
Not Redeemed by
Stockholders                                         |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 24,325    |                            | 24     |                |  | -                                                |   | -       |                                    
|Issuance of Stock in Exchange
for Mortgage
Paydown                                         |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 2,500     |                            | 3      |                |  | -                                                |   | -       |                                    
|Issuance of Stock in
Exchange for
Exclusive
License                                        |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 500,000   |                            | 500    |                |  | -                                                |   | -       |                                    
|Issuance of Stock
for Loans
Reclassification                                               |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 5,500     |                            | 6      |                |  | -                                                |   | -       |                                    
|Completion of 1990 Stock Split
2:1                                                         |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 20,499    |                            | 20     |                |  | -                                                |   | -       |                                    
|Additional Contributions
of Capital
From a
Shareholder                                     |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Net Loss for Year
Ended December 31, 1997                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31, 1997                                                                |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 6,564,424 |                            | 6,564  |                |  | -                                                |   | -       |                                    
|Issuance of Stock                                                                          |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 8,000     |                            | 8      |                |  | -                                                |   | -       |                                    
|Additional Contributions of Capital
From a
Shareholder                                     |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Net Loss for Year Ended
December 31,
1998                                                  |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31, 1998                                                                |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 6,572,424 |                            | 6,572  |                |  | -                                                |   | -       |                                    
|Additional Contributions of Capital From
	Shareholders                                     |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Net Income for Year Ended
December 31, 1999                                                |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | -         |                            | -      |                |  | -                                                |   | -       |                                    
|Balance - December 31, 1999                                                                |  | -                    |   |  | -                    |  |                          | -         |   | -               |  | 6,572,424 |                            | 6,572  |                |  | -                                                |   | -       |                                    









See notes to the financial statements.















Coates International, Ltd.

(A Development Stage Company)

Statements of Cash Flows

|                                                                                      |   |           |   | Period From August 31, 1988
(Date of Inception) Through December 31, 1999
|------------------------------------------------------------------------------------- | - | --------- | - | -------------------------------------------------------------------------
|Years Ended December 31,                                                             
|1999                                                                                  |   | 1998     
|                                                                                      |   |           |   |                                                                          
|Cash Flows From Operating Activities                                                  |   |           |   |                                                                          
|Net Income (Loss)                                                                     | $ | 279,675   | $ | (1,101,753)                                                              
|Adjustments to Reconcile Net Income (Loss) to
Net Cash
Used in 		Operating Activities |   |           |   |                                                                          
|Depreciation and amortization                                                         |   | 60,591    |   | 49,073                                                                   
|Deferred taxes                                                                        |   | (251,000) |   | -                                                                        
|Noncash issuance of stock for services                                                |   | -         |   | 10,000                                                                   
|Changes in Assets and Liabilities                                                     |   |           |   |                                                                          
|(Increase) Decrease in                                                                |   |           |   |                                                                          
|Prepaid insurance                                                                     |   | (334)     |   | (6,555)                                                                  
|Due to/from affiliated companies                                                      |   | 19,543    |   | (19,600)                                                                 
|Increase (Decrease) in                                                                |   |           |   |                                                                          
|Accounts payable and accrued expenses                                                 |   | (228,480) |   | 229,961                                                                  
|Accrued interest payable                                                              |   | 11,933    |   | -                                                                        
|Total Adjustments                                                                     |   | (387,747) |   | 262,879                                                                  
|Net Cash Used in Operating Activities                                                 |   | (108,072) |   | (838,874)                                                                
|Cash Flows from Investing Activities                                                  |   |           |   |                                                                          
|Payments for property and equipment                                                   |   | (55,800)  |   | -                                                                        
|Loans to stockholders                                                                 |   | -         |   | -                                                                        
|Net Cash Used in Investing Activities                                                 |   | (55,800)  |   | -                                                                        
|Cash Flows From Financing Activities                                                  |   |           |   |                                                                          
|Proceeds from mortgage payable                                                        |   | 900,000   |   | 500,000                                                                  
|Repayment of mortgage payable                                                         |   | (504,433) |   | (160,000)                                                                
|Payment for mortgage loan costs                                                       |   | (65,344)  |   | (46,761)                                                                 
|Proceeds of additional paid-in capital                                                |   | 171,742   |   | 374,961                                                                  
|Proceeds from issuance of stock                                                       |   | -         |   | 150,000                                                                  
|Payment for treasury stock                                                            |   | -         |   | -                                                                        
|Loans from stockholder                                                                |   | 3,495     |   | -                                                                        
|Net Cash Provided by Financing Activities                                             |   | 505,460   |   | 818,200                                                                  
|Net Increase (Decrease) in Cash                                                       |   | 341,588   |   | (20,674)                                                                 
|Cash - Beginning of Periods                                                           |   | 14,575    |   | 35,249                                                                   
|Cash - End of Periods                                                                 | $ | 356,163   | $ | 14,575                                                                   



See notes to the financial statements.

