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

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2004

                                       OR

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

           For the transition period from ___________to______________

                         COMMISSION FILE NUMBER 33-94884

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


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


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

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

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

                              Title of Class: NONE

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

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

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

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

Issuer had no revenues for the year ended December 31, 2004.

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

<PAGE>

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

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

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

                                       2

<PAGE>


                           COATES INTERNATIONAL, LTD.

                                    CONTENTS

<TABLE>
<CAPTION>
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PART I                                                                                Page
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<S>                                                                                  <C>
     Item 1.  Business                                                                  2
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     Item 2.  Properties                                                               10
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     Item 3.  Legal Procedures                                                         10
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     Item 4.  Submission of Matters to a Vote of Security Holders                      10
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PART II
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     Item 5.  Market for Registrant's Common Equity and Related
                   Shareholder Matters                                                 10
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     Item 6.  Management's Discussion and Analysis of Financial Condition              11
                   and Results of Operations
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     Item 7.  Financial Statements and Supplementary Data                              14
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     Item 8.  Changes in and Disagreements with Accountants on Accounting
                   andFinancial Disclosure                                             15
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     Item 8A.  Controls and Procedures                                                 15
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PART III
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     Item  9.  Directors and Executive Officers of the Registrant                      15
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     Item  10.  Executive Compensation                                                 17
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     Item  11.  Security Ownership of Certain Beneficial Owners and
                     Management                                                        18
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     Item  12.  Certain Relationships and Related Transactions                         18
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     Item  13.  Exhibits                                                               19
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     Item  14.  Principal Accountant Fees and Services.                                20
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Signatures                                                                             21
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Certification                                                                          35
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Certification Pursuant to 18 U.S.C. Section1350                                        36
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</TABLE>

<PAGE>

                                     PART I
                            COATES INTERNATIONAL LTD.

ITEM 1: DESCRIPTION OF BUSINESS

(a)   Business Development

      1.    Form and Year of Organization

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

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

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

      Since our inception, the bulk of our development costs and related
operational costs have been funded primarily through cash generated from the
sale of stock, through capital contributions and loans made by Gregory Coates
and from several entities for prototype models and licensing fees. The Company
has never been profitable and has incurred substantial losses from operations of
$678,790 and $1,752,909 for the years ended December 31, 2004 and 2003,
respectively. The Company expects that losses from operations may continue
through 2005 and the Company anticipates that it will require additional
financing in 2005, which may not be readily available.


                                       2
<PAGE>


(b)   Business of the Company

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

The Coates Spherical Rotary Valve Engine

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

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


                                       3
<PAGE>


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

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

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

License Agreement - Well to Wire Energy, Inc.

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


                                       4
<PAGE>

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

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

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

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

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

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


                                       5
<PAGE>

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

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

Agreement with McLean, England and Associates, LLC

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

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

Competition

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


                                       6
<PAGE>

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

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

Parts and Supplies

      To date, Company management has utilized the services of various vendors
and manufacturers available throughout the United States to provide all of the
parts necessary to assemble the Coates Generator Engine. We expect to continue
to purchase all of our raw materials and parts, manufactured to our
specifications, from a wide assortment of suppliers. We intend to commence the
assembly of the Coates Generator Engines at our facility located in Wall, New
Jersey. Thereafter, corresponding to anticipated growth in revenues, we will
either acquire or lease additional facilities for assembly and inventory.

