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

                                  FORM 10-KSB/A
                                (Amendment No. 1)
                                   -----------

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

                   For the fiscal year ended December 31, 2004

                                       OR

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

      For the transition period from ___________to______________

                         COMMISSION FILE NUMBER 33-94884

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

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

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

          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 |_| No |X|

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, 2004.

During the fiscal year ended December 31, 2004, there was no established public
trading market for the issuer's Common Stock. As of March 31, 2005, there were
265,859,278 shares of Common Stock issued and outstanding.

                                        1
<PAGE>

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

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

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

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<PAGE>

                           COATES INTERNATIONAL, LTD.

                                    CONTENTS

PART I                                                                      Page
                                                                            ----
  Item 1.  Business                                                            2
  Item 2.  Properties                                                         10
  Item 3.  Legal Procedures                                                   10
  Item 4.  Submission of Matters to a Vote of Security Holders                10

PART II

  Item 5.  Market for Registrant's Common Equity and Related
                Shareholder Matters                                           10
  Item 6.  Management's Discussion and Analysis of Financial Condition        11
                and Results of Operations
  Item 7.  Financial Statements and Supplementary Data                        12
  Item 8.  Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure                                      15
  Item 8A. Controls and Procedures                                            15

PART III

  Item 9.  Directors and Executive Officers of the Registrant                 16
  Item 10. Executive Compensation                                             18
  Item 11. Security Ownership of Certain Beneficial Owners and
                Management                                                    18
  Item 12. Certain Relationships and Related Transactions                     19
  Item 13. Exhibits                                                           19
  Item 14. Principal Accountant Fees and Services.                            20

Signatures                                                                    21

Certification                                                                 22

Certification Pursuant to 18 U.S.C. Section1350                               23

                                       1
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                                     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. The Company has never been
profitable and has incurred substantial losses from operations of $763,325 and
$1,752,909 for the years ended December 31, 2004 and 2003, respectively. The
Company expects that losses from operations will continue through 2005 and the
Company anticipates that it will require additional financing in 2005, which may
not be readily available.

(b)   Business of the Company

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<PAGE>

Our ability to generate revenues and achieve profitable operations is
principally dependent upon the execution and funding of sublicense agreements
with engine manufacturers or retrofitters, and upon the manufacture and sale, by
CIL, of combustion engines modified with the Coates System in high performance
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 Fahrenheit and damaging the
poppet valves. The answer to this problem was to lower the compression ratios of
all engines to 10 to 1 or lower, thus reducing efficiency of the combustion
engine to approximately 24 percent. This means less miles per gallon (MPG),
lower brake horse power (BHP) and lower torque. The air traveling through the
inlet venturi of a combustion engine inlet travels at a speed of up to 450 ft
per second. In normally aspirated engines this works, but in poppet valve
engines, the BHP and torque decreased as the air traveling in does not increase
in speed unless a turbo or supercharger is incorporated. At higher RPM's the
poppet valve tends to float or bounce and is unable to service the cylinder and
chamber to capacity with air and fuel mixture. This is the reason for adding two
extra valves to modern engines including turbos or superchargers. The large
overlap is another common defect in poppet valve engines, causing unburned fuel
to escape through the exhaust poppet valves which leads to a loss of power,
lower MPG and production of pollution.

                                       3
<PAGE>

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

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

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

License Agreement - Well to Wire Energy, Inc.

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

                                       4
<PAGE>

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

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

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

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

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

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

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

                                       5
<PAGE>

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

Agreement with McLean, England and Associates, LLC

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

Under the original terms of the license agreement, we were required to
manufacture, research, develop and then test two prototype heavy truck engines
for McLean. 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. However, due to the continuing costs and expenses of
developing the diesel fueled prototype engine before final testing can begin, we
amended our license agreement with McLean on April 1, 2004. Pursuant to the
terms of the amendment, McLean will take possession of the diesel fueled
prototype engine and, at McLean's own expense, undertake the further development
of this engine. All of the other terms and provisions of our license agreement
with McLean remain as originally conceived, including all provisions covering
testing and license fee and royalty payments. We are currently testing the
gasoline fueled prototype engine and we anticipate that the development and
testing protocol for both engines will continue through the next several months.

Competition

Company management believes that our Coates Generator Engine, developed over the
last four years pursuant to its agreements with Well to Wire Energy, Inc., and
our two truck engine prototypes, developed under our agreements with McLean,
England & Associates, LLC, utilizing Coates spherical rotary valves, 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, and; that our two prototype truck engines, one gasoline and
the other diesel fueled, will outperform comparable truck engines.

