3:

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C 20549



FORM 10-KSB

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

For the fiscal year ended December 31, 2002

OR

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

For the transition period from ___________to______________

COMMISSION FILE NUMBER 33-94884

COATES INTERNATIONAL, LTD.

__________________________________________________________________

(Exact name of small business issuer as specified in its charter)



___DELAWARE________                    _______________22-2925432_______________

`(State or other jurisdiction of  incorporation       (IRS Employer incorporation or organization) identification No.)`

or organization)

Highway 34 & Ridgewood Road

Wall Township, New Jersey__________                                 ________07719_________

(Address of principal executive offices)                                                                     (Zip code)

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

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

Title of Class:  NONE

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

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

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

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

Issuer had no  revenues for the year ended December 31, 2002.

During the fiscal year ended December 31, 2002, there was no established public trading market for the issuer's Common Stock.  On December 31, 2002, there were 265,068,440 shares of Common Stock issued and outstanding.



NOTE REGARDING FORWARD-LOOKING STATEMENTS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

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

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

COATES INTERNATIONAL, LTD.



CONTENTS



|PART I                                                                                         | Page
|---------------------------------------------------------------------------------------------- | ----
|Item 1.  Business                                                                              | 2   
|Item 2.  Properties                                                                            | 9   
|Item 3.  Legal Procedures                                                                      | 9   
|Item 4.  Submission of Matters to a Vote of Security Holders                                   | 9   
|                                                                                               |     
|PART II                                                                                        |     
|Item 5.  Market for Registrant's Common Equity and Related
Shareholder Matters                 | 10  
|Item 6.  Selected Financial Data                                                               | 11  
|Item 7.  Management's Discussion and Analysis of Financial Condition
and Results of Operations | 12  
|Item 8.  Financial Statements and Supplementary Data                                           | 15  
|Item 9.  Changes in and Disagreements with Accountants on Accounting                           | 15  
|and Financial Disclosure                                                                       |     
|                                                                                               |     
|PART III                                                                                       |     
|Item  10.  Directors and Executive Officers of the Registrant                                  | 16  
|Item  11.  Executive Compensation                                                              | 18  
|Item  12.  Security Ownership of Certain Beneficial Owners and
Management                      | 18  
|Item  13.  Certain Relationships and Related Transactions                                      | 19  
|Item  14.  Controls and Procedures                                                             | 19  
|                                                                                               |     
|PART IV                                                                                        |     
|                                                                                               |     
|Item 15.  Exhibits and Reports on Form 8-K                                                     | 20  
|                                                                                               |     
|Signatures                                                                                     | 21  
|Certification                                                                                  | 22  
|Certification Pursuant to 18 U.S.C. Section1350                                                | 23  









PART I

COATES INTERNATIONAL LTD.



ITEM 1: DESCRIPTION OF BUSINESS



(a)	Business Development

1.	Form and Year of Organization

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

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

We hold an exclusive license from George J. Coates and his son Gregory Coates, to manufacture, sell and grant sublicenses with respect to products based on the Coates Patent, within all of the countries, their territories and possessions, comprising North America, Central America and South America (the "Licensed Areas"). George J. Coates and Gregory Coates have also agreed, as long as CIL remains independent and viable, not to compete with CIL in the manufacture, assembly, use or sale of internal combustion engines utilizing the technology falling within the scope of the Coates Patents in the Licensed Area, or to grant any exclusive or non-exclusive license in the Licensed Areas except through CIL. In addition, George J. Coates and Gregory Coates have executed an agreement granting us the right to retain any monies including royalties received from Nicholson Mclaren or from Noble Motor Sport, manufacturer of Ascari racing cars, for manufacture, sale, use or assembly of internal combustion engines anywhere in the world using the technology falling within the scope of the Coates Patents. "See Patents and Licenses".

Since our inception, the bulk of our development costs and related operational costs have been funded primarily through cash generated from the sale of stock, through capital contributions and loans made by Gregory Coates and from several entities for prototype models and licensing fees. We have incurred losses from the inception of our predecessor entity in August 1988 through December 31, 2002 of $14,732,591 and at December 31, 2002, had a Stockholders' deficit of $63,199 and a working capital of $551,195.

(b)	Business of the Company

Our ability to generate revenues and achieve profitable operations is principally dependent upon the execution and funding of sub-license agreements with engine manufacturers or retrofitters, and upon the manufacture and sale, by CIL, of combustion engines modified with the Coates System in high performance automotive, motorcycle, marine racing engines, and other types of combustion engines. We are actively attempting to market our technology and are in communication with various persons and entities that may be interested in acquiring sub- licenses to use the technology.

The Coates Spherical Rotary Valve Engine

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

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

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

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

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

License Agreement  Well to Wire Energy, Inc.

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

R&D Agreement  Well to Wire Energy, Inc.

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

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



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

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

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

Upon WWE's payment in full of the $5,000,000 licensing fee, with a current outstanding balance of $4,700,000 due under the License Agreement,  and its payment in full of the $5,000,000 research and development fee, with a current outstanding balance of $3,800,000 due under the R&D Agreement, WWE will maintain the exclusive right to use the Coates Generator Engine in Canada.  In order to retain its "exclusive" license rights under the License Agreement, WWE is required to purchase no less than 120 Coates Generator Engines per year.  Revenue generated under this License Agreement will be booked as earned by us, commencing when we delivers our third prototype engine to WWE and continuing until the expiration of the last patent covered in the patent rights licensed which currently has an expiration date of September 30, 2020.  In the event WWE fails to purchase the minimum 120 Coates Generator Engines during any year of the term of the License Agreement, WWE will automatically lose its exclusivity under the License Agreement.  In such a case, WWE will retain non-exclusive rights under the License Agreement to continue to use the Coates Generator Engine but we will have the right to enter into additional license or sub-license agreements with other entities intending to utilize the Coates Generator Engine in Canada.