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:


                                       7
<PAGE>

<TABLE>
<CAPTION>
                                           Date                           Date
US Patent No.                       Application Filed                    Of Patent
-------------                       ------------------                 ------------
<S>                                 <C>                                <C>
4,989,576 (Mark I)                  July 26,1982                       February 5,1991
4,953,527 (Mark II)                 November 14,1998                   September 4,1990
4,989,558 (Mark II)                 September 14,1998                  February 5, 1991
4,944,261 (Mark IIB)                October 16,1989                    July 31,1990
4,976,232 (Valve Seal)              December 6,1989                    December 11,1990
5,109,814 (Spherical Valve)         May 10,1991                        May 5,1992
5,361,739 (Mark III)                May 12,1993                        November 8,1994
5,048,979 (Self-Adjusting
             Bearing Assembly)      June 13, 1990                      September 17, 1991
5,601,405 (Valve Apparatus
             for Steam Turbines)    August 14, 1995                    February 11, 1997
6,008,710 (Magnetic Inductor
              Water Conditioner)    May 17, 1999                       December 28, 1999
6,308,676B1 (Cooling System
  for Rotary Valve Engine)          September 8, 2000                  October 30, 2001
6,293,098B1 (Methods &
  Apparatus for Joining
   Pressurized Exhaust
   Manifold Sections)               August 29, 2000                    September 25, 2001
</TABLE>


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

      Application No.                          Description
      ---------------                          -----------

      10/074311               Improved Valve Seals for Rotary Valve Engine
      PCT/USO1/26872          Cooling Assembly for Spherical Rotary Valve Engine
      10/336,896              Rotary Valve & Valve Seal Assembly
      10/313,540              Improved Spherical Rotary Intake Valve
      10/287,419              Piston Head for Internal Combustion Engine
      235-0035                Piston Head for Diesel Engine
      235-034                 Bearing Assembly
      20010023                Mark IIIB (Divisional Spheres)

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


                                       8
<PAGE>

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

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

Environmental Regulatory Compliance

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

Employees

At December 31, 2004, 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.


                                       9
<PAGE>

Subcontract Labor

We subcontract for certain labor services from a related company, Coates
Precision Engineering, Inc., a corporation owned by George J. Coates, which
during 2004 was paid $46,112 for labor services, parts and materials.

ITEM 2: DESCRIPTION OF PROPERTY

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

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

ITEM 3: LEGAL PROCEEDINGS

The Company, its officers and directors and other related and unrelated parties
have been named as defendants in a lawsuit brought in the Superior Court of New
Jersey, Law Division, Ocean County, by a local New Jersey attorney, as a pro se
plaintiff and captioned H. Alton Neff v. George Coates, Coates International,
Ltd. et al, based upon that plaintiff's contention is that he is the assignee of
1107. The Preliminary Agreement provided that the $500,000 deposit of 1107 would
convert to the stock of the Company if 1107 did not make the next payment
required by the Preliminary Agreement. 1107 did not make the next payment;
therefore, the deposit converted into shares of the Company's restricted common
stock. Company management deems this lawsuit without merit and intends to
vigorously defend this action and to seek from the plaintiff payment of its
legal fees and costs. The Company is not a party to any other litigation.

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

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

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

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


                                       10
<PAGE>

On March 5, 2004, the Board of Directors declared a stock dividend for all
stockholders of record on that date, subject to certain conditions, to
distribute to them 1,000,000 shares of the common stock of Coates Motorcycle
Company, Ltd., which we received in exchange for certain sublicensing rights
last year. Coates Motorcycle Company, an affiliate of our Company, is seeking to
register these 1,000,000 common shares under applicable securities laws so that
we can distribute them as the intended stock dividend to our stockholders. The
stock dividend provides that all stockholders of record on March 5, 2004, the
record date, will receive one share of Coates Motorcycle Company's common stock
for every 44.3067 shares of our common stock, with any fractional shares being
settled with cash payments. The dividend and its distribution to our
stockholders is subject, however to two conditions: first, these 1,000,000
Coates Motorcycle Company shares must be fully registered for distribution to
our stockholders under the Securities Act, and; second, Coates Motorcycle
Company must succeed in its initial public offering. If both of these conditions
are not accomplished by August 1, 2004, then the stock dividend will
automatically be cancelled and terminated. We intend to further amend our
sublicense agreement to extend the August 1, 2004 date for an additional 12
months. The intended stock dividend distribution, or payment date, is the day
following the initial closing of Coates Motorcycle Company's initial public
offering. Our stock transfer agent, American Stock Transfer & Trust Company of
New York, will be our agent to distribute the stock dividend when the conditions
have been met.