Coates International, Ltd.

(A Development Stage Company)

Statements of Cash Flows





|                                                  |   |         |   | Period From August 31, 1988 (Date of Inception)
Through December 31, 1999
|------------------------------------------------- | - | ------- | - | -------------------------------------------------------------------------
|Years Ended December 31,                         
|1999                                              |   | 1998   
|                                                  |   |         |   |                                                                          
|Supplemental Disclosures of Cash Flow
Information |   |         |   |                                                                          
|Cash paid during the periods for:                 |   |         |   |                                                                          
|Interest paid                                     | $ | 121,538 | $ | 59,113                                                                   
|Income taxes paid                                 | $ | 400     | $ | 400                                                                      



See notes to the financial statements.

Coates International, Ltd.

(A Development Stage Company)

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
of the same name incorporated in August 1988.

CIL has developed a spherical
rotary valve system (the"Coates System") for use in
piston driven internal combustion engines of all
types and is manufacturing on a limited scale basis
at its Wall Township, New Jersey facility. CIL also
has an exclusive license to sell and grant sublicenses
with respect to products using the Coates System based
on the Coates Patents. Since there has been no significant
revenue generated from the sales of engines modified with
the Coates System, or from the granting of sub-licenses,
the Company is considered to be a Development Stage Company
for financial reporting purposes.

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 expensed 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.

Earnings (Loss) Per Share

The Company has not issued any common
stock, but the preferred stock has voting privileges.
Earnings (loss) per share, in accordance with the
provisions of Financial Accounting Standards
Board No. 128, "Earnings Per Share," is computed
by dividing the net income (loss) by the weighted
average number of preferred shares outstanding
during the periods.

Revenue Recognition

The Company has not generated
revenues from sales of engines. Revenue from the
granting of sub-licenses is recognized upon
receipt of funds.

Advertising Costs

Advertising costs are charged
to operations when incurred. Advertising expense
was $72,000 and $104,558 for the years ended
December 31, 1999 and 1998, respectively.

Research and Development

Research and development (R&D)
costs are charged to operations as incurred.

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 realized.
The Company incurred net operating losses for
financial-reporting and tax-reporting purposes.
Accordingly, the benefit from income taxes has
been offset entirely by a valuation allowance
against the related deferred tax asset for the
year ended December 31, 1998.

Coates International, Ltd.

(A Development Stage Company)

Notes to the Financial Statements



SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES, Continued

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 Companys accounts may, at times,
exceed the federally insured limits.

The Company entered into a
license agreement with a Canadian corporation,
whereby the Company is granting an exclusive
license for the use of the Coates Engine in
connection with the conversion of natural
gas to electricity in Canada. The licensing
fee is $5,000,000 and the Company also receives
a royalty equal to 5% of the gross profit
which is derived from all sources. The
Company also retains the exclusive right
to manufacturing both the engine and generator
components for sale to the Canadian corporation.
The license fees generated for year end
December 31, 1999 are entirely attributable
to the Canadian corporation. The loss of this
customer would have a material adverse effect
on the Companys business and operations.

Development of the Coates
System technology was initiated by GJC, CILs
founder, President and controlling stockholder
in the late 1970's and development efforts have
been conducted continuously since such time.
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 is a resident alien
and not a U.S. citizen and who does not
have an employment contract with CIL).
The loss of GJCs availability or services
due to death, incapacity or otherwise would
have a material adverse effect on the
Companys business and operations.

RESTRICTED CASH

The Company placed $112,000
in an escrow account (pursuant to a court order)
of net proceeds raised from a 48,000 CIL Series
A Preferred Stock private placement offering in
July 1997. The funds were escrowed for the payment
of interest due to two former stockholders.

Coates International, Ltd.

(A Development Stage Company)

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, 1999:

|Land                           |  |  | $ | 920,550   |  | 
|------------------------------ |  |  | - | --------- |  | 
|Building                       |  |  |   | 579,450   |  | 
|Building improvements          |  |  |   | 201,671   |  | 
|Machinery and equipment        |  |  |   | 251,054   |  | 
|Furniture and fixtures         |  |  |   | 39,295    |  | 
|                               |  |  |   | 1,992,020 |  | 
|Less: Accumulated depreciation |  |  |   | 406,858   |  | 
|Total                          |  |  | $ | 1,585,162 |  | 



Depreciation expense
amounted to $26,997 and $25,692 for
the years ended December 31, 1999 and
1998, respectively.