                                       6
<PAGE>

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.

We also believe that our prototype truck engines, one gasoline and the other
diesel fueled, equipped with Coates spherical rotary valves, will significantly
outperform traditional poppet valve truck engines when their development and
testing is complete. The heavy truck engine market in the United States is
dominated by well-established companies such as Kenilworth and Volvo to name a
few. Our truck engines utilizing the Coates spherical rotary valves will face
significant entry barriers into this marketplace and we will have to compete not
only in performance but with price.

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.

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<PAGE>

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)

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

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

Environmental Regulatory Compliance

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

                                       9
<PAGE>

Employees

At December 31, 2004, CIL employed eight (8) employees, including George J.
Coates and his son Gregory Coates who perform 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 2004 was paid $32,888 for labor services, parts and materials.

                                       10
<PAGE>

ITEM 2: DESCRIPTION OF PROPERTY

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

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

ITEM 3: LEGAL PROCEEDINGS

In July 2004, the Company agreed to settle its claim against an accounting firm
for $225,000. In connection therewith, the Company and its attorneys agreed to
evenly divide the settlement proceeds to satisfy the expenses and legal fees
owed to the attorneys pertaining to this litigation. In addition, its attorneys
also waived $260,363 of its legal fees. The Company realized net proceeds in the
amount of $107,500.

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.

                                       11
<PAGE>

                                     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, 2004 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 2005 or in the
foreseeable future.

Recent Sales of Unregistered Securities

In 2004 the Company issued a total of 267,286 shares of its common stock to
seven accredited investors for a total of $815,000 in cash at the following
prices per share: 200,000 shares at $2.50 per share, 14,286 shares at $3.50 per
share and 53,000 shares at $5.00 per share. The shares were issued pursuant to
an exemption from the registration requirements of the Securities Act of 1933,
as amended, 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.

SELECTED FINANCIAL DATA

The selected financial information presented below under the captions "Statement
of Operations" and "Balance Sheet" for the years ended December 31, 2004 and
2003 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,      December 31
                                             2004 (restated)         2003
                                            ----------------   ----------------
Total assets                                $      2,423,185   $      2,594,174
Current liabilities                                  738,898          1,028,909
Long-term liabilities                              1,803,412          1,806,374
Working capital                                     (268,404)           (96,510)
Shareholders' equity                        $       (119,125)          (451,180)

Statements of Operations                      For The Year Ended December 31,
                                            -----------------------------------
                                             2004 (restated)    2003 (restated)
                                            ----------------   ----------------
Total revenues                              $              0   $              0
Operating income (loss)                           (1,257,576)        (1,823,930)
(Loss) before provision for incomes taxes           (981,674)        (1,963,113)
Net (loss)                                          (763,325)        (1,752,909)
Net loss per common share                   $          (0.00)  $          (0.01)
Number of shares used in computing
per share data                                   265,692,098        265,269,092

                                       12
<PAGE>

ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

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

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

Background

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

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

Agreements with Well to Wire Energy, Inc.

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

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

                                       13
<PAGE>

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, 2003, as a non-current liability, to be re-classified in
subsequent periods as income.

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

Preliminary Agreement with Dominion International

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

                                       14
<PAGE>

Results of Operations for the Years Ended December 31, 2004 and December 31,
2003

We did not earn any revenues during 2004. All of our principal business
activities and efforts during 2004 were devoted to the completion of the
research, development, construction and testing of the prototype engines for WWE
and McLean. We received aggregate payments of $1,140,000 from McLean, 1107 N.W.
Central Avenue, Inc and Dominion during fiscal year 2002 but could not book
these payments as revenue since our agreements with these parties were not
finalized. During the years of 2002 and 2001, 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, 2004 were $1,257,576
compared to $1,823,930 for 2003, representing a decrease of approximately
31.05%. Other decreases in our research and development costs, consisted of
decreased purchases of parts and supplies of approximately $112,949. General and
administrative expense decreased from $1,264,205 in 2003 to $1,032,529 in 2004.

The lack of revenues coupled with the increase of operating expenses resulted in
a loss from operations of $1,257,576 for the year as compared with a loss from
operations of $1,823,930 in 2003. During 2004, we continued our development
efforts on the Coates Generator Engine as well as 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, 2004, remained
relatively constant with those of 2003, with any differences not representing a
material change from those of the prior year. The Company also recognized its
share of the loss incurred by Coates Motorcycle based on its unconsolidated
interest in Coates Motorcycle, which amounted to $101,856 for the year ended
December 31, 2004. The net result for the year was a loss of $763,325 or $0.00
per share, as compared to a net loss of $1,752,909 for 2003.

