SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                 FORM 10-KSB/A2

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

                   For the fiscal year ended December 31, 1997

                                       OR

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

           For the Transition period from____________to______________

                         Commission File Number 33-94884

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

                               Delaware 22-2925432
                  (State or other jurisdiction of (IRS Employer
               incorporation or organization) Identification No.)
          Highway 34 & Ridgewood Road, Wall Township, New Jersey 07719
               (Address of principal executive offices) (Zip Code)

          Issuer's telephone number, including area code (908) 449-7717

     Securities registered pursuant to Section 12(b) of the Act:
                                 Title of Class
                                      None

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

                                 Title of Class
                                      None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No

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

Issuer did not generate any revenues for the year ended December 31, 1997.

During the year ended December 31, 1997, there was no established public trading
market for the issuer's Series A Preferred  Stock.  On December 31, 1997,  there
were  6,564,424  shares of Series A  Preferred  Stock of the  Issuer  issued and
outstanding.




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

CIL is currently manufacturing high performance automotive engines modified with
the  Coates  System  on a  limited  basis  at its  Wall  Township,  New  Jersey,
manufacturing facility. Except as set forth herein, none of the engines has been
sold.  CIL has  received  numerous  oral and written  inquiries  from  potential
customers,  expressing  an interest in  acquiring  high  performance  automotive
racing engines modified with the Coates System.  No assurances can be given that
these inquiries will result in binding sales orders. CIL intends to aggressively
pursue all inquiries  with the goal of obtaining  firm orders.  CIL's ability to
generate  revenues and achieve  profitable  operations is principally  dependent
upon the  execution of  sub-license  agreements  with engine  manufacturers  and
retrofitters  and upon the  Company's  successful  marketing  and  sales of high
performance  automotive,  motorcycle and marine racing engines.  Despite limited
success  to-date  Coates will  continue  manufacturing  a limited  inventory  of
automotive engines,  and pursue the marketing of Coates System technology.  Such
efforts will especially be directed towards sub-licensing of the technology.

Results of Operations from Inception August 31, 1988, through December 31, 1997

Virtually no revenues were  realized  from the  inception of operations  through
December 31, 1997, as the principal operations were those of a development stage
company.  In July  1991 CIL  signed a  prototype  manufacturing  agreement  with
Harley-Davidson, Inc. ("Harley Davidson") and commenced to attempt to retrofit a
Harley  Davidson  motorcycle  engine  using the  Coates  technology.  An initial
$150,000 engineering and development fee was paid to CIL by Harley Davidson. See
"The Coates System".

Under the terms of a February 1994 license agreement, a $500,000 initial payment
was made by Millwest  Corporation  ("Millwest")  for a license of the technology
and was held in a bank account entitled "Coates  International  Licensing".  The
funds were  subsequently  transferred over to CIL.  Pursuant to the terms of the
license agreement,  Millwest was obligated to make another payment of $9,500,000
to CIL on or before May 4, 1994. Millwest did not make such payment.  CIL placed
Millwest on notice that it was in default. In June 1995 Millwest informed CIL of
its intention to activate the license  agreement and advised that  financing has
been arranged, however, to date no additional payments have been received by CIL
from Millwest.  No assurances can be given that any additional  payments will be
made.

No revenues were recognized during the quarter and year ended December 31, 1997.
During 1996, CIL recognized $37,375 in revenues,  representing a partial payment
from Nicholson  McLaren Engines Ltd. (U.K.)  ("Nicholson  McLaren") for two high
performance  racing car  engines  modified  with the Coates  System,  shipped to
Nicholson McLaren.

Operating  expenses incurred during the last quarter and the year ended December
31, 1997, amounted to $363,730 and $1,427,798 respectively, compared to $507,425
and $1,564,447 for the same periods in 1996. In addition, the Company during the
last quarter in 1997 issued 500,000  shares of the Company's  Series A Preferred
Stock  issued to George J. Coates  pursuant to an  exclusive  license  agreement
between CIL an George J. Coates (see "Related  Party  Transactions"  in Notes to
Financial Statements).  General and administrative  expenses net of R&D declined
from  $1,315,282 in 1996 to $721,829 in 1997, due to,  principally,  lay-offs of
CIL's  production  staff  because  of lack of  funding  as well as the result of
ongoing efforts to streamline operations and reduce overhead.

Including the above mentioned, total aggregate operating expenses incurred since
August 31, 1988, amounted to $10,316,962, of which the largest portion pertained
to research and development expenses which total $3,053,222.

After recognizing $4,388 interest expenses,  the Company's operations show a net
loss of  $1,432,186  or $.24 per share for the year  ended  December  31,  1997,
compared to a net loss of $1,600,110 or $0.27 per share for the preceding year.


                                       14


<PAGE>



Total losses since inception in August 1988 through  December 31, 1997 amount to
$9,743,717 .

Liquidity and Capital Resources

Since its inception,  all of the development costs and operating expenses of CIL
have  primarily  been financed  through the cash  generated  through the sale of
stock,  through  capital  contributions  made by George J. Coates' son,  Gregory
Coates, and the $500,000 license payment made by Millwest. Capital contributions
advanced to CIL by Gregory Coates in 1996 and during the year ended December 31,
1997, aggregated $1,132,523 and $953,834, respectively. Harley Davidson paid CIL
$150,000 as an initial deposit towards a license agreement;  that money has also
been expended by CIL.  Certain of the aforesaid funds generated income from bank
accounts in a depository institution;  that interest income was also expended by
CIL.

