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

                                 FORM 10-KSB/A2

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

                   For the fiscal year ended December 31, 2000
                                       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
   incorporation or organization)                  identification No.)

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

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

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

Title of Class: NONE

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

Title of Class: NONE

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

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

Issuer's revenues for the year ended December 31, 2000 were $845,000.

During the fiscal year ended December 31, 2000, there was no established public
trading market for the issuer's Series A Preferred or Common Stock. On December
31, 2000, there were 66,097,910 shares of Common Stock issued and outstanding.

<PAGE>

PART I. COATES INTERNATIONAL LTD.

ITEM 1. DESCRIPTION OF BUSINESS

Background

Coates International Ltd. ("CIL") has completed the basic development of a
spherical rotary valve system (the "Coates System") for use in piston driven
internal combustion engines of all types. Development of the Coates System was
initiated by CIL's founder, George J. Coates, in Ireland in the late 1970's. In
1982, Mr. Coates obtained a patent from the Republic of Ireland for the Mark I
version of the Coates spherical rotary valve system for use in piston driven
engines. In 1986, George J. Coates emigrated to the United States where he
commenced development of the Mark II version and subsequently, the Mark III
version of his spherical rotary valve system. Mr. Coates has also been issued a
number of 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".

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

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

Since its inception, the bulk of the development costs and related operational
costs of CIL have been funded primarily through cash generated from the sale of
stock, through capital contributions and loans made by Gregory Coates and from
several entities for prototype models and licensing fees. As a development stage
company, CIL has incurred losses from the inception of the predecessor entity in
August 1988 through December 31, 2000 of $11,012,166 and at December 31, 2000,
had a net worth of $228,726 and a negative working capital of ($258,221).


                                       2
<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 CIL's actual results in future periods to be
materially different from any future performance suggested herein. CIL wishes to
caution readers that in addition to the important factors described elsewhere in
this Form 10-KSB, the following forward looking statements, among others,
sometimes have affected, and in the future could affect, CIL's actual results
and could cause CIL's acutal consolidated results during 2000, and beyond, to
differ materially from those expressed in any forward-looking statements made by
or on behalf of CIL.

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

BUSINESS PLAN

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

License Agreement - Well to Wire Energy, Inc.

On September 29, 1999, CIL signed a license agreement with Well to Wire Energy,
Inc., an oil and gas company in Canada, to license the production 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 CIL 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,


                                       3
<PAGE>

industrial electric generator engine (the "Coates Generator Engine") under the
License Agreement. R&D Agreement - Well to Wire Energy, Inc.

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

     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 (this research and development agreement between CIL and WWE is
referred to as the "R&D Agreement"). On July 21, 2000, CIL and WWE 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, aggregating $300,000 as deposits under
the License Agreement and a payment of $250,000 for the development costs to
construct a prototype under the R&D Agreement.

     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, including the $250,000 payment made to CIL in 1999, Well to Wire Energy,
Inc. has made aggregate payments of $1,095,000 to CIL for these prototypes under
the R&D Agreement, $250,000 of which was paid in calendar 1999and $845,000 of
which was paid in fiscal year 2000. CIL has completed the construction of the
first prototype, Coates Generator Engine which was delivered to WWE in December,
2000. Construction of the second prototype is under way and completion of this
second prototype is anticipated during the second quarter of 2001. The third
prototype, representing the production version of the Coates Generator Engine,
is expected to be completed before the end of fiscal year 2001.

It is the intention of management to fund its business operations through,
initially, the consummation of the Well to Wire Energy, Inc. License Agreement
and R&D Agreement and, thereafter, through private and/or public financings and
sales of sub-licenses.

THE COATES SRV 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.


                                       4
<PAGE>

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

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

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

Because the valves rotate away from the combustion chamber and are vented and
charged on the opposite side of each sphere, a lower combustion chamber
temperature is created, allowing higher compression ratios to be used thus
creating an extremely efficient engine. Some of the Coates Spherical Rotary
Combustion Engines run at 12 to 1, 13 to 1, 14 to 1, and 15 to 1 compression
ratios depending on the application.

PATENTS AND LICENSES

In 1982, George J. Coates obtained a patent from the Republic of Ireland for the
Mark I version of the Coates spherical rotary valve 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:


                                       5
<PAGE>

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

4,989,579(Mark I)          July 26,1982              February 5,1991
4,953,527Mark II)          November 14,1998          September 4,1990
4,989,558                  September 14,1998         February 5, 1991
4,944,261(Mark IIB)        October 16,1989           July 31,1990
4,976,232                  December 6,1989           December 11,1990
5,109,814                  May 10,1991               May 5,1992
5,361,739(Mark III)        May 12,1993               November 8,1994

In addition to the foregoing issued patents, Mr. George Coates has filed U.S.
patent applications to obtain protection for further inventions covering (i) the
"cooling system" for the spherical rotary valve engine (Serial #: 09/657,788)
and (ii) the method and apparatus for "joining pressurized exhaust manifold
sections" (Serial #: 09/649,926).