Liquidity and Capital Resources

During 2004, we received subscription proceeds of $815,000 in cash from 7
accredited investors for the issuance of 267,286, restricted common shares,
concluding our private placement. We did not receive any non-refundable deposit
payments against future license agreements and no refundable deposits which were
converted into Company equity. We deposit our cash in our interest bearing bank
accounts. We had a working capital deficit as of December 31, 2004. Current
liabilities are primarily composed of approximately $483,297 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 $4,700,000 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.

                                       15
<PAGE>

ITEM 7: FINANCIAL STATEMENTS

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

ITEM 8: 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.

ITEM 8A: CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures:

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

Changes in internal controls:

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

Limitations on the effectiveness of controls:

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

                                       16
<PAGE>

                                    PART III

ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PE RSONS,
        COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

      At December 31, 2004 the executive officers and directors of CIL were as
follows:

<TABLE>
<CAPTION>
         Name                             Position                   Term(s) of Office
-------------------------  -------------------------------------  -----------------------
<S>                        <C>                                    <C>
George J. Coates,  age 64  President, Treasurer, Chief Executive
                           Officer, Chief Financial Officer and
                           Director                               From Inception to
                                                                  present

Richard W. Evans, age 74   Secretary and Director                 May, 1996 until present

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

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

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

                                       17
<PAGE>

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

                                       18
<PAGE>

The Company knows of no person, who, at any time during the fiscal year ended
December 31, 2004 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 10: EXECUTIVE COMPENSATION.

None of our executive officers has an employment contract. With respect to each
of calendar years 2002, 2003 and 2004, 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                      2004   $186,948
                                               2003   $183,549
                                               2002   $182,057

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         PRINCIPAL SHAREHOLDERS

The following table sets forth as of December 31, 2004 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

                                       19
<PAGE>

(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 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We paid $62,112 and $113,000 respectively, during fiscal years 2004 and 2003 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. From time to time, George J. Coates has made loans to
the Company to assist in financing our operations, the outstanding balance of
which aggregated $150,000 at December 31, 2004. These borrowings are in the form
of demand loans which carry no interest and may be repaid from time to time when
it is determined that there is sufficient available cash for such purpose. It is
the intention of Mr. George J. Coates to continue to proved the Company with
such additional working capital loans on an as needed basis, even though Mr.
Coates is not legally obligated to do so.

                                       20
<PAGE>

ITEM 13: EXHIBITS

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
3.1*         CIL's Restated Certificate of Incorporation
3.1(i)+      Certificate of Amendment to Certificate of Incorporation filed with
              the Secretary of State, State of Delaware on May 22, 2000.
3.1(ii)+     Certificate of Amendment to Certificate of Incorporation filed with
              the Secretary of State, State of Delaware on August 31, 2001.
3.2*         CIL's By-Laws
4.1*         Form of Certificate for CIL's Series A Non-Cumulative Convertible
              Preferred Stock
10.1*        Deed dated February 21, 1995 transferring title to CIL's Principal
              Facility at Route 34
10.2*        Assumption and Indemnification Agreement dated February 21, 1995
              between the partnership and CIL.
10.3*        License Agreement dated December 22, 1997 between George J. Coates
              and CIL. George J. Coates and CIL and  First and Second Amendments
              thereto dated July 17, 1995.
10.4*        Third Amendment dated September 21, 1995 to License Agreement dated
              February 17, 1995 between George J. Coates and CIL.
10.5*        License Agreement dated February 22, 1993 between Gregory Coates
              and CIL and First Amendment thereto dated July 17, 1995.
10.6+        License Agreement, Dated September 29, 1999, with Well to Wire
              Energy, Inc.
10.7+        Amendment No. 1 to License Agreement, Dated April 6, 2000.
10.8+        Amendment No. 2 to License Agreement, Dated July 21, 2000.
10.9+        License Agreement, dated April 19, 1996, by and between the Company
              and Nicholson McLaren Engines, Ltd.
10.10x       License Agreement, dated April 12, 2002, by and between Coates
              International, Ltd. and McLean, England and Associates,LLC.
10.11#       Sublicense Agreement, dated April 30, 2003, by and between Coates
              International, Ltd., as Sublicensor, and Coates Motorcycle
              Company, Ltd., as Sublicensee.
10.12#       License Agreement, dated April 30, 2003, by and between George J.
              Coates, Gregory G. Coates and the Coates Trust, collectively as
              Licensor, and Coates Motorcycle Company, Ltd., as Licensee.
10.13        Amendment No. 1 to Sublicense Agreement, dated March 5, 2004, by
              and between Coates International, Ltd., as Sublicensor, and Coates
              Motorcycle Company, Ltd., as Sublicensee.
10.14        Amendment No. 1 to License Agreement, dated March 5, 2004, by and
              between George J. Coates, Gregory G, Coates and the Coates Trust,
              collectively as Licensor, and Coates Motorcycle Company, Ltd., as
              Licemsee.
10.15        Amendment to License Agreement, dated April 1, 2004, by and between
              Coates International, Ltd. and George J. Coates, as Licensor, and
              McLean, England and Associates, LLC, as Licensee.