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

Competition

Company management believes that our Coates Generator Engine, developed over the last three years pursuant to its agreements with Well to Wire Energy, Inc., utilizing the Coates spherical rotary valve, will provide material and substantial enhanced efficiencies in power generation and longevity because of the Coates SRV Engine's replacement of the standard poppet valve and its assortment of moving parts with a single spherical valve.  Conjunctively, the patented intake and exhaust ports constructed in this spherical rotary valve as well as the proprietary engineering of the Coates SRV Engine's seals will produce higher fuel economies.  Based upon these and other proprietary innovations and enhancements of the Coates spherical rotary valve, we believe that the Coates Generator Engine will outperform all other comparable natural gas fueled electric generator engines currently utilized in the energy conversion market.

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

Parts and Supplies

To date, Company management has utilized the services of various vendors and manufacturers available throughout the United States to provide all of the parts necessary to assemble the Coates Generator Engine.  We expect to continue to purchase all of our raw materials and parts, manufactured to our specifications, from a wide assortment of

suppliers.  We intend to commence the assembly of the Coates Generator Engines at our facility located in Wall, New Jersey.  Thereafter, corresponding to anticipated growth in revenues, we will either acquire or lease additional facilities for assembly and inventory.





Patents and Licenses

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

Date 				    Date

US Patent No.Application Filed			Of Patent

4,989,576 (Mark I) 		July 26,1982 				February 5,1991

4,953,527 (Mark II) 		November 14,1998 			September 4,1990

4,989,558 (Mark II)		September 14,1998			February 5, 1991

4,944,261 (Mark IIB) 		October 16,1989 			July 31,1990

4,976,232 (Valve Seal)	December 6,1989 			December 11,1990

5,109,814 (Spherical Valve)	May 10,1991 				May 5,1992

5,361,739 (Mark III) 		May 12,1993 				November 8,1994

5,048,979 (Self-Adjusting

Bearing Assembly)    June 13, 1990				September 17, 1991

5,601,405 (Valve Apparatus

for Steam Turbines)	 August 14, 1995			February 11, 1997

6,008,710 (Magnetic Inductor

Water Conditioner)	 May 17, 1999				December 28, 1999

6,308,676B1 (Cooling System

for Rotary Valve Engine)      September 8, 2000			October 30, 2001

6,293,098B1 (Methods &

Apparatus for Joining

Pressurized Exhaust

Manifold Sections)		  August 29, 2000			September 25, 2001

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

Application No.				Description

10/074311			Improved Valve Seals for Rotary Valve Engine

PCT/USO1/26872		Cooling Assembly for Spherical Rotary Valve Engine

10/336,896			Rotary Valve & Valve Seal Assembly

10/313,540			Improved Spherical Rotary Intake Valve

10/287,419			Piston Head for Internal Combustion Engine

235-0035			Piston Head for Diesel Engine

235-034			Bearing Assembly

20010023			Mark IIIB (Divisional Spheres)







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

On December 22, 1997, George Coates, Gregory Coates and CIL entered into a new License Agreement, superceding and substitutingthe prior agreement and amendments thereto. This new License Agreement granted us an "exclusive" license to manufacture, sell and grant sub-licenses for products covered under the Coates Patents, expanding the territories covered from the original territory of the United States and its territories, identified in the earlier license agreement,to  "all of the countries, their territories and possessions comprising North America, Central America and South America". In consideration of this new License Agreement, granting usexclusive rights in the expanded license territories, we agreed to issue to George Coates an additional500,000 shares of Series A stock, valued at par, or $500, which were issued in 1997.

In addition, George J. Coates and Gregory Coates have executed an agreement granting us the right to retain any monies including royalties received from Nicholson McLaren or from Noble Motor Sport (manufacturer of Ascari racing cars) for manufacture, sale, use or assembly of internal combustion engines anywhere in the world using the technology falling within the scope of the Coates Patents.   In 1996, George J. Coates and Gregory Coates entered into a license agreement with Nicholson McLaren, headquartered in England.  As part of its obligations under this agreement, we researched, developed and delivered two high performance, Coates SRV 351 Dyno racing car engines utilizing the Coates spherical rotary valve assembly and was paid an aggregate of 50,000 British pounds.  Although we have concentrated our efforts in completing the research and development of our three prototype Coates Generator Engines pursuant to our agreements with Well to Wire Energy, Inc. during the past several years, we intend to continue our development efforts with Nicholson McLaren during fiscal year 2003.

Environmental Regulatory Compliance

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

Employees

At December 31, 2002, CIL employed eight (8) employees, including George J. Coates and his son Gregory Coates who perform both management, assembly and research and development functions, and; Bernadette Coates, the spouse of George J. Coates, is employed as administrative manager for the Company.  The financial controller and bookkeeper for the Company is Ms. Shirley Naidel.