The Mark I, Mark II, Mark IIB, and Mark III patents were also the subject of
foreign filings by Mr. Coates who has been issued foreign patents with respect
to some of these filings by Austria, Belgium, Denmark, France, Germany, Great
Britain, Greece, Italy, Luxembourg, The Netherlands, Spain, Sweden and
Switzerland as well as by Australia, Brazil, Canada, Hong King, Japan, Korea,
Mexico, Singapore, South Africa, Taiwan, Turkey, Ukraine and Venezuela. Mr.
Coates continues to have patent applications pending in some of these as well as
other foreign countries.

     In February 1995, George J. Coates and his son Gregory Coates each granted
CIL a non-exclusive license to manufacture, sell and grant sub-licenses with
respect to products based on the Coates Patents within the United States, its
territories and possessions in return for a payment of $5,500,000. September 21,
1995, George J. Coates and Gregory Coates amended the existing license agreement
and previous amendments thereto, providing for the substitution of the $5.5
million cash payment for the issuance of 275,000 shares Series A stock as the
license fee. The licenses expire in the event of bankruptcy or similar
insolvency of CIL and, in which event, the patents would automatically revert to
Mr. Coates and his son. George J. Coates and Gregory Coates have also agreed, as
long as CIL remains independent and viable, not to compete with CIL in the
manufacture, assembly, use or sale of internal combustion engines utilizing the
technology falling within the scope of the Coates Patents in the Licensed Areas,
or to grant any other exclusive or non-exclusive license in the Licensed Areas
except through CIL. The 275,000 shares of Series A stock were issued to George
Coates in 1995. On December 22, 1997, George Coates, Gregory Coates and CIL
entered into a new License Agreement, superceding the prior agreement and
amendments thereto. This new License Agreement granted CIL 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 to "all of the countries,
their territories and possessions comprising North America, Central America and
South America". In consideration of this exclusive and expanded license, CIL
agreed to issue to George Coates 500,000 shares of Series A stock which were
issued in 1997.

In April 1996, CIL executed a license agreement with Nicholson McLaren granting
Nicholson McLaren a non-exclusive license to assemble, sell, use and lease
internal combustion engines incorporating the Coates Spherical Rotary Valve
within the European Patent Community, which


                                       6
<PAGE>

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

EMPLOYEES

At December 31, 2000, CIL employed six (6) employees, including George J. Coates
and his son Gregory Coates who perform both management, assembly and research
and development functions, and; Bernadette Coates, the spouse of George J.
Coates, is employed as administrative manager for the Company. The financial
controller and bookkeeper for the Company is Ms. Shirley Naidel.

ITEM 2. DESCRIPTION OF PROPERTY

CIL's executive offices and testing facility are located in an approximately
25,000 square foot one and one-half story building of concrete and steel
construction in a 6 acre site in Wall Township, New Jersey. CIL acquired this
property from the George J. Coates 1991 Family Partnership, L.P in 1995. On
March 22, 1999, CIL refinanced its property and gave a first mortgage in the
amount of $900,000 to Eastern Savings Bank, FSB of New York. The first mortgage
requires monthly payments of $12,521 accrued interest at the rate of 15.99
percent, per annum, and its outstanding principal balance and accrued interest
become due and payable in March, 2004.

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

ITEM 3. LEGAL PROCEEDINGS

There are no material legal proceedings against the Company.


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

CIL did not submit any matter to a vote of its stockholders during the calendar
year 2000.


                                       7
<PAGE>

                                     PART II

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

There is no established public trading market for CIL's only outstanding class
of capital stock, its Common Stock. At December 31, 2000 the approximate number
of holders of record of the Common Stock was 804. CIL has not paid any dividends
with respect to its Common Stock and anticipated capital requirements make it
highly unlikely that any dividends will be paid by CIL in the year 2001 or in
the forseeable future

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

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

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

     CIL has a 14-year operating history, during which it has primarily devoted
its attention to developing the technology associated with the Coates SRV
Engine. 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.

Results of Operations for the Year Ended December 31, 2000

     CIL recognized revenue of $845,000 for the fiscal year ended December 31,
2000, which represents a 240% increase over 1999 revenue of $250,000. All of
this revenue was generated under the R&D Agreement with Well to Wire Energy,
Inc. ("WWE") and represents payments made for CIL's research and development of
the Coates Generator Engine. These payments were made and have been applied
against the $5,000,000 fee due CIL from WWE for the research and


                                       8
<PAGE>

development of three prototype Coates Generator Engines. See "Description of
Business R&D Agreement-Well to Wire Energy, Inc.".

     Operating expenses increased for fiscal year 2000 to $842,337 from
$749,972, incurred during fiscal year 1999, due to the approximate 35% increase
in general and administrative expenses due principally to increased patent
maintenance costs of approximately $27,000 and additional purchases of shop
supplies in the approximate amount of $62,000, expended in connection with the
construction of the prototype engines for the Well to Wire Energy, Inc. project.