                                     PART II

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

There is no established public trading market for our only outstanding class of
capital stock, our Common Stock. At December 31, 2004 the approximate number of
holders of record of the Common Stock was 1,015. We have not paid any dividends
with respect to our Common Stock and anticipated capital requirements make it
highly unlikely that we will pay any dividends in the year 2005 or in the
foreseeable future.

Recent Sales of Unregistered Securities

      In 2004 the Company issued a total of 267,286 shares of its common stock
to seven accredited investors for a total of $815,000 in cash at the following
prices per share: 200,000 shares at $2.50 per share, 14,286 shares at $3.50 per
share and 53,000 shares at $5.00 per share. The shares were issued pursuant to
an exemption from the registration requirements of the Securities Act of 1933,
as amended, provided by Regulation D and Section 4(2) of the 1933 Act in that
the number of accredited investors was limited; that the accredited investors
were either existing Company shareholders or had established business
relationships with us. The certificates representing our shares placed contained
the appropriate restrictive legends designating such shares as restricted
securities, non-transferable and non- saleable other than pursuant to
registration under the 1933 Act or pursuant to exemptions therefrom.


                                       11
<PAGE>

SELECTED FINANCIAL DATA

      The selected financial information presented below under the captions
"Statement of Operations" and "Balance Sheet" for the years ended December 31,
2004 and 2003 is derived from the financial statements of the Company and should
be read in conjunction with the financial statements and notes thereto.

<TABLE>
<CAPTION>
     Balance Sheet                                  December 31,       December 31
                                                       2004                 2003
                                                    ------------       -----------
<S>                                                 <C>                <C>
          Total assets ......................       $ 2,405,862        $ 2,594,174
          Current liabilities ...............           738,896          1,028,909
          Long-term debt ....................           863,412            866,374
          Working capital ...................          (268,402)           (96,510)
          Shareholders' equity ..............          (136,446)          (451,180)
</TABLE>

<TABLE>
<CAPTION>
     Statements of Operations                               For The Year Ended December 31,
                                                          ----------------------------------
                                                               2004           2003 (restated)
<S>                                                       <C>                  <C>
          Total revenues ..........................       $           0        $           0
          Operating income (loss) .................          (1,257,576)          (1,823,930)
          (Loss) before provision for incomes taxes            (897,139)          (1,963,113)
          Net (loss) ..............................            (678,790)          (1,752,909)
          Net loss per common share ...............       $       (0.00)       $       (0.01)
          Number of shares used in computing
          per share data ..........................         265,692,098          265,269,092
                                                          -------------        -------------
</TABLE>


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

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

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

Background

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


                                       12

<PAGE>

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

      Agreements with Well to Wire Energy, Inc.

      On September 29, 1999, CIL signed a license agreement (the "License
      Agreement") with Well to Wire Energy, Inc. ("WWE"), an oil and gas company
      in Canada, to license the exclusive use of V-8 cylinder engines modified
      with the Coates System to be fueled by natural gas to generate electrical
      power for the Country of Canada (the "License Agreement") against payment
      of $5,000.000, of which a deposit payment in the amount of $300,000 was
      made. The agreement also provides for development and delivery of certain
      prototype engines under a separate research and development agreement
      between CIL and WWE, referred to as the "R&D Agreement", and stipulates
      that following the testing and delivery of the third prototype - a
      production model Coates Generator Engine - the balance of the license fee
      in the amount of $4,700,000 would be paid in 16 quarterly payments
      beginning 180 days after delivery. Following due diligence investigation
      of the proposed applications for the production of electrical energy and
      the location of the engines in the natural gas fields or generation sites,
      it was agreed between CIL and Well to Wire Energy, Inc. that a larger
      engine modified with the Coates System would be more appropriate.
      Accordingly, CIL and Well to Wire agreed that CIL would research and
      develop a natural gas fed, 855 cubic inch, 6 cylinder, industrial electric
      generator engine (the "Coates Generator Engine").