--------------------
*     These Exhibits are hereby incorporated by reference into this Form 10-KSB
      for the fiscal year ended December 31, 2003, from the Company's
      Registration Statement filed on Form S-1 with the Securities and Exchange
      Commission on November 1, 1995, File No. 33-94884:

                                       21
<PAGE>

+     These Exhibits are hereby incorporated by reference into this Form 10-KSB
      for the fiscal year ended December 31, 2003 from the Company's
      Registration Statement filed on Form 10-SB12G and amendments thereto with
      the Securities and Exchange Commission, File No. 000-33155.

x     This License Agreement is hereby incorporated by reference herein from the
      Company's Form 8-K, filed with the Securities and Exchange Commission on
      or about April 16, 2002.

#     These exhibits are hereby incorporated by reference into this Form 10-KSB
      for the fiscal year ended December 31, 2003, from the Company's Form
      10-QSB for the quarter ended June 30, 2003.

(b)   No reports on Form 8-K were filed during the last quarter of the fiscal
      year ended December 31, 2004.

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

Rosenberg Rich Baker Berman & Company ("Rosenberg") billed us in the aggregate
amount of $40,883 and $25,830 for professional services rendered for their audit
of our annual financial statements and their reviews of the financial statements
included in our Forms 10-QSB for the year ended December 31, 2004 and December
31, 2003, respectively.

AUDIT-RELATED FEES

Rosenberg did not bill us for, nor perform professional services rendered for
assurance and related services that were reasonably related to the performance
of audit or review of the Company's financial statements for the fiscal years
ended December 31, 2004 and December 31, 2003.

TAX FEES

Rosenberg billed us in the aggregate amount of $2,194 and $1,820 for
professional services rendered for tax related services for the fiscal years
ended December 31, 2004 and December 31, 2003, respectively.

ALL OTHER FEES

The aggregate fees billed by Rosenberg for services rendered to the Company
during the last two fiscal years, other than as reported above, were $0 and
$3,104, respectively.

                                       22
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Form 10-KSB/A for the
fiscal year ended December 31, 2004 to be signed on its behalf by the
undersigned, thereunto duly authorized.

DATE: January 27, 2006                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              January 27, 2006
                          Executive Officer,
                          President, and
                          Chief Financial Officer

/s/ Richard W. Evans
---------------------
Richard W. Evans          Director                     January 27, 2006

/s/ Michael J. Suchar
---------------------
Michael J. Suchar         Director                     January 27, 2006

                                       23
<PAGE>

                           Coates International, Ltd.

                              Financial Statements

                                December 31, 2004

                                       24
<PAGE>

                           Coates International, Ltd.
                        Index to the Financial Statements
                                December 31, 2004

                                                                            Page
                                                                            ----

Report of Independent Registered Public Accounting Firm                        1

Financial Statements

  Balance Sheet                                                                2

  Statements of Operations and Other Comprehensive Income (Loss)               3

  Statements of Stockholders' Impairment                                       4

  Statements of Cash Flows                                                     5

  Notes to the Financial Statements                                         6-11

<PAGE>

             Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying balance sheet of Coates International, Ltd. as
of December 31, 2004, and the related statements of operations and other
comprehensive income (loss), stockholders' impairment and cash flows for the
years ended December 31, 2004 and December 31, 2003. 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 audit.

We conducted our audit in accordance with auditing standards established by the
Public Company Accounting Oversight Board (United States). 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
audit provides 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, 2004, and the results of its operations and its cash flows for
the years ended December 31, 2004 and December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.