     Depreciation costs associated with CIL's real estate and building,
machinery and equipment and for its furniture and fixtures, taken on a
straight-line basis over periods ranging from 5 to 7 years in the case of
machinery and equipment, and over 40 years in the case of CIL's property and
building, were $33,270 in fiscal year 2000, an increase of 23% over the 1999
amount of $26,998. This increase was due to the purchase of additional machinery
and equipment in year 2000. After deducting research and development costs of
$389,128, general and administrative expenses of $367,967 and $39,000 paid to a
related party, as well as an amortization charge of $12,972, CIL realized a
small income from operations of $2,663, as compared to the 1999 loss from
operations of $499,972.

     Miscellaneous income of $15,000 generated during fiscal year 2000
represented a nonrecurring, nonrefundable, forfeited real estate deposit made by
a third party to the Company on a contract for the sale of the building forming
part of the Company's business premises. Interest expense paid during fiscal
year 2000 was $149,548 as compared to $133,471 for the fiscal year ended
December 31,1999. $2,453 of the fiscal year 2000 amount represented interest
payments made against a short-term equipment loan with the balance, $147,095,
representing payments of interest made by CIL pursuant to the mortgage
encumbering the Company's business premises located in Wall, New Jersey. The
$133,471 amount of interest expense paid during fiscal year 1999 entirely
represented mortgage interest payments made by CIL on this mortgage.

     The outstanding principal balance of the mortgage encumbering the Company's
business premises in Wall, New Jersey, was $883,604 at December 31, 2000.
Interest accrues on the mortgage principal balance at the per annum rate of
15.99%. The mortgage debt payments, amortized over a 20-year period, are paid in
equal monthly installments of principal and interest in the amount of $12,521,
with the outstanding principal balance and accrued interest due on April 1,
2004, as a balloon payment. Company management expects to either refinance this
loan or retire the debt completely prior to its due date. In the event the
Company is unable to refinance this mortgage or retire the debt prior to its due
date, such failure would have a material adverse effect upon CIL's operations
and financial condition.

     The 2000 non-operating loss of $131,434 essentially replicated the fiscal
year 1999 loss of $131,909, both of which were primarily attributable to
interest expenses. During fiscal year 1999, CIL realized and recorded the entire
extraordinary gain of $609,902 from the sale of net loss carry-forward tax
credits pursuant to the New Jersey Emerging Technology and Biotechnology
Financial Assistance Act. Subsequent cash receipts from the sale, during 2000,
fell short by the amount of $15,945, which deficiency was recorded during that
year as a non-operating expense. The year concluded with a net loss of $144,716
as compared to the net loss of $21,979 for the previous year.


                                       9
<PAGE>

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 through several payments for prototype and license fees made by two
entities Millwest Corporation and Well to Wire Energy, Inc. At December 31,
2000, the Company had received a $300,000 deposit against the amounts due under
the License Agreement, and an aggregate amout of $1,095,000 under the R&D
Agreement.

     The Company has completed the construction of the first two prototype
engines incorporating the Coates SRV technology (the "Coates Generator Engine")
in connection with the Company's R&D Agreement and License Agreement with Well
to Wire Energy, Inc. Following the testing and delivery of the production model
prototype, Coates Generator Engine, CIL expects to receive the balance of
$3,905,000 from Well to Wire Energy, Inc under the R&D Agreement. Under the
License Agreement, the balance due CIL of $4,700,00 is payable in equal
quarterly payments over a four year period, commencing 180 days following
delivery of the third prototype Coates Generator Engine to WWE. Delivery is
expected to occur during the first quarter of 2002.

     During fiscal year 2000, the Company placed an aggregate 6,800 Series A
shares to 4 accredited investors in private placements and received subscription
proceeds of $ 150,000, for the purchase price of $20 and $25 per share. All of
these private placements were made in reliance upon the exemption from the
registration requirements of the 1933Act provided by Regulation D and Section
4(2) of the 1933 Act.

     At December 31, 2000, current liabilities exceeded current assets by
$258,221. The majority of the $922,831 of current liabilities are represented by
an accrual composed of a legal fee due one law firm for its representation of
CIL in litigation over the past several years. The law firm has, in prior
periods, accepted limited payments from CIL and is expected to continue to do so
for the foreseeable future.

     Until receipt of the WWE payments, management plans to finance its on-going
operations through a combination of private and public offerings of its
securities.

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.


                                       10
<PAGE>

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

At December 31, 2000 the executive officers and directors of CIL were as
follows:

         Name                         Position                 Term(s) of Office
-----------------------     ------------------------------     -----------------
George J. Coates age 60     President, Treasurer, Chief
                            Executive Officer, Chief
                            Financial Officer and Director     From Inception to
                                                               present

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

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

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

Seven and one-half years ago, the SEC commenced proceedings against Mr. Coates
and CIL in the United States District Court, Southern District of New York,
which has been settled. Based upon an investor complaint, 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. The Court is expected to conclude the proceedings during
fiscal year 2001.


                                       11
<PAGE>

Richard W. Evans became a director of CIL in May 1996, Dr. Evans, who holds an
ED.D degree from Rutgers University, was a Supervisor a Highland Park School in
Highland Park, New Jersey, a post held for more than the preceding five years
until his retirement in June 1996. Dr. Evans will not devote a substantial
portion of his working time to the business of CIL.