Subcontract Labor

We subcontract for certain labor services from a related company, Coates Precision Engineering, Inc., a corporation owned by George J. Coates, which during 2002 was paid $97,000 for labor services, parts and materials.

ITEM 2: DESCRIPTION OF PROPERTY

Our executive offices and testing facility are located in an approximately 25,000 square foot one and one-half story building of concrete and steel construction in a 6 acre site in Wall Township, New Jersey. We acquired this property from the George J. Coates 1991 Family Partnership, L.P in 1995. On March 22, 1999, we 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 our development operations, we own and utilize milling machines, lathes, grinders, hydraulic lifts and presses, tooling, dynamometers and emission testing machines and computerized drafting and printing equipment. All of such equipment is in good condition, reasonable wear and tear excepted.



ITEM 3: LEGAL PROCEEDINGS

There are no material legal proceedings against the Company.



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

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

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











PART II

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

SHAREHOLDER MATTERS

There is no established public trading market for our only outstanding class of capital stock, our Common Stock.  At December 31, 2002 the approximate number of holders of record of the Common Stock was 1,015. We have not paid any dividends with respect to our Common Stock and anticipated capital requirements make it highly unlikely that we will pay any dividends in the year 2003 or in the foreseeable future.

Recent Sales of Unregistered Securities

During the past three fiscal year periods, we privately sold or issued the following unregistered securities in private placements or for services rendered:

Fiscal Year 2000.

During fiscal year 2000, we placed an aggregate 6,800 Series A shares to 4 accredited investors in private placements and received subscription proceeds of $ 150,000, for the purchase price of $20 and $25 per share.  All of these private placements were made in reliance upon the exemption from the registration requirements of the 1933Act provided by Regulation D and Section 4(2) of the 1933 Act in that the number of accredited investors was limited; that the accredited investors were either existing Company shareholders or had established business relationships with us.  The certificates representing our shares placed contained the appropriate restrictive legends designating such shares as restricted securities, non-transferable and non- saleable other than pursuant to registration under the 1933 Act or pursuant to exemptions therefrom.

Fiscal Year 2001

During fiscal year 2001, we placed an aggregate 67,100 Common Shares to 25 accredited investors in private placements and received subscription proceeds of   $1,356,000, for the purchase price of $20 and $25 per share.  All of these private placements were made in reliance upon the exemption from the registration requirements of the 1933Act provided by Regulation D and Section 4(2) of the 1933 Act in that the number of accredited investors was limited; that the accredited investors were either existing Company shareholders or had established business relationships with us.  The certificates representing our shares placed contained the appropriate restrictive legends designating such shares as restricted securities, non-transferable and non- saleable other than pursuant to registration under the 1933 Act or pursuant to exemptions therefrom.

Fiscal Year 2002

During the first quarter ended March 31, 2002, we issued an aggregate 11,100 Common Shares to 7 accredited investors in private placements and received net subscription proceeds of $262,500, for the purchase price of $20 and $25 per share. All of these private placements were made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the "1933 Act") provided by Regulation D and Section 4(2) of the 1933 Act in that the number of accredited investors was limited; that the accredited investors were either existing Company shareholders or had established business relationships with us.  The certificates representing our  shares placed contained the appropriate restrictive legends designating such shares as restricted securities, non-transferable and non- saleable other than pursuant to registration under the 1933 Act or pursuant to exemptions therefrom.

During the second quarter ended June 30, 2002, we issued an aggregate 65,500 Common Shares to 12 accredited investors pursuant to subscription agreements received in connection with our private placement, which concluded in April, 2002, and received subscription proceeds of $1,310,000, for the purchase price of $20 per share.  The private placement was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the "1933 Act") provided by Regulation D and Section 4(2) of the 1933 Act in that the number of accredited investors was limited; that the accredited investors were either existing Company shareholders or had established business relationships with us.  The certificates representing our shares placed contained the appropriate restrictive legends designating such shares as restricted securities, non-transferable and non- saleable other than pursuant to registration under the 1933 Act or pursuant to exemptions therefrom.



In addition, we issued 2,200 restricted Common Shares to two individuals for services rendered to our Company.  As well, we issued 23,300 restricted Common Shares to several shareholders in repayment of previous loans for patent maintenance costs and expenses.

ITEM 6:                                        SELECTED FINANCIAL DATA

The selected financial information presented below under the captions "Statement of Operations" and "Balance Sheet" for the years ended December 31, 2002 and 2001 is derived from the financial statements of the Company and should be read in conjunction with the financial statements and notes thereto.

Balance Sheet			                           December 31,

2002

Total assets ........................................		$   3,109,511

Current liabilities ...............................	        858,454

Long-term debt ..................................		        874,256

Working capital  ................................		        551,195

Shareholders' equity ........................		$      (63,199)

Statements of Operations 				     For The Year Ended December 31,

2002	2001        .

Total revenues ...................................		$          0		$      105,000

Operating income (loss) ....................		     (2,511,394)		       (951,575)

(Loss) before provision for incomes taxes	     (2,633,292)		    (1,084,444)

Net (loss) ............................................	     (2,633,792)		    (1,086,633)

Net loss per common share ................	$         (0.01)		$         (0.00)

Number of shares used in computing

per share data ....................................		   264,965,420	               264,458,100

ITE

FINANCIAL	CONDITION AND RESULTS OF OPERATIONS



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

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

Background



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

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

Agreements with Well to Wire Energy, Inc.