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

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


                                       13
<PAGE>

      Agreement with McLean, England and Associates, LLC

      During the first quarter, we negotiated a license arrangement with McLean,
      England and Associates, LLC ("McLean") which, on April 12, 2002, produced
      a final agreement that calls for $25,000,000 in license fees for specific
      uses of the Coates CSRV engine technology in certain applications, within
      the United States of America. Payment of the license fee is contingent
      upon the successful completion of tests of two prototype engines fitted
      with the CSRV system. McLean has paid us a non-refundable deposit of
      $565,000 against the license fee, of which $25,000 and $540,000 were
      received during the first and second quarters, respectively. The entire
      amount of $565,000 has been recognized in the balance sheet at December
      31, 2003, as a non-current liability, to be re-classified in subsequent
      periods as income.

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

      Preliminary Agreement with Dominion International

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



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

      We did not earn any revenues during 2004. All of our principal business
activities and efforts during 2004, were devoted to the completion of the
research, development, construction and testing of the prototype engines for WWE
and McLean. We received aggregate payments of $1,140,000 from McLean, 1107 N.W.
Central Avenue, Inc and Dominion during fiscal year 2002 but could not book
these payments as revenue since our agreements with these parties were not
finalized. During the years of 2002 and 2001, we received aggregate payments of
$950,000 from Well to Wire Energy, Inc. pursuant to our agreements which amounts
constituted the only revenues we recorded during those years.

Total operating expenses for the year ended December 31, 2004 were $1,257,576
compared to $1,823,930 for 2003, representing an decrease of approximately
31.05%. Other decreases in our research and development costs, consisted of
decreased purchases of parts and supplies of approximately $112,949. General and
administrative expense decreased from $1,264,205 in 2003, to approximately
$1,032,529 in 2004.

The lack of revenues coupled with the increase of operating expenses resulted in
a loss from operations of $1,257,576 for the year as compared with a loss from
operations of $1,823,930 in 2003. During 2004, we continued our development
efforts on the Coates Generator Engine but also the research, development and
construction tasks associated with the two truck engine prototypes for McLean,
significantly increasing the scope of our business operations. Other
non-operating expenses for the twelve months ended December 31, 2004, remained
relatively constant with those of 2003, with any differences not representing a
material change from those of the prior year. The net results for the year was a
loss of $678,790 or $0.00 per share, as compared to a net loss of $1,752,909 for
2003.


                                       14
<PAGE>

Liquidity and Capital Resources

During 2004, we received subscription proceeds of $815,000 in cash from 7
accredited investors for the issuance of 267,286, restricted common shares,
concluding our private placement. We did not receive any non-refundable deposit
payments against future license agreements and no refundable deposits which were
converted into Company equity. We deposit our cash in our interest bearing bank
accounts. The liquidity in our working capital which showed a deficit working
capital of $268,402 at December 31, 2004. Current liabilities are primarily
composed of approximately $483,297 legal fees due one law firm for its
representation of our Company in litigation over the past several years.

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


ITEM 7: FINANCIAL STATEMENTS

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


ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

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


ITEM 8A CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures:

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


                                       15
<PAGE>

Changes in internal controls:

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

Limitations on the effectiveness of controls:

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


                                    PART III

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


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

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

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

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

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


                                       16
<PAGE>

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

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

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

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


                                       17
<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.

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

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

      The Company knows of no person, who, at any time during the fiscal year
ended December 31, 2004 to the date hereof, was a director, officer, beneficial
owner of more than ten percent of any class of equity securities of the Company
(a "Reporting Person"), that failed to file on a timely basis any reports
required to be furnished pursuant to Section 16(a). Based upon a review of Forms
3, 4 and 5 furnished to the Company under Rule 16(a)-3(d), the Company knows of
no Reporting Person that failed to file the required reports within the required
time limits.