Michael J. Suchar became a director of CIL in May 1996. Dr. Suchar, who holds a
Doctor of Dental Surgery degree from the Temple University Dental School, has
been a practicing pediatric dentist for more than the preceding five years. Dr.
Suchar will not devote a substantial portion of his working time to the business
of CIL.

Compliance with Section 16(a) of the Exchange Act

CIL's only class of outstanding capital stock, its Common Stock, is not
registered pursuant to Section 12 of the Exchange Act so that fillings of Forms
3,4, and 5 in compliance with such Section are not required.

ITEM 10.  EXECUTIVE COMPENSATION

None of CIL's executive officers has an employment contract with CIL. With
respect to each of calendar years 1998, 1999, and 2000, no executive officer had
compensation paid or accrued in excess of $100,000 for any such year except for
George J. Coates, CIL's Chief Executive Officer, while compensation was as
follows:

SUMMARY COMPENSATION TABLE

Annual Compensation Year ended Name December 31 Salary

       Name                  Position                  Year            Salary
       ----                  --------                  ----           --------
George J. Coates     President, Chief Executive
                     Officer and Chief Financial
                     Officer                           2000           $183,548
                                                       1999           $183,548
                                                       1998           $186,947

     CIL had agreed to pay a $5,500,000 license fee to George J. Coates in
consideration for his grant to CIL of a non-exclusive license. See, Item 1,
Business, "Patents and Licenses". The fee was payable at management's discretion
but in no event later than February 17, 1998. In September, 1995, this
arrangement was modified. CIL and George J. Coates agreed that instead of the
$5,500,000 payment, CIL would issue 275,000 shares of Series A Preferred to Mr.
Coates as the license fee. On December 22, 1997, George Coates, Gregory Coates
and CIL entered into a new License Agreement, superceding the prior agreement
and amendments thereto. This new License Agreement granted CIL an "exclusive"
license to manufacture, sell and grant sublicenses for products covered under
the Coates Patents, expanding the territories covered from the original
territory of the United States and its territories to "all of the countries,
their territories and possessions comprising North America, Central America and
South America". In


                                       12
<PAGE>

consideration of this exclusive and expanded license, CIL agreed to issue to
George Coates 500,000 shares of Series A stock which were issued in 1997. The
shares were issued to Mr. Coates in November 1998. To date, no employee stock
options have been granted by CIL.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

The following table sets forth as of December 31, 2000 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 (1)     of Class
--------         -------------------       ------------------------     --------
Common Stock     George J. Coates*          51,889,240 shares           78.50%
                 Gregory Coates*             3,530,630 shares            5.3%
                 Richard W. Evans*             165,000 shares           .0025%
                 Michael J. Suchar*             50,000 shares           .001%

                 All directors and
                 executive officers
                 as a Group (3 persons)     55,634,870 shares           84.15%

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

(1) Includes 489,240 shares owned by Mr. Coates' spouse, Bernadette Coates,
beneficial ownership of which is disclaimed by George J. Coates.

ITEM 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CIL paid $222,549 and $211,589, respectively, during fiscal years 1999 and 2000
to Coates Precision Engineering, Inc., a company owned by George J. Coates, for
services rendered to CIL in connection with CIL's research and development of
the Coates Generator Engine. During fiscal year 2001, George J. Coates made
loans to CIL at various times to assist in financing CIL's operations, which
aggregate outstanding amount at September 30, 2001 was $80,900. These borrowings
are in the form of demand loans which carry no nterest and are repaid from time
to time depending upon CIL's available cash. It is the intention of Mr. Goerge
J. Coates to assist the Company with its cash requirements in the form of loans
as needed in the future.


                                       13
<PAGE>

ITEM 13   EXHIBITS AND REPORTS ON FORM 8-K

F-1     Independent auditors report and financial statements for the fiscal
        years ended December 31, 2000 and 1999.

The following Exhibits are hereby incorporated by reference into this Form
10-KSB for the fiscal year ended December 31, 2000, from (1) the Company's
Registration Statement filed on Form S-1 with the Securities and Exchange
Commission on November 1, 1995, File No. 33-94884 (2) and the Company's Form
10-SB Registration Statement and Amendment No. 1 thereto previously filed with
the Commission.

(a) Exhibits

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.

(b) No reports on Form 8-K were filed during the last quarter of the fiscal year
ended December 31, 2000.


                                       14
<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 Amendment No.2 to its
Form 10-KSB for the fiscal year ended December 31, 2000 to be signed on its
behalf by the undersigned, thereunto duly authorized.

DATE: January  22, 2002                 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 22, 2002
                                Executive Officer,
                                President, and
                                Chief Financial Officer

/s/ Richard W. Evans
------------------------
Richard W. Evans                Director                      January 22, 2002


/s/ Michael J. Suchar
------------------------
Michael J. Suchar               Director                      January 22, 2002



                                       15
<PAGE>


                           Coates International, Ltd.