At December 31, 1997, CIL had a net worth of $547,976 compared to a negative net
worth or capital  deficiency of  $(488,642)  at the  beginning of the year.  The
working capital  deficiency  which showed a negative  balance of $(2,114,271) at
December 31, 1996,  relatively  improved to a negative  $(1,036,578) at December
31, 1997. These improvements were a result of capital raising efforts throughout
the last year which  included  capital  contributions  from  Gregory  Coates and
certain  private  placements  of the Company's  preferred  stock as well as debt
restructuring, which altogether contributed an aggregate $2,468,804 to equity, a
figure which does not include $500 in preferred  equity  realized in  connection
with the issuance of 500,000 shares Series A Preferred Stock issued to George J.
Coates  pursuant to an  exclusive  license  agreement  between CIL and George J.
Coates (see "Related Party Transactions" in Notes to Financial Statements).

The 1997 capital  transactions  furthermore  included (i) the issuance of 48,000
Series A preferred shares in private placement transactions which raised a total
of $960,000  equity;  (ii) the issuance of 24,325  Series A preferred  shares to
investors  who had  previously  subscribed  and  paid  for  such  shares,  for a
cumulative $496,970 in equity  contributions,  and; (iii) issuance of a total of
8,000 Series A preferred  shares pursuant to the conversion of certain loans and
mortgage liabilities,  with such transactions contributing altogether $58,000 to
capital.

In order to further improve the Company's  financial situation and provide funds
to meet  current  obligations  and  finance  the  ongoing  efforts to market the
Company's  products,  management  plans to raise  additional  capital  through a
combination  of  private  placements  and  debt  issues.  While  the  successful
realization  of such plans cannot be assured,  management is confident  that the
Company's  unique patented  technology will attract further  investments,  which
provide the means for  continued  efforts to obtain firm orders and  sub-license
agreements with engine manufacturers and refitters,  which ultimately will yield
positive cash flows.

Note Regarding Forward-Looking Statements

      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 the Company's actual results in
future periods to be materially different from any future performance  suggested
herein.





                                       15
<PAGE>


                           Coates International, Ltd.
                          (A Development Stage Company)
                            Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                                           Period From
                                                                                                            August 31,
                                                                                                           1988 (Date of
                                                                                                            Inception)
                                                                                                             Through
                                                                                                           December 31,
                                                                                                              1997
                                                                                                         -----------------
                                                                          Years Ended December 31,
                                                                      ---------------------------------  -----------------
                                                                           1997              1996
                                                                      ---------------   ---------------  -----------------
                                                                                                          (Unaudited)
                                                                        (Restated)                          (Restated)
                                                                      ---------------                    -----------------
Supplemental  Disclosures of Cash Flow  Information Cash paid
 during the periods for:

<S>                                                                  <C>              <C>               <C>               
      Interest paid                                                  $         18,499 $          18,413 $           64,656
                                                                      ===============   ===============  =================
                                                                     $              - $               - $                -
      Income taxes paid
                                                                      ===============   ===============  =================
</TABLE>

Supplemental Schedule of Non-Cash Investing and Financing Activities:

      The financial  statements at December 31, 1996,  include noncash financing
      transactions  of  $40,000  as a  result  of  mortgage  payments  made by a
      shareholder which were treated as additional paid-in capital.

      The financial  statements at December 31, 1997 and 1996, include a noncash
      financing   transaction  of  $486,970  for  the  respective  exchange  and
      reclassification  of redeemable  preferred stock to amounts due to certain
      stockholders.

      The  financial  statements  at  December  31,  1996,  including  a noncash
      operating and financing transaction of $67,781 for the payment of interest
      to  rescission   stockholders  by  a  shareholder  which  was  treated  as
      additional paid-in capital.

      The financial  statements at December 31, 1997 and 1996,  include  noncash
      investing  and  financing  transactions  of  $15,688  and  $7,500  for the
      acquisition of equipment by a shareholder which were treated as additional
      paid-in capital.

      The financial statements at December 31, 1996, include a noncash operating
      and  investing  transaction  of $31,131 for patent costs that were paid on
      behalf of CIL's principal  stockholder in 1995,  which costs were expensed
      in 1996 (as research and  development) in  consideration  of a granting of
      certain rights to the Company.

      The financial  statements at December 31, 1997 include a noncash investing
      and financing  transaction of an $8,000 loan from a  stockholder,  made in
      the prior year was exchanged  for 500 shares of Series A preferred  stock.
      In addition,  2,500 shares of Series A preferred stock was exchanged for a
      $50,000 decrease in the mortgage payable.

      Land and building  amounting to $1,500,000 was  transferred to the Company
      from  the  majority  stockholder  and his  family  pursuant  to a  consent
      judgment on February 6, 1995.  A mortgage of $300,000  was assumed as well
      as $1,200,000 recorded in additional paid-in capital.

See notes to the financial statements.
                                        6



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                                   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 Amendment No. 2 to
its Form 10-KSB for the year ended  December 31, 1997 to be signed on its behalf
by the undersigned, thereunto duly authorized.



Date                                       COATES INTERNATIONAL LTD.

October 16, 1998                           By:  s/George J. Coages
                                              George J. Coates, President


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

Signature                     Title                                  Date

s/George J. Coates
George J. Coates     Director (Principal Executive             October 16, 1998
                     Principal Financial Officer, Principal          
                     Accounting Officer
                    

s/Richard W. Evans
Richard W. Evans       Director                                October 16, 1998


s/Michael J. Suchar
Michael J. Suchar      Director                                October 16, 1998












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