As more fully described in note 15, the Company's financial statements have been
restated.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has no operating revenue and substantial
losses in the past two years. In addition, the Company has limited capital
resources and has initiated a new phase of activity, all of which raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                                       /s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
April 11, 2005
  Except for Notes 13 and 15, dated January 25, 2006

                                       1
<PAGE>

                           Coates International, Ltd.
                                  Balance Sheet
                                December 31, 2004
                                   (Restated)

                                     Assets

Current Assets
  Cash                                                             $    180,182
  Inventory                                                             290,312
                                                                   ------------

    Total Current Assets                                                470,494

Property, Plant and Equipment, net of
  accumulated depreciation of $652,676                                1,555,103
Due from related party                                                   32,888
Investment - related party                                              362,200

Security Deposit                                                          2,500
                                                                   ------------

    Total Assets                                                      2,423,185
                                                                   ============

Liabilities and Stockholders' Impairment

Current Liabilities
  Current portion of mortgage payable                                     4,770
  Accounts payable                                                       39,819
  Accrued interest                                                       12,076
  Accrued expenses                                                      532,233
  Due to related party                                                  150,000
                                                                   ------------

    Total Current Liabilities                                           738,898

License deposits                                                        940,000

Mortgage payable, net of current portion                                863,412
                                                                   ------------

    Total Liabilities                                                 2,542,310
                                                                   ------------

Stockholders' Impairment
  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 - 265,859,278 shares
    issued and outstanding                                                2,658
  Additional paid-in capital                                         17,025,186
  Accumulated deficit                                               (17,248,825)
  Accumulated other comprehensive income                                101,856
                                                                   ------------

    Total Stockholders' Impairment                                     (119,125)
                                                                   ------------

    Total Liabilities and Stockholders' Impairment                 $  2,423,185
                                                                   ============

   The accompanying notes are an integral part of these financial statements

                                       2
<PAGE>


                           Coates International, Ltd.
          Statements of Operations and Other Comprehensive Income(Loss)
                                   (Restated)

                                                      Year Ended December 31,
                                                  ------------------------------
                                                       2004            2003
                                                  -------------   -------------

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

Operating Expenses:
  Research and development costs                        112,949         370,453
  Research and development costs -
    related party                                        46,112         113,000
  General and administrative expenses                 1,032,529       1,264,205
  Depreciation                                           62,743          63,300
  Amortization                                            3,243          12,972
                                                  -------------   -------------

    Total Operating Expenses                          1,257,576       1,823,930
                                                  -------------   -------------

  Loss From Operations                               (1,257,576)     (1,823,930)
                                                  -------------   -------------

Other Income (Expense):
  Equity loss on investment - related party            (101,856)             --
  Gain from legal settlement                            225,000              --
  Gain from settlement of legal expenses                260,336              --
  Interest income                                        17,610           3,158
  Interest expense                                     (125,188)       (142,341)
                                                  -------------   -------------

    Total Other Income (Expense)                        275,902        (139,183)
                                                  -------------   -------------

Loss Before Income Taxes                               (981,674)     (1,963,113)

Benefit from Income Taxes                               218,349         210,204
                                                  -------------   -------------

Net Loss                                          $    (763,325)  $  (1,752,909)

Other Comprehensive Income, net of tax -
  Valuation of investment - related party               101,856              --
                                                  -------------   -------------

Other Comprehensive Income (Loss)                 $    (661,469)  $  (1,752,909)
                                                  =============   =============

Net Loss Per Share                                $       (0.00)  $       (0.01)
                                                  -------------   -------------

Weighted Average Number of Shares                   265,692,098     265,269,092
                                                  =============   =============

     The attached notes are an integral part of these financial statements.

                                       3
<PAGE>


                           Coates International, Ltd.
                     Statements of Stockholders' Impairment
                                   (Restated)

<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                               Common Stock          Additional                       Other
                                        --------------------------     Paid in     Accumulated    Comprehensive   Shareholders'
                                           Shares        Amount        Capital       Deficit         Income        Impairment
                                        ------------  ------------  ------------  ------------   --------------  --------------
<S>                                     <C>           <C>           <C>           <C>            <C>             <C>
Balance at January 1, 2003               265,387,240  $      2,653  $ 14,666,739  $(14,732,591)  $           --  $      (63,199)

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

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

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

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

Balance at December 31, 2003, as
  previously reported                    265,591,992         2,655    16,210,189   (16,664,024)              --        (451,180)

  Effect of change in reporting entity            --            --            --       178,524               --         178,524
                                        ------------  ------------  ------------  ------------   --------------  --------------