                              Financial Statements

                           December 31, 2000 and 1999

                                   As Restated

<PAGE>


                           Coates International, Ltd.
                        Index to the Financial Statements
                           December 31, 2000 and 1999
                                   As Restated




                                                                       Page

Auditors' Report..................................................       1

Financial Statements

     Balance Sheet................................................       2

     Statements of Operations.....................................       3

     Statement of Stockholders' Equity............................       4

     Statements of Cash Flows.....................................      5-6

     Notes to the Financial Statements............................     7-11

<PAGE>

                          Independent Auditors' Report

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

We have audited the balance sheet of Coates International, Ltd. as of December
31, 2000 and the related statements of operations, stockholders' equity and cash
flows for the years ended December 31, 2000 and 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

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, 2000, and the results of their operations, and cash flows for
the years ended December 31, 2000 and 1999 in conformity with generally accepted
accounting principles.


/s/ Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
February 13, 2001
except for Note 14, as to
which the date is January 3, 2002


                                       1
<PAGE>

                           Coates International, Ltd.
                                  Balance Sheet
                                December 31, 2000
                                   As Restated


<TABLE>
<S>                                                                                                     <C>
              Assets
Current Assets
         Cash                                                                                           $      340,821
         Restricted cash                                                                                       112,000
         Inventory                                                                                             205,357
         Prepaid insurance                                                                                       6,432
                                                                                                        --------------
                   Total Current Assets                                                                        664,610

Property, Plant and Equipment - Net of $440,128 of accumulated depreciation                                  1,625,892

Other Assets
    Mortgage loan costs, net of accumulated amortization of $22,701                                             42,159
         Deposit                                                                                                 2,500
                                                                                                        --------------
                  Total Assets                                                                               2,335,161
                                                                                                        ==============

                  Liabilities and Stockholders' Equity

Current Liabilities
         Current portion of mortgage payable                                                                     8,903
         Note payable                                                                                           58,731
         Accounts payable                                                                                       45,485
  Accrued expenses                                                                                             691,321
         Accrued interest payable                                                                              118,391
                                                                                                        --------------
                           Total Current Liabilities                                                           922,831

License Deposit                                                                                                300,000
Mortgage payable, net of current portion                                                                       883,604
                                                                                                        --------------
                           Total Liabilities                                                                 2,106,435

Stockholders' Equity
         Preferred stock, Series A, $.001 par value 14,000,000 shares authorized - no shares
               issued                                                                                               --
  Common stock, $.0001 par value, 200,000,000 shares authorized - 66,097,910shares issued
  and outstanding                                                                                                6,609
  Additional paid-in capital                                                                                11,234,283
         Accumulated deficit                                                                               (11,012,166)
                                                                                                        --------------
                           Total Stockholders' Equity                                                          228,726
                                                                                                        --------------
                           Total Liabilities and Stockholders' Equity                                   $    2,335,161
                                                                                                        ==============
</TABLE>

See notes to the financial statements.


                                       2
<PAGE>

                           Coates International, Ltd.
                            Statements of Operations


<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                                        -----------------------------------
                                                                              2000                1999
                                                                          As Restated          As Restated
                                                                        --------------       --------------
<S>                                                                     <C>                  <C>
Research and Development Revenue                                        $      845,000       $      250,000
                                                                        --------------       --------------

Operating Expenses:
         Research and development costs                                        389,128              447,495
         Research and development costs - related party                         39,000                   --
         General and administrative expenses                                   367,967              241,886
         Depreciation                                                           33,270               26,998
         Amortization                                                           12,972               33,593
                                                                        --------------       --------------

                  Total Operating Expenses                                     842,337              749,972
                                                                        --------------       --------------

         Income (Loss) From Operations                                           2,663             (499,972)
                                                                        --------------       --------------

Other Income (Expense):
         Miscellaneous income                                                   15,000                   --
         Interest income                                                         3,114                1,562
         Interest expense                                                     (149,548)            (133,471)
                                                                        --------------       --------------

                  Total Other Income (Expense)                                (131,434)            (131,909)
                                                                        --------------       --------------

         Loss Before Benefit From Income Taxes                                (128,771)            (631,881)

         (Provision for) Benefit From Income Taxes                             (15,945)             609,902
                                                                        --------------       --------------

         Net Loss                                                       $     (144,716)      $      (21,979)
                                                                        ==============       ==============

         (Loss) Earnings Per Share                                      $         0.00       $         0.00
                                                                        ==============       ==============

         Weighted Average Number of Shares                                  66,078,329           66,010,120
                                                                        ==============       ==============
</TABLE>

See notes to the financial statements.