ACCRUED EXPENSES

Accrued expenses
at December 31, 1999 is comprised of
the following:

|Legal Fees                  |  |  | $ | 586,649 |  | 
|--------------------------- |  |  | - | ------- |  | 
|Accounting Fees             |  |  |   | 37,545  |  | 
|Patent Legal Fees           |  |  |   | 87,256  |  | 
|Printing Fees               |  |  |   | 7,500   |  | 
|Audit Fees - prior auditors |  |  |   | 149,015 |  | 
|                            |  |  | $ | 867,965 |  | 



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 $1,572,149.

|                                            |  |  | $ | 895,567 |  | 
|------------------------------------------- |  |  | - | ------- |  | 
|Less current maturities                     |  |  |   | 7,595   |  | 
|Mortgage payable, net of current maturities |  |  | $ | 887,972 |  | 



Total maturities of
mortgage payable are as follows:

|Year Ending December 31, |   |         |  |  |  | 
|------------------------ | - | ------- |  |  |  | 
|2000                     | $ | 7,595   |  |  |  | 
|2001                     |   | 8,903   |  |  |  | 
|2002                     |   | 10,435  |  |  |  | 
|2003                     |   | 12,232  |  |  |  | 
|2004                     |   | 856,402 |  |  |  | 
|                         | $ | 895,567 |  |  |  | 



Coates
International, Ltd.

(A Development Stage Company)

Notes to the
Financial Statements

INCOME TAXES

The income tax
benefit is comprised of the following:



|                       |  |  |   | Year Ended December 31,
|---------------------- |  |  | - | -----------------------
|                       |  |  |   | 1999                   
|State current benefit  |  |  | $ | 358,902                
|State deferred benefit |  |  |   | 251,000                
|                       |  |  | $ | 609,902                

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 1999,
the Company entered into an agreement
under which it retained a third party
broker to identify a buyer for its NOL
Carryover. The total anticipated net proceeds
of this transaction $609,902) were recorded
as a current deferred tax asset and benefit
in the accompanying financial statements.

Due to limitations
placed by the State of New Jersey on the
total amount of NOL Carryover and R&D Credits
eligible to be sole in any one year, the sale of
only a portion of the Companys NOL Carryover
($358,902). The receipt of these funds was recorded
as a deferred tax benefit in the accompanying financial
statements. l The sale of the remaining balance of the
Companys NOL Carryover is anticipated by the end of
the third quarter of 2000.

The Companys total deferred tax
asset and valuation allowance at December 31, 1999
and 1998 are as follows:

|Total deferred tax asset, current |  |  | $ | 3,595,000   |  | 
|--------------------------------- |  |  | - | ----------- |  | 
|Less valuation allowance          |  |  |   | (3,344,000) |  | 
|Net deferred tax assets, current  |  |  | $ | 251,000     |  | 



The differences between income
tax benefits in the financial statements and the tax
benefit computed at the combined state and U. S.
Federal statutory rate of 40% at December 31, 1999
are as follows:

|Tax benefit         |  |  |  | (40%)  |  | 
|------------------- |  |  |  | ------ |  | 
|Valuation allowance |  |  |  | (146%) |  | 
|Effective tax rate  |  |  |  | (186%) |  | 
|                    |  |  |  |        |  | 

At December 31, 1999, the Company
has available approximately $9,906,657 of net operating
losses to carryforward which may be used to reduce future
federal taxable income and expire between December 31, 2003
and 2018.

At December 31, 1999 the Company has
available approximately $2,519,190 of net operating losses
to carryforward which may be used to reduce future state
taxable income and begin to expire December 31, 2004.

LICENSES

The Company has incurred legal and
related costs associated with licenses. Such costs amounted
to $80,586and $44,113 for the years ended December 31, 1999
and 1998. As the probable future economic benefit of such
costs is uncertain, they have been expensed.

RELATED PARTY TRANSACTIONS

Due to Stockholder represent net
advances/repayments made to the Company which amounts
to $16,000 at December 31, 1999 and are unsecured,
non-interest bearing and payable on demand.

The Company subcontracts its project
expense from certain entities of which GJC is the sole
shareholder. During the years ended December 31, 1999 and
1998, the Company paid $211,589 and $344,798, respectively,
for these services.

Coates International, Ltd.

(A Development Stage Company)

Notes to the Financial Statements

COMMITMENTS AND CONTINGENCIES

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



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 judgement and therefore cannot be determined
with precision. Changes in assumptions could significantly
affect the estimates.

SUBSEQUENT EVENT

The Company has entered into a contract
to sell 3.66 of 6.6 acres of land owned by the Corporation.
As of March 23, 2000, no closing on this contract has taken place.



Independent Auditors
Report

To the Board of Directors and
Shareholders of

Coates International, Ltd.

We have audited the balance
sheet of Coates International, Ltd.
(A Development Stage Company) as of
December 31, 1999 and the related
statements of operations, stockholders
equity and cash flows for the years ended
December 31, 1999 and 1998. These financial
statements are the responsibility of the
Companys management. Our responsibility is
to express an opinion on these financial
statements based on our audits.

We conducted our audits
in accordance with generally accepted auditing
standards. 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.