ITEM 10: EXECUTIVE COMPENSATION.

      None of our executive officers has an employment contract. With respect to
each of calendar years 2002, 2003 and 2004, no executive officer had
compensation paid or accrued in excess of $100,000 for any such year except for
George J. Coates, our Chief Executive Officer, while compensation was as
follows:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
         Name                       Position                            Year                  Salary
         -------                    ---------                           ----                  ------
<S>                        <C>                                          <C>                   <C>
George J. Coates           President, Chief Executive
                           Officer and Chief Financial
                           Officer                                      2004                  $186,948
                                                                        2003                  $183,549
                                                                        2002                  $182,057
</TABLE>


                                       18
<PAGE>


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

      The following table sets forth as of December 31, 2004 the ownership of
CIL Common Stock by (i) each person known by CIL to be beneficial owner of more
than 5 percent of the outstanding Common Stock, (ii) each director and executive
officer of CIL who owned shares, and (iii) all directors and executive officers
as a group.

<TABLE>
<CAPTION>

Title                      Name and Address of                Amount and Nature of               Percent
of Class                   Beneficial Owner                   Beneficial Ownership               of Class
--------                   ----------------                   --------------------               --------
<S>                        <C>                                <C>                                <C>
Common Stock               George J. Coates*                  207,252,760 shares(1)               78.19%
                           Gregory Coates*                    14,062,520 shares                    5.31%
                           Richard Evans                      660,000 shares                        .25%
                           Michael J. Suchar*                 241,600 shares(2)                     .09%

                           All directors and
                           executive officers
                           as a Group (3 persons)             222,216,880 shares                  83.83%
</TABLE>

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

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

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


ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We paid $62,112 and $113,000 respectively, during fiscal years 2004 and 2003 to
Coates Precision Engineering, Inc., a company owned by George J. Coates, for
services rendered to us in connection with our research and development of the
Coates Generator Engine. During fiscal year 2004, George J. Coates made loans to
our Company at various times to assist in financing our operations, which
aggregate outstanding amount at December 31, 2004 was $150,000. These borrowings
are in the form of demand loans which carry no interest and are repaid from time
to time depending upon our available cash. It is the intention of Mr. George J.
Coates to assist our Company with our cash requirements in the form of loans as
needed in the future even though Mr. Coates is not legally obligated to do so.


                                       19
<PAGE>


ITEM 13; EXHIBITS

Exhibit No.                         Description of Exhibit

3.1*        CIL's Restated Certificate of Incorporation

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

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

3.2*        CIL's By-Laws

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

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

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

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

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

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

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

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

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

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

10.10x      License Agreement, dated April 12, 2002, by and between Coates
            International, Ltd. and McLean, England and Associates,LLC.

10.11#      Sublicense Agreement, dated April 30,2003, by and between Coates
            International, Ltd., as Sublicensor, and Coates Motorcycle Company,
            Ltd., as Sublicensee.

10.12#      License Agreement, dated April 30, 2003, by and between George J.
            Coates, Gregory G. Coates and the Coates Trust, collectively as
            Licensor, and Coates Motorcycle Company, Ltd., as Licensee.

10.13       Amendment No. 1 to Sublicense Agreement, dated March 5, 2004, by and
            between Coates International, Ltd., as Sublicensor, and Coates
            Motorcycle Company, Ltd., as Sublicensee.

10.14       Amendment No. 1 to License Agreement, dated March 5, 2004, by and
            between George J. Coates, Gregory G, Coates and the Coates Trust,
            collectively as Licensor, and Coates Motorcycle Company, Ltd., as
            Licemsee.

10.15       Amendment to License Agreement, dated April 1, 2004, by and between
            Coates International, Ltd. and George J. Coates, as Licensor, and
            McLean, England and Associates, LLC, as Licensee.

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

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

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

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

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


                                       20
<PAGE>


ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

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

AUDIT-RELATED FEES

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