                                       3
<PAGE>

                            Coates International Ltd.
                        Statement of Stockholders' Equity

As Restated

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                          Common Stock           Series A Preferred Stock       Additional
                                                                                                                 Paid-In
                                                       Shares      Amount          Shares        Amount          Capital
----------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>           <C>             <C>           <C>
Balance - December 31, 1998                              --          --          6,597,961      $  6,598      $ 10,812,300
----------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (at cost)                     --          --               --            --             (12,997)
----------------------------------------------------------------------------------------------------------------------------
Sale of treasury stock                                   --          --               --            --             149,993
----------------------------------------------------------------------------------------------------------------------------
Issuance of stock                                        --          --              6,750             7           134,993
----------------------------------------------------------------------------------------------------------------------------
Net loss for the year                                    --          --               --            --                --
----------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999                              --          --          6,604,711      $  6,605      $ 11,084,289
----------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (at cost)                     --          --               --            --                --
----------------------------------------------------------------------------------------------------------------------------
Sale of treasury stock                                   --          --               --            --              39,998
----------------------------------------------------------------------------------------------------------------------------
Issuance of stock                                        --          --              4,800             4           109,996
----------------------------------------------------------------------------------------------------------------------------
Exchange of Series A Preferred Stock
for Common Stock                                   66,097,910     $ 6,609       (6,609,011)       (6,609)             --
----------------------------------------------------------------------------------------------------------------------------
Net loss for the year                                    --          --               --            --                --
----------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2000                        66,097,910     $ 6,609             --        $   --        $ 11,234,283
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to the financial statements.


                                       4
<PAGE>

                            Coates International Ltd.
                        Statement of Stockholders' Equity
As Restated - Cont'd.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                     Treasury Stock                                    Total
                                                                             Retained Earnings     Stockholders'
                                                   Shares        Amount          (Deficit)       Equity (Deficit)
-----------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>            <C>                 <C>
Balance - December 31, 1998                       (6,250)       $    (6)       $(10,845,471)       $  (26,579)
-----------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (at cost)              (3,250)            (3)               --             (13,000)
-----------------------------------------------------------------------------------------------------------------
Sale of treasury stock                             7,500              7                --             150,000
-----------------------------------------------------------------------------------------------------------------
Issuance of stock                                   --             --                  --             135,000
-----------------------------------------------------------------------------------------------------------------
Net loss for the year                               --             --               (21,979)          (21,979)
-----------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999                        (2000)       $    (2)       $(10,867,450)       $  223,442
-----------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (at cost)                --             --                  --                --
-----------------------------------------------------------------------------------------------------------------
Sale of treasury stock                             2,000              2                --              40,000
-----------------------------------------------------------------------------------------------------------------
Issuance of stock                                   --             --                  --             110,000
-----------------------------------------------------------------------------------------------------------------
Exchange of Series A Preferred Stock
for Common Stock                                    --             --                  --                --
-----------------------------------------------------------------------------------------------------------------
Net loss for the year                               --             --              (144,716)         (144,716)
-----------------------------------------------------------------------------------------------------------------
Balance - December 31, 2000                         --             --          $(11,012,166)       $  228,726
-----------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to the financial statements.


                                       5
<PAGE>

                           Coates International, Ltd.
                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31,
                                                                                  ----------------------------
                                                                                      2000             1999
                                                                                  As Restated      As Restated
                                                                                  -----------      -----------
<S>                                                                               <C>              <C>
Cash Flows From Operating Activities
         Net (Loss) Income                                                        $  (144,716)     $   (21,979)
                                                                                  -----------      -----------
         Adjustments to Reconcile Net (Loss) Income to Net Cash Used in
         Operating Activities
                           Depreciation                                                33,270           26,998
                           Amortization                                                12,972           33,593
                           Deferred taxes                                             251,000         (251,000)
         Changes in Assets and Liabilities
                  (Increase) Decrease in
                           Inventory                                                 (205,357)              --
                           Prepaid insurance                                              457             (334)
                           Due to/from affiliates                                      79,061          (79,061)
                  Increase (Decrease) in
                           License deposit                                                 --          300,000
                           Accounts payable and accrued expenses                     (157,599)        (224,985)
                           Accrued interest payable                                      (101)          11,933
                                                                                  -----------      -----------

                  Total Adjustments                                                    13,703         (182,856)
                                                                                  -----------      -----------
         Net Cash Used in Operating Activities                                       (131,013)        (204,835)
                                                                                  -----------      -----------

Cash Flows from Investing Activities
         Payments for property and equipment                                          (74,000)         (55,800)
                                                                                  -----------      -----------
         Net Cash Used in Investing Activities                                        (74,000)         (55,800)
                                                                                  -----------      -----------

Cash Flows From Financing Activities
       Proceeds from mortgage payable                                                      --          900,000
       Repayment of mortgage payable                                                   (3,060)        (504,433)
       Payment for mortgage loan costs                                                     --          (65,344)
         Proceeds from reissuance of stock                                             40,000          137,000
         Proceeds from issuance of stock                                              110,000          135,000
         Proceeds from note payable                                                    75,000
         Repayment of note payable                                                    (16,269)              --
         Loans from stockholder                                                       (16,000)              --
                                                                                  -----------      -----------
         Net Cash Provided by Financing Activities                                    189,671          602,223
                                                                                  -----------      -----------
         Net Decrease (Increase) in Cash                                              (15,342)         341,588
         Cash - Beginning of Periods                                                  356,163           14,575
                                                                                  -----------      -----------
         Cash - End of Periods                                                    $   340,821      $   356,163
                                                                                  ===========      ===========
</TABLE>

See notes to the financial statements.