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

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

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

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

Agreement with McLean, England and Associates, LLC

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

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

Preliminary Agreement with Dominion International

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



Results of Operations for the Years Ended December 31, 2002 and December 31, 2001

Although we received an aggregate $1,140,000 in payments from  McLean, 1107 N.W.Central Avenue, Inc. and Dominion during 2002, we could not book these payments as revenue since our agreements with these parties were not finalized. As a result, we did not earn any revenues during 2002. All of our principal business activities and efforts during 2002, were devoted to the completion of the research, development, construction and testing of the prototype engines for WWE and McLean. During the prior years of 2001 and 2000, we received aggregate payments of $950,000 from Well to Wire Energy, Inc. pursuant to our agreements which amounts constituted the only revenues we recorded during those years.



Total operating expenses for the year ended December 31, 2002 were $2,511,394 compared to $1,056,575 for 2001, representing an increase of approximately 240%. This large increase was primarily due to additional patent and maintenance expenses of $747,000, representing our repayment to a group of our shareholders who in the past had financed a portion of the filing and maintenance costs for certain of the patents underlying the Coates CSRV engine technology. Under our licensing arrangements with George J. Coates and Gregory Coates, we are responsible to pay such patent costs. Accordingly, we made this payment of $747,000, $333,000 in cash and $414,000 in form of 20,700 shares of our common stock, valued at the pre-split price of $20 per share, recognizing the total amount as operating expense. Other increases in our research and development costs, consisted of increased purchases of parts and supplies of approximately $328,000. General and administrative expense increased approximately 41% in 2002, from approximately $530,500 in 2001 to approximately $750,000 in 2002. This increase was primarily due to both payments for additional labor of approximately $85,000 as well as an additional approximate $52,000 for increased marketing expenses.

The  lack of revenues coupled with the increase of operating expenses resulted in a loss from operations of $2,511,394 for the year as compared with a loss from operations of $951,575. During 2002, we expanded our operations to not only include our continuing development efforts on the Coates Generator Engine but also the research, development and construction tasks associated with the two truck engine prototypes for McLean, significantly increasing the scope of our business operations.. Other non-operating expenses for the twelve months ended December 31, 2002, remained relatively constant with those of 2001, with any differences not representing a material change from those of the prior year. The net results for the year was a loss of $2,633,792 or $.01 per share, as compared to a net loss of $ 1,086,633 for 2001.

Liquidity and Capital Resources

During 2002, we received subscription proceeds of $1,562,500 in cash from 19 accredited investors for the issuance of 76,600 pre-split, restricted common shares, concluding our private placement. We also received an aggregate $640,000 in non-refundable deposit payments against future license agreements and $500,000 of a refundable deposit which was converted into Company equity. These cash inflows assisted in offsetting losses from operations during the year and increased cash balances from approximately $ 715,000 at December 31, 2001 to approximately $1,080,000 at December 31,2002. We deposit our cash in our interest bearing bank accounts. The improved liquidity  produced an increase in our working capital which showed a positive balance of $551,195 at December 31, 2002. However, our available liquidity reserves are higher since the McLean and Dominion license deposits, even though classified as non-current liabilities, are available to us for use since they are non-refundable. Aside from these deposits, current liabilities are primarily composed of approximately $625,000 legal fees due one law firm for its representation of our Company in litigation over the past several years.

We are currently refining the construction of the production prototype Coates Generator Engines and testing them. We expect to be able to complete the testing of the production model and delivery to WWE this year and expect to receive the balance of $3,800,000 from Well to Wire Energy, Inc under the R&D Agreement. Under the License Agreement, the balance due us of $4,700,00 is payable in equal quarterly payments over a four year period, commencing 180 days following delivery to WWE of this third prototype. There can be no assurance, however, that these agreements, as well as those presently in negotiations with the other licensees, will be consummated in accordance with these expectations and that payments will be received as called for in the agreements.

ITEM 8:  FINANCIAL STATEMENTS

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



ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

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







































PART III

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND

CONTROL PE RSONS, COMPLIANCE WITH SECTION 16(a) OF THE

EXCHANGE ACT

At December 31, 2002 the executive officers and directors of CIL were as follows:

Name				Position			Term(s) of Office

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

George J. Coates,  age 60	President, Treasurer, Chief Executive

Officer, Chief Financial Officer and

Director 				From Inception to

present

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

Michael J. Suchar, age 47 	Director				May, 1996 until present

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

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

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

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

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

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

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







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

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



The  Company  knows of no person,  who, at any time during the fiscal year ended

December 31, 2002 to the date hereof, was a director,  officer,  beneficial owner of more

than ten percent of any class of equity  securities of the Company (a "Reporting

Person"),  that  failed to file on a timely  basis any  reports  required  to be

furnished  pursuant  to Section  16(a).  Based upon a review of Forms 3, 4 and 5

furnished to the Company under Rule 16(a)-3(d), the Company knows of no Reporting

Person that failed to file the required reports within the required time limits.



ITEM 11:	EXECUTIVE COMPENSATION.