Balance at December 31, 2003, as
  restated                               265,591,992         2,655    16,210,189   (16,485,500)              --        (272,656)

  Issuance of common stock                   267,286             3       814,997            --               --         815,000

  Net loss for the year                           --            --            --      (763,325)              --        (763,325)

  Other comprehensive income for the
    year                                          --            --            --            --          101,856         101,856
                                        ------------  ------------  ------------  ------------   --------------  --------------

Balance at December 31, 2004             265,859,278  $      2,658  $ 17,025,186  $(17,248,825)  $      101,856  $     (119,125)
                                        ============  ============  ============  ============   ==============  ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>


                           Coates International, Ltd.
                      Consolidated Statements of Cash Flows
                                   (Restated)

                                                       Year Ended December 31,
                                                    ---------------------------
                                                        2004           2003
                                                    ------------   ------------
Cash Flows From Operating Activities:

Net Loss                                            $   (763,325)  $ (1,752,909)
  Adjustments to Reconcile Net Loss to Net
    Cash Used in Operating Activities
    Depreciation                                          62,743         63,300
    Amortization                                           3,243         12,972
    Write off of obsolete inventory                       12,395        137,413
    Interest charged to related party                    (17,322)            --
    Loss on equity investment in related party           101,856
    Stock issued for services, compensation
      and patent costs                                        --        148,438
Changes in Operating Assets and Liabilities
    Inventory                                                 --       (154,607)
    Deferred offering costs                                   --         44,870
    Accounts payable                                      16,022        (45,059)
    Accrued expenses                                    (289,258)        57,138
                                                    ------------   ------------
Net Cash (Used in) Operating Activities                 (873,646)    (1,488,444)
                                                    ------------   ------------

Cash Flows From Financing Activities:
  Proceeds from issuance of stock                        815,000        895,014
  Repayment of mortgage                                   (2,962)        (7,883)
  Proceeds from loan                                          --        100,000
  Proceeds from related party loans                     (313,164)       (14,600)
  Repayments of officer advances                              --         (8,400)
                                                    ------------   ------------
Net Cash Provided by Financing Activities                498,874        964,131
                                                    ------------   ------------

  Net Decrease in Cash                                  (374,772)      (524,313)
  Cash - Beginning of Period                             554,954      1,079,267
                                                    ------------   ------------
  Cash - End of Period                              $    180,182   $    554,954
                                                    ============   ============

Supplemental Disclosures of Cash Flow
  Information Cash paid during the period
  for:
    Interest                                        $    125,187   $    142,284
                                                    ============   ============
    Income taxes                                    $         --   $        700
                                                    ============   ============

   The accompanying notes are an integral part of these financial statements

                                       5
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Nature of Organization

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

   Basis of Financial Statement Presentation

      The financial statements of the Company have been prepared assuming the
      Company will continue as a going concern, which contemplates the
      realization of assets and the satisfaction of liabilities in the normal
      course of business. The Company has never been profitable and has incurred
      substantial losses from operations of $763,325 and $1,752,909 for the
      years ended December 31, 2004 and 2003, respectively. The Company expects
      that losses from operations will continue through 2005 and the Company
      anticipates that it will require additional financing in 2005, which may
      not be readily available. These factors raise substantial doubt about the
      Company's ability to continue as a going concern. The Company's plans
      include execution and funding of sublicense agreements with engine
      manufacturers or retrofitters, and the manufacture and sale, by the
      Company, of combustion engines modified with the Coates System in high
      performance automotive, motorcycle, marine racing engines, and other types
      of combustion engines. However, there can be no assurances that the
      Company will be successful in their efforts to generate profitable
      operations. The financial statements do not include any adjustments that
      might result from the outcome of this uncertainty.

   Principles of Consolidation

      The 2003 financial statements originally included the accounts of Coates
      International, Ltd. and its majority owned subsidiary Coates Motorcycle
      Company, Ltd. "Coates Motorcycle". All significant intercompany balances
      and transactions were eliminated. During 2004 the Company's ownership
      interest in Coates Motorcycle Company, Ltd. was reduced to 30%. The
      investment was accounted for under the equity method and the 2003
      financial statements have been restated.

   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 expensed as incurred.

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

   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.

                                       6
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

   Revenue Recognition

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

   Advertising Costs

      Advertising costs are charged to operations when incurred. Advertising
      expense was $25,001 and $6,233 for the years ended December 31, 2004 and
      2003, 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. The benefit from income taxes has been mostly
      offset by a valuation allowance against the related deferred tax asset.

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.