                                       6
<PAGE>

                           Coates International, Ltd.
                       Statements of Cash Flows - Cont'd.


<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                          ---------------------------
                                                              2000            1999
                                                          As Restated     As Restated
                                                          -----------     -----------
<S>                                                       <C>             <C>
Supplemental Disclosures of Cash Flow Information
     Cash paid during the periods for:
              Interest paid                               $   149,648     $   121,538
                                                          ===========     ===========
              Income taxes paid                           $       200     $       400
                                                          ===========     ===========
</TABLE>

See notes to the financial statements.


                                       6
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization

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

     CIL has developed a spherical rotary valve system (the"Coates System") for
     use in piston driven internal combustion engines of all types and is
     manufacturing on a limited scale basis at its Wall Township, New Jersey
     facility. CIL also has an exclusive license to sell and grant sublicenses
     with respect to products using the Coates System based on the Coates
     Patents. The Company was in the development stage through December 31,
     1999. The year 2000 is the first year during which it is considered an
     operating company.

Inventory

     Inventory is valued at the lower of cost (determined on a first in, first
     out basis) or market.

Property, Plant & Equipment

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

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

Earnings (Loss) Per Share

     Basic earnings (loss) per share is calculated by dividing net income (loss)
     by the weighted average number of common shares outstanding and assumes the
     conversion of the Series A Preferred Stock into Common Stock. The Company
     has no options, warrants or other convertible securities outstanding, thus,
     basic and diluted earnings (loss) per share are the same for the fiscal
     years ended December 31, 1999 and December 31, 2000.

Revenue Recognition

     The Company has not generated revenue from the sales of engines. Revenue
     from the granting of sub-licenses is recognized when earned, generally
     commencing upon its utilization by the licensee over the period of time
     that the sub-license has been granted (i.e. upon expiration of the
     Company's patent protection period which expires at the earliest in 2007,
     using the straight-line method. Revenue from research and development
     activities is recognized when earned provided that financial risk has been
     transferred from the Company to its customer. Revenue recognized in 2000
     and 1999 is derived solely from research and development activities.

Advertising Costs

     Advertising costs are charged to operations when incurred. Advertising
     expense was $12,356 and $72,000 for the years ended December 31, 2000 and
     1999, respectively.

Research and Development

     Research and development costs are charged to operations as incurred.


                                       7
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Income Taxes

     In accordance with the provisions of Financial Accounting Standards No.
     109, "Accounting for Income Taxes" ("SFAS No. 109"), deferred taxes are
     recognized for operating losses that are available to offset future taxable
     income. Valuation allowances are established when necessary to reduce
     deferred tax assets to the amount expected to realized. The Company
     incurred net operating losses for financial-reporting and tax-reporting
     purposes. Accordingly, the benefit from income taxes has been mostly offset
     by a valuation allowance against the related deferred tax asset for the
     year ended December 31, 1998.

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.

NOTE 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.

     The Company entered into a license agreement with a Canadian corporation,
     whereby the Company is granting an exclusive license for the use of the
     Coates Engine in connection with the conversion of natural gas to
     electricity in Canada. The licensing fee is $5,000,000 and the Company also
     receives a royalty equal to 5% of the gross profit which is derived from
     all sources. The Company also retains the exclusive right to manufacturing
     both the engine and generator components for sale to the Canadian
     corporation. The revenues generated for years ended December 31, 2000 and
     1999 are entirely attributable to the Canadian corporation. The loss of
     this customer would have a material adverse effect on the Company's
     business and operations.

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

NOTE 3 - RESTRICTED CASH

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

NOTE 4 - INVENTORY

     Inventory consists of work in process valued at $205,357 at December 31,
     2000.


                                       8
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements


NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment at cost, less accumulated depreciation,
     consists of the following at December 31, 2000:

                    Land                                       $  920,550
                    Building                                      579,450
                    Building improvements                         201,671
                    Machinery and equipment                       325,054
                    Furniture and fixtures                         39,295
                                                               ----------
                                                                2,066,020
                    Less:  Accumulated depreciation               440,128
                                                               ----------

                            Total                              $1,625,892
                                                               ==========

     Depreciation expense amounted to $33,270 and $26,997 for the years ended
     December 31,2000 and 1999, respectively.

NOTE 6 - ACCRUED EXPENSES

Accrued expenses at December 31, 2000 is comprised of the following

          Legal Fees                                           $542,834
          Accounting Fees                                        25,000
          Patent Legal Fees                                      39,770
          Audit Fees - prior auditors (1995 and 1996)            31,975
          Audit Fees - prior auditors (1997)                     77,040
          Audit Fees - prior auditors (1997)                   $716,619
                                                               ========

NOTE 7 - NOTE PAYABLE

     The note payable represents a bank loan with interest at 13.64% due in
     equal monthly installments of $6,907 including interest through September
     2001, secured by equipment with a net book value of $66,600.