None of our executive officers has an employment contract. With respect to each of calendar years 2000, 2001 and 2002, no executive officer had compensation paid or accrued in excess of $100,000 for any such year except for George J. Coates, our Chief Executive Officer, while compensation was as follows:

SUMMARY COMPENSATION TABLE

Name			Position		Year			   Salary

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

George J. Coates	President, Chief Executive

Officer and Chief Financial

Officer                                    2002                            $182,057

2001                            $183,549

2000			$183,548



ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT PRINCIPAL SHAREHOLDERS

The following table sets forth as of December 31, 2002 the ownership of CIL Common Stock by (i) each person known by CIL to be beneficial owner of more than 5 percent of the outstanding Common Stock, (ii) each director and executive officer of CIL who owned shares, and (iii) all directors and executive officers as a group.

Title			Name and Address of		Amount and Nature of	             Percent

of Class		Beneficial Owner		Beneficial Ownership   	of Class

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

Common Stock	George J. Coates* 	           207,252,760 shares(1)		  78.19%

Gregory Coates* 		 14,062,520 shares 	  	    5.31%

Richard Evans                              660,000 shares                         .25%

Michael J. Suchar* 		      241,600 shares(2)	                  .09 %

All directors and

executive officers

as a Group (3 persons)	222,216,880 shares	   	  83.83%

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

(1)  Includes 1,956,960 shares owned by Mr. Coates' spouse, Bernadette  Coates, beneficial    ownership of which is disclaimed by George J. Coates.

(2)  Includes 20,000 shares owned by Mr. Suchar's spouse, beneficial ownership of which is disclaimed by Michael J. Suchar.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We paid $97,000 and $12,150 respectively, during fiscal years 2002 and 2001 to Coates Precision Engineering, Inc., a company owned by George J. Coates, for services rendered  to us in connection with our research and development of the Coates Generator Engine. During fiscal year 2001, George J. Coates made loans to our Company at various times to assist in financing our operations, which aggregate outstanding amount at December 31, 2002 was $8,400. These borrowings are in the form of demand loans which carry no interest and are repaid from time to time depending upon our available cash. It is the intention of Mr. George J. Coates to assist our Company  with our cash requirements in the form of loans as needed in the future even though Mr. Coates is not legally obligated to do so.



ITEM 14: CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures:

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

Changes in internal controls:

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

Limitations  on the effectiveness of controls:

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

`PART IV

ITEM 15:   EXHIBITS AND REPORTS ON FORM 8-K`

(a) 	Index To Exhibits

Exhibit No. 			Description of Exhibit

3.1* 		CIL's Restated Certificate of Incorporation

3.1(i)+	Certificate of Amendment to Certificate of Incorporation filed with the Secretary of State, State of Delaware on May 22, 2000.

3.1(ii)+	Certificate of Amendment to Certificate of Incorporation filed with the Secretary of State, State of Delaware on August 31, 2001.

3.2* 		CIL's By-Laws

4.1* 		Form of Certificate for CIL's Series A Non-Cumulative Convertible Preferred

Stock

10.1* 	Deed dated February 21, 1995 transferring title to CIL's Principal Facility at Route 34

10.2*	Assumption and Indemnification Agreement dated February 21, 1995 between the partnership and CIL.

10.3* 	License Agreement dated December 22, 1997 between George J. Coates and CIL. George J. Coates and CIL and First and Second Amendments thereto dated July 17, 1995.

10.4* 	Third Amendment dated September 21, 1995 to License Agreement dated February 17, 1995 between George J. Coates and CIL.

10.5* 	License Agreement dated February 22, 1993 between Gregory Coates and CIL and First Amendment thereto dated July 17, 1995.

10.6+	License Agreement, Dated September 29, 1999, with Well to Wire Energy, Inc.

10.7+	Amendment No. 1 to License Agreement, Dated April 6, 2000.

10.8+	Amendment No. 2 to License Agreement, Dated July 21, 2000.

10.9+	License Agreement, dated April 19, 1996, by and between the Company and Nicholson McLaren Engines, Ltd.

10.10x		License Agreement, dated April 12, 2002, by and between Coates

International, Ltd. and McLean, England and Associates,LLC._________

*These Exhibits are hereby incorporated by reference into this Form 10-KSB for the fiscal year

ended December 31, 2002, from the Company's Registration Statement filed on Form S-1 with the

Securities and Exchange Commission on November 1, 1995, File No. 33-94884:

`+These Exhibits are hereby incorporated by reference into this Form 10-KSB for the fiscal year
    ended December 31, 2002 from the Company's Registration Statement filed on Form 10-SB12G
    and amendments thereto with the Securities and Exchange Commission, File No. 000-33155.
  x This License Agreement is hereby incorporated by reference herein from the Company's
    Form 8-K, filed with the Securities and Exchange Commission on or about April 16, 2002.`

(b)	No reports on Form 8-K were filed during the last quarter of the fiscal year ended December 31, 2002.



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this Form 10-KSB for the fiscal year ended December 31, 2002 to be signed on its behalf by the undersigned, thereunto duly authorized.

DATE:April 9, 2003		 			    COATES INTERNATIONAL LTD.