2. 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 George Coates,
   the Company'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 with respect to the Coates System.
   Since the inception of the Company in 1988, all aspects of the business have
   been completely dependent upon the activities of George Coates, who does not
   have an employment contract with the Company. The loss of George Coates'
   availability or service due to death, incapacity or otherwise would have a
   material adverse effect on the Company's business and operations.

                                       7
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements

3. 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.

4. 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.

5. INVENTORY

   Inventory at December 31, 2004 consists of the following:

   Raw Materials                              $      102,860
   Work in Process                                   187,452
                                              --------------
        Total                                 $      290,312
                                              ==============

6. 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 $1,140,000 of license
   deposits.

   During 2003 license deposits totaling $500,000 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.

   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 that currently expires from
   2007 through September 30, 2020.

                                       8
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements

7. PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment at cost, less accumulated depreciation,
   consists of the following at December 31, 2004:

      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                  (652,676)
                                                 --------------

        Total                                    $    1,555,103
                                                 ==============

   Depreciation expense amounted to $62,743 and $63,300 for the years ended
   December 31, 2004 and 2003, respectively.

8. ACCRUED EXPENSES

   Accrued expenses at December 31, 2004 are comprised of the following:

      Legal fees                                 $      483,297
      General and administrative expenses                48,936
                                                 --------------
        Total                                    $      532,233
                                                 ==============

9. MORTGAGE PAYABLE

   The mortgage was in the amount of $870,617 and bears an annual interest rate
   of 13.99% and is for a term of 20 years. It is secured by land and building.

      Mortgage payable                            $      868,182
      Less: current maturities                             4,770
                                                  --------------
      Mortgage payable, net of current maturities $      863,412
                                                  ==============

   Total maturities of mortgage payable are as follows:

      Year Ending December 31,
        2005                                     $        4,770
        2006 and thereafter                             863,412
                                                 --------------
                                                 $      868,182
                                                 ==============

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

                                       9
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements

10. SALE OF COMMON STOCK

    In 2004 the Company issued a total of 267,286 shares of its common stock to
    seven accredited investors for a total of $815,000 in cash at the following
    prices per share: 200,000 shares at $2.50 per share, 14,286 shares at $3.50
    per share and 53,000 shares at $5.00 per share.

11. INCOME TAXES

    The current income tax benefit is comprised of the following:

                               Year Ended December 31,
                         --------------------------------
                              2004              2003
                         --------------    --------------
        Federal          $           --    $           --
                         ==============    ==============
        State            $      218,349    $      210,204
                         ==============    ==============

    In 1998, the State of New Jersey enacted legislation allowing emerging
    technology and/or biotechnology companies to sell their unused New Jersey
    Net Operating Loss ("NOL") Carryover Research and Development Tax Credits
    ("R&D Credits") to corporate taxpayers in New Jersey. During 2004 the
    Company entered into an agreement under which it retained a third party
    broker to identify a buyer for its NOL Carryover. As a result, the Company
    realized a current tax benefit of $245,128 (net of $20,188 commissions) from
    the sale of NOL Carryovers totaling $288,386.

    The Company's total deferred tax asset and valuation allowance are as
    follows at December 31, 2004:

        Total deferred tax assets          $    4,098,789
        Less valuation allowance               (4,098,789)
                                           --------------
        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, 2004 are as follows:

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

At December 31, 2004, the Company has available approximately $16,395,000 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, 2004, the Company has available approximately $598,478 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.

                                       10
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements

12. RELATED PARTY TRANSACTIONS

    The Company subcontracts project expense from certain entities of which
    George Coates is the sole shareholder. During the years ended December 31,
    2004 and 2003, the Company paid $46,112 and $113,000, respectively, for
    these services.

    On April 30, 2003, the Company entered into a sublicense agreement with
    Coates Motorcycle. Prior to the agreement, Gregory Coates, an officer the
    Company, owned 100% of Coates Motorcycle. Pursuant to the agreement, the
    Company granted certain exclusive licenses in exchange for approximately 51%
    of the common shares of Coates Motorcycle. In addition, the Company had an
    anti-dilution right. During 2004, the Company amended its license agreement
    with Coates Motorcycle to expand the license rights granted and to remove
    the anti-dilution provision in exchange for 1,000,000 common shares of
    Coates Motorcycle. As a result of the transactions, the Company currently
    owns 3,558,000 shares of Coates Motorcycle, representing a 30% ownership
    interest.