NOTE 8 - MORTGAGE PAYABLE

     Interest at 15.99% per annum due in equal monthly installments of $12,521
     including interest, due on April 1, 2004 secured by land and building with
     a net book value of $1,552,621.

                                                                 $892,507
          Less current maturities                                   8,903
                                                                 --------
          Mortgage payable, net of current maturities            $883,604
                                                                 ========

     Total maturities of mortgage payable are as follows:

               Year Ending December 31,
               2001                                 $  8,903
               2002                                   10,435
               2003                                   12,232
               2004                                  860,937
                                                    --------
                                                    $892,507
                                                    ========


                                       9
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements

NOTE 9 - CAPITAL STOCK

     During the year, the Company increased its authorized shares of common
     stock from 20,000,000 to 200,000,000 and changed the par value per common
     share from $0.001 to $0.0001. The Company also converted all shares of its
     Series A preferred stock into common stock, on the basis of ten shares of
     common stock for each share of Series A preferred stock.

     The earnings per share calculation for the year ended December 31, 1999 has
     been restated to reflect the above.

NOTE 10 - INCOME TAXES

     The income tax (provision) benefit is comprised of the following:

                                                     Year Ended December 31,
                                                   --------------------------
                                                      2000             1999
                                                   ---------        ---------
          State current (provision) benefit        $ (15,945)       $ 358,902
          State deferred benefit                          --          251,000
                                                   ---------        ---------
                                                   $ (15,945)       $ 609,902
                                                   =========        =========

     In 1998, the State of New Jersey enacted legislation allowing emerging
     technology and/or biotechnology companies to sell their unused New Jersey
     Net Operating Loss ("NOL") Carryover and Research and Development Tax
     Credits ("R&D Credits) to corporate taxpayers in New Jersey. During 1999,
     the Company entered into an agreement under which it retained a third party
     broker to identify a buyer for its NOL Carryover. The total anticipated net
     proceeds of this transaction $609,902) was recorded as a current deferred
     tax asset and benefit for the year ending December 31, 1999.

     Due to limitations placed by the State of New Jersey on the total amount of
     NOL Carryover and R&D Credits eligible to be sold in any one year, the sale
     of only a portion of the Company's NOL Carryover ($358,902), which was
     received in 1999 funds was recorded as a current tax benefit in the
     December 31, 1999 financial statements. The sale of the remaining balance
     of the Company's NOL Carryover ($235,033), which was recorded as an
     estimated deferred tax benefit of $251,000 at December 31, 1999 was
     received in 2000. This resulted in a current tax provision of $15,945 at
     December 31, 2000.

     The Company's total deferred tax asset and valuation allowance are as
     follows at December 31, 2000:

          Total deferred tax asset, current                 $4,239,951
          Less valuation allowance                           4,239,951
                                                            ----------
          Net deferred tax assets, current                  $       --
                                                            ==========


                                       10
<PAGE>

The differences between income tax benefits in the financial statements and the
tax benefit computed at the U. S. Federal statutory rate of 34% at December 31,
2000 are as follows:

                    Tax benefit                        34%
                    Valuation allowance               (30)%
                                                   ------
                    Effective tax rate                  4%
                                                   ======

At December 31, 2000, the Company has available approximately $10,316,657 of net
operating losses to carryforward which may be used to reduce future federal
taxable income and expire between December 31, 2003 and 2020.

At December 31, 2000 the Company has available approximately $2,931,190 of net
operating losses to carryforward which may be used to reduce future state
taxable income and begin to expire December 31, 2004.

NOTE 11 - LICENSES

The Company has incurred legal and related costs associated with licenses. Such
costs amounted to $107,232 and $80,586 for the years ended December 31, 2000 and
1999. As the probable future economic benefit of such costs is uncertain, they
have been expensed.

NOTE 12 - RELATED PARTY TRANSACTIONS

The Company subcontracts its project expense from certain entities of which GJC
is the sole shareholder. During the years ended December 31, 2000 and 1999, the
Company paid $222,549 and $211,589, respectively, for these services.

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash, Accounts Payable and Accrued Expenses

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

Limitations

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

NOTE 14 - RESTATEMENT OF PRIOR PERIOD RESULTS

The Company has restated its financial statements for the years ended December
31, 2000 and 1999. The restated financial results reflect errors in its
accounting procedures related to revenue recognition and equity transactions.
The impact of these adjustments on the Company's financial results as originally
reported is summarized below:

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                        ------------------------------------------------------------------------
                                                      2000                                     1999
                                        --------------------------------        --------------------------------
                                         As Reported         As Restated         As Reported         As Restated
                                        ------------        ------------        ------------        ------------
<S>                                     <C>                 <C>                 <C>                 <C>
     Retained earnings (deficit)        $(10,688,006)       $(11,012,166)       $(10,565,795)       $(10,867,450)
               Revenue                       845,000             845,000             550,000             250,000
          Net income (loss)                 (122,211)           (144,716)            279,675             (21,979)
       Income (loss) per share                (0.002)               0.00                0.00                0.00
</TABLE>