__/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, Chief		April  9, 2003

Executive Officer,

President, and

Chief Financial Officer



/s/ Richard W. Evans _

Richard W. Evans			 Director 			April  9, 2003



_/s/ Michael J. Suchar_

Michael J. Suchar			 Director			April  9, 2003

CERTIFICATION

I, George J. Coates, certify that:

1. I have reviewed this annual report on Form 10-KSB of Coates International, Ltd.;

2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to me by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 9, 2003                                                             __/s/ George J. Coates________

George J. Coates

Chief Executive Officer and

Principal Financial Officer





















22

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report of Coates International, Ltd., on Form 10-KSB for the year ended December 31, 2002, as filed with the Securities and Exchange Commission ("Report"), I, George J. Coates, President, Chief Executive Officer and Principal Financial Officer of Coates International, Ltd., certify, pursuant to 18 U.S.C. ss. 1350, as added by ss. 906 of the Sarbanes-Oxley Act of 2002, that:

1. To my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Coates International, Ltd as of and for the period covered by the Report.

Date: April 9, 2003                                           _/s/ George J. Coates___________

George J. Coates

President, Chief Executive Officer and

Principal Financial Officer































































23











Coates International, Ltd.



Financial Statements



December 31, 2002 and 2001



Coates International, Ltd.

Index to the Financial Statements

December 31, 2002 and 2001











Page



Independent Auditors' Report		1



Financial Statements



Balance Sheet		2



Statements of Operations		3



Statement of Stockholders' Equity		4



Statements of Cash Flows		5



Notes to the Financial Statements		6-10













Independent Auditors' Report





To the Board of Directors and Shareholders of

Coates International, Ltd.







We have audited the balance sheet of Coates International, Ltd. as of December 31, 2002  and the related statements of operations, stockholders' equity and cash flows for the years endedDecember 31, 2002 and 2001.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.



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



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Coates International, Ltd. as of December 31, 2002 and the results of their operations, and cash flows for the years ended December 31, 2002 and 2001 in conformity with accounting principles generally accepted in the United States of America.



/S/ Rosenberg Rich Baker Berman & Company



Bridgewater, New Jersey

March 3, 2003





Coates International, Ltd.

Balance Sheet

December 31, 2002

|                                                                                                                 |  |  |  |             
|---------------------------------------------------------------------------------------------------------------- |  |  |  | ------------
|                                                                                                                 |  |  |  |             
|                                                                                                                 |  |  |  |             
|Assets                                                                                                           |  |  |  |             
|Current Assets                                                                                                   |  |  |  |             
|Cash                                                                                                             |  |  |  | $	1,079,267 
|Inventory                                                                                                        |  |  |  | 285,512     
|Deferred offering costs                                                                                          |  |  |  | 44,870      
|                                                                                                                 |  |  |  |             
|Total Current Assets                                                                                             |  |  |  | 1,409,649   
|                                                                                                                 |  |  |  |             
|Property, Plant and Equipment                                                                                    |  |  |  | 1,681,147   
|                                                                                                                 |  |  |  |             
|Other Assets                                                                                                     |  |  |  |             
|Mortgage loan costs, net of accumulated amortization of $48,645                                                  |  |  |  | 16,215      
|Deposit                                                                                                          |  |  |  | 2,500       
|                                                                                                                 |  |  |  |             
|Total Assets                                                                                                     |  |  |  | 3,109,511   
|                                                                                                                 |  |  |  |             
|Liabilities and Stockholders' Equity                                                                             |  |  |  |             
|                                                                                                                 |  |  |  |             
|Current Liabilities                                                                                              |  |  |  |             
|Current portion of mortgage payable                                                                              |  |  |  | 4,770       
|Accounts payable                                                                                                 |  |  |  | 68,855      
|Accrued expenses                                                                                                 |  |  |  | 764,320     
|Accrued interest payable                                                                                         |  |  |  | 12,109      
|Due to officer                                                                                                   |  |  |  | 8,400       
|Total Current Liabilities                                                                                        |  |  |  | 858,454     
|                                                                                                                 |  |  |  |             
|License deposits                                                                                                 |  |  |  | 1,440,000   
|Mortgage payable, net of current portion                                                                         |  |  |  | 874,256     
|                                                                                                                 |  |  |  |             
|Total Liabilities                                                                                                |  |  |  | 3,172,710   
|                                                                                                                 |  |  |  |             
|Contingencies                                                                                                    |  |  |  | -           
|                                                                                                                 |  |  |  |             
|Stockholders' Equity                                                                                             |  |  |  |             
|Preferred stock, Series A, .001 par value   14,000,000   shares authorized -
no shares issued                    |  |  |  | -           
|Common stock, .00001 par value, 1,000,000,000   shares authorized -
265,068,440    shares issued and outstanding |  |  |  | 2,651       
|Additional paid-in capital                                                                                       |  |  |  | 14,666,741  
|Accumulated deficit                                                                                              |  |  |  | (14,732,591)
|                                                                                                                 |  |  |  |             
|Total Stockholders' Equity                                                                                       |  |  |  | (63,199)    
|                                                                                                                 |  |  |  |             
|Total Liabilities and Stockholders' Equity                                                                       |  |  |  | $	3,109,511 



Coates International, Ltd.

Statements of Operations



Year Ended December 31,

2002       	2001

|                                               |  |               |  |              
|---------------------------------------------- |  | ------------- |  | -------------
|Revenue                                        |  | $	-           |  | $	105,000    
|                                               |  |               |  |              
|Operating Expenses:                            |  |               |  |              
|Research and development costs                 |  | 1,599,327     |  | 461,157      
|Research and development costs - related party |  | 97,000        |  | 12,150       
|General and administrative expenses            |  | 749,848       |  | 530,539      
|Depreciation                                   |  | 52,247        |  | 39,757       
|Amortization                                   |  | 12,972        |  | 12,972       
|                                               |  |               |  |              
|Total Operating Expenses                       |  | 2,511,394     |  | 1,056,575    
|                                               |  |               |  |              
|Loss From Operations                           |  | (2,511,394)   |  | (951,575)    
|                                               |  |               |  |              
|Other Income (Expense):                        |  |               |  |              
|Gain from sale of equipment                    |  | 2,800         |  | -            
|Interest income                                |  | 11,979        |  | 14,713       
|Interest expense                               |  | (136,677)     |  | (147,582)    
|                                               |  |               |  |              
|Total Other (Expense)                          |  | (121,898)     |  | (132,869)    
|                                               |  |               |  |              
|Loss Before  Income Taxes                      |  | (2,633,292)   |  | (1,084,444)  
|                                               |  |               |  |              
|Provision for Income Taxes                     |  | (500)         |  | (2,189)      
|                                               |  |               |  |              
|Net Loss                                       |  | $	(2,633,792) |  | $	(1,086,633)
|                                               |  |               |  |              
|Loss Per Share                                 |  | $(0.01)       |  | $0.00        
|                                               |  |               |  |              
|Weighted Average Number of Shares              |  | 264,965,420   |  | 264,458,100  
|                                               |  |               |  |              

| |  |  |  |  |  |  |  |  | 
| |  |  |  |  |  |  |  |  | 



Coates International, Ltd.

Statement of Stockholders' Equity (A)





|                                                      
|------------------------------------------------------
|                                                      
|                                                      
|                                                      
|Balance - December 31, 2000                           
|                                                      
|Issuance of stock                                     
|                                                      
|Effect of change in par value from $0.0001
to $0.00001
|                                                      
|Net loss for the year                                 
|                                                      
|Balance - December 31, 2001                           
|                                                      
|Issuance of stock                                     
|                                                      
|Stock issued for services and patent costs            
|                                                      
|Effect of 4:1 Stock Split                             
|                                                      
|Net loss for the year                                 
|                                                      
|                                                      
|                                                      



Coates International, Ltd.

Statement of Stockholders' Equity (B)





|                                                      
|------------------------------------------------------
|                                                      
|                                                      
|                                                      
|                                                      
|Balance - December 31, 2000                           
|                                                      
|Issuance of stock                                     
|                                                      
|Effect of change in par value from $0.0001
to $0.00001
|                                                      
|Net loss for the year                                 
|                                                      
|Balance - December 31, 2001                           
|                                                      
|Issuance of stock                                     
|                                                      
|Stock issued for services and patent costs            
|                                                      
|Effect of 4:1 Stock Split                             
|                                                      
|Net loss for the year                                 
|                                                      
|                                                      



Coates International, Ltd.

Statements of Cash Flows





20022001

|Cash Flows From Operating Activities                  |  |             |  |            
|----------------------------------------------------- |  | ----------- |  | -----------
|Net Loss                                              |  | (2,633,792) |  | (1,086,633)
|Adjustments to Reconcile Net Loss to Net Cash Used in |  |             |  |            
|Operating Activities                                  |  |             |  |            
|Depreciation                                          |  | 52,247      |  | 39,757     
|Amortization                                          |  | 12,972      |  | 12,972     
|Gain on sale of equipment                             |  | (2,800)     |  | -          
|Stock issued for services and patent costs            |  | 510,000     |  | -          
|Changes in Assets and Liabilities                     |  |             |  |            
|(Increase) Decrease in                                |  |             |  |            
|Inventory                                             |  | (78,154)    |  | 6,527      
|Prepaid insurance                                     |  | 7,002       |  | (570)      
|Deferred offering costs                               |  | (15,000)    |  | (29,870)   
|Increase (Decrease) in                                |  |             |  |            
|License deposits                                      |  | 1,140,000   |  | -          
|Accounts payable and accrued expenses                 |  | (42,623)    |  | 138,992    
|Accrued interest payable                              |  | (97)        |  | 5,815      
|Total Adjustments                                     |  | 1,583,547   |  | 173,623    
|Net Cash (Used) in Operating Activities               |  | (1,050,245) |  | (913,010)  
|                                                      |  |             |  |            
|Cash Flows from Investing Activities                  |  |             |  |            
|Proceeds from sale of equipment                       |  | 2,800       |  | -          
|Payments for property and equipment                   |  | (128,108)   |  | (19,151)   
|Net Cash (Used) in Investing Activities               |  | -           |  | (19,151)   
|                                                      |  |             |  |            
|Cash Flows From Financing Activities                  |  |             |  |            
|Proceeds from issuance of stock                       |  | 1,562,500   |  | 1,356,000  
|Repayment of mortgage                                 |  | (13,481)    |  | -          
|Repayment of note payable                             |  | -           |  | (58,731)   
|Proceeds from officer advances                        |  | -           |  | 99,600     
|Repayments of officer advances                        |  | -           |  | (91,200)   
|Net Cash Provided by Financing Activities             |  | 1,549,019   |  | 1,305,669  
|                                                      |  |             |  |            
|Net Increase  in Cash                                 |  | 364,938     |  | 373,508    
|Cash - Beginning of Periods                           |  | 714,329     |  | 340,821    
|Cash - End of Periods                                 |  | $	1,079,267 |  | $	714,329  
|                                                      |  |             |  |            



|Supplemental Disclosures of Cash Flow Information |  |           |  |          
|------------------------------------------------- |  | --------- |  | ---------
|Cash paid during the periods for:                 |  |           |  |          
|Interest                                          |  | $	136,677 |  | $	147,582
|Income taxes paid                                 |  | $	200     |  | $	2,189  



Coates International, Ltd.

Notes to the Financial Statements



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature of Organization

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



Inventory

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



Property, Plant & Equipment

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



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



Loss Per Share

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



Revenue Recognition

The Company has not generated revenue from the sales of engines.  Revenue from the granting of sub-licenses is recognized when earned, generally commencing upon its utilization by the licensee over the period of time that the sub-license has been granted (i.e. upon expiration of the Company's patent protection period which expires at the earliest in 2007), using the straight-line method.  Revenue from research and development activities is recognized when earned provided that financial risk has been transferred from the Company to its customer.  Revenue recognized in 2001 is derived solely from research and development activities.



Advertising Costs

Advertising costs are charged to operations when incurred.  Advertising expense was $   36,359   and $   42,191    for the years ended December 31, 2002  and 2001, respectively.



Research and Development

Research and development 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 be realized.  The Company incurred net operating losses for financial-reporting and tax-reporting purposes.  Accordingly, the benefit from income taxes has been mostly offset by a valuation allowance against the related deferred tax asset.



Coates International, Ltd.

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 Company's accounts may, at times, exceed the federally insured limits.



Development of the Coates System technology was initiated by GJC, CIL's founder, President and controlling stockholder in the late 1970's and development efforts have been conducted continuously since 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 does not have an employment contract with CIL.  The loss of GJC's availability or service due to death, incapacity or otherwise would have a material adverse effect on the Company's business and operations.



CONTINGENCIES



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



INVENTORY



Inventory at December 31, 2002 consists of the following:



|Raw Materials   |  | 100,177
|--------------- |  | -------
|Work in Process |  | 185,335
|                |  | 285,512



LICENSE DEPOSITS



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



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







Coates International, Ltd.

Notes to the Financial Statements

LICENSE DEPOSITS (continued)



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



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



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



PROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment at cost, less accumulated depreciation, consists of the following at December 31, 2001:

|Land                            |  | $	920,550  
|------------------------------- |  | -----------
|Building                        |  | 579,450    
|Building improvements           |  | 219,371    
|Machinery and equipment         |  | 449,113    
|Furniture and fixtures          |  | 39,295     
|                                |  | 2,207,779  
|Less:  Accumulated depreciation |  | 526,632    
|                                |  |            
|Total                           |  | $	1,681,147



Depreciation expense amounted to $   52,247   and $   39,757    for the years ended December 31, 2002 and 2001, respectively.



ACCRUED EXENSES



Accrued expenses at December 31, 2002 is comprised of the following:



|Legal Fees                                  |  | $	625,305
|------------------------------------------- |  | ---------
|Accounting Fees                             |  | 30,000   
|Audit Fees - prior auditors (1995 and 1996) |  | 31,975   
|Audit Fees - prior auditors (1997)          |  | 77,040   
|                                            |  | $	764,320



DUE TO OFFICER



Due to officer at December 31, 2002 represents loans from "GJC" which bear no interest and are due upon demand.



MORTGAGE PAYABLE



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



|Mortgage payable                            |  | $	874,256
|------------------------------------------- |  | ---------
|Less current maturities                     |  | 4,770    
|Mortgage payable, net of current maturities |  | $	879,026

Coates International, Ltd.

Notes to the Financial Statements



MORTGAGE PAYABLE (continued)



Total maturities of mortgage payable are as follows:

|Year Ending December 31, |  |          
|------------------------ |  | ---------
|2003                     |  | $	4,770  
|2004                     |  | 874,256  
|                         |  | $	879,026



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



CAPITAL STOCK



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



The loss per share calculation for the year ended December 31, 2001 has been recalculated to reflect the above.

INCOME TAXES

Year Ended December 31,

The income tax provision  is comprised of the following:	    2002	   2001

|State current provision |  | $	500 |  | $	2,189
|----------------------- |  | ----- |  | -------



The Company's total deferred tax asset and valuation allowance are as follows at December 31, 2002:



|Total deferred tax assets |  | $	3,137,835
|------------------------- |  | -----------
|Less valuation allowance  |  | (3,137,835)
|Net deferred tax assets   |  | $	-        



The differences between income tax provisions in the financial statements and the tax benefit computed at the U. S. Federal statutory rate of 34% at December 31, 2002    are as follows:



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





At December 31,    -   2002   , the Company has available approximately $12,550,000 of net operating losses and carryforward which may be used to reduce future federal taxable income and expire between December 31, 2008   and 2022.



At December 31, 2002   , the Company has available approximately $3,633,000 of net operating losses to carryforward which may be used to reduce the future state taxable income and expire between December 31, 2006 and 2009.



RELATED PARTY TRANSACTIONS



The Company subcontracts its project expense from certain entities of which GJC is the sole shareholder.  During the years ended December 31, 2002 and 2001, the Company paid $97,000 and $12,150, respectively, for these services.





Coates International, Ltd.

Notes to the Financial Statements





FAIR VALUE OF FINANCIAL INSTRUMENTS



Cash, Accounts Payable and Accrued Expenses

The carrying amount approximates fair value because of the short maturity of these instruments.



Limitations

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