    The Company's investment in Coates Motorcycle is being accounted for under
    the equity method of accounting for investments. As such, the investment is
    being carried at cost, adjusted for the Company's proportionate share of
    their undistributed earnings and losses. Also see note 13 regarding equity
    method losses.

    Summarized information for Coates Motorcycle is as follows:

        For the Year Ended December, 31    2004        2003
                                         --------    --------
        Revenue                                --          --
            Operating expenses            344,249     350,153
            Net loss                     (340,705)   (350,048)

        As of December 31,                 2004        2003
                                         --------    --------
        Current assets                     27,711     127,259
            Total assets                  383,384     212,926
            Current liabilities          (219,925)   (176,880)
            Total liabilities            (224,425)   (181,380)
            Stockholders' equity          158,959      31,546

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

    As of December 31, 2004, the Company had made loans to Precision Engineering
    in the amount of $32,887.

    During the fourth quarter of 2004, George Coates loaned $150,000 to the
    Company in order to fund operations. These loans are in the form of demand
    loans which carry no interest and may be repaid from time to time when there
    is sufficient cash available.

                                       11
<PAGE>

13. EQUITY METHOD LOSSES AND IMPAIRMENT OF INVESTMENT IN RELATED PARTY

    Emerging Issues Task Force ("EITF") 98-13, "Accounting by an Equity Method
    Investor for Investee Losses When the Investor has Loans to and Investments
    in Other Securities of the Investee", requires an investor using the equity
    method, that has reduced the value of the investment to $-0-, but also has
    loans outstanding or other forms of equity such as preferred stock to
    continue to report its share of the losses. Accordingly, during 2004 the
    Company recorded losses from its investment in Coates Motorcycle, which
    amounted to $101,856 for the year ended December 31, 2004. During 2003, the
    Company's investment was valued at $-0-, and it did not have any other
    loans, investments or commitments to Coates Motorcycle and therefore it did
    not record any equity losses.

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

    In addition, in accordance with FASB Statement 115 "Accounting for Certain
    Investments in Debt and Equity Securities" as it relates to EITF 98-13. The
    Company determined that the fair value of the Preferred Stock was $362,200.
    Accordingly, the Company recognized other comprehensive income of $101,856
    to restore the value of the Preferred Stock to its fair market value. This
    Preferred Stock is presented in the accompanying balance sheet as Investment
    - related party.

14. SETTLEMENT OF LITIGATION

    In July 2004, the Company agreed to settle its claim against an accounting
    firm for $225,000. In connection therewith, the Company and its attorneys
    agreed to evenly divide the settlement proceeds to satisfy the expenses and
    legal fees owed to the attorneys pertaining to this litigation. In addition,
    its attorneys also waived $260,363 of its legal fees. The Company realized
    net proceeds in the amount of $107,500.

15. RESTATEMENT

    The financial statements as of December 31, 2004 and for the year then ended
    have been restated to properly reflect the conversion as of December 31,
    2004, working capital loans made to Coates Motorcycle Company, Ltd. into
    Preferred Series A Stock of Coates Motorcycle Company, Ltd. and to record
    the accrued interest income on such loans as interest income. The
    outstanding balance plus accrued interest of such loans, totaling $362,200
    were converted at the rate $1.00 per share into 362,200 shares of Preferred
    Series A Stock of Coates Motorcycle.

    In addition, the financial statements have been restated to comply with the
    provision of EIFT 98-13 and 99-10 as previously discussed in the Note 13.

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<PAGE>

15. RESTATEMENT (Continued)

    The impact of this restatement on the financial statements as originally
    reported is summarized as follows:

                                                        December 31, 2004,
                                                     and the year then ended
                                                   ----------------------------
                                                   As Reported      As Restated

        Due from related party                         377,765           32,888
        Investment - related party                           0          362,200
        Total Assets                                 2,405,862        2,423,185
        Accumulated deficit                        (17,164,290)     (17,248,825)
        Accumulated other comprehensive income              --          101,856
        Total Stockholders' Impairment                (136,466)        (119,125)
        Total Liabilities and Stockholders'
          Impairment                                 2,405,862        2,423,185

        Interest income                                    288           17,610
        Investment loss in related party                    --          101,856
        Total Other Income (Expense)                   360,437          275,902
        Loss before Income Taxes                      (897,139)        (981,674)
        Net Loss                                      (678,790)        (763,325)
        Other comprehensive income - Valuation of
          investment - related party
                                                            --          101,856
        Other Comprehensive Income (Loss)             (678,790)        (661,469)

        Loss Per Share                             $     (0.00)     $     (0.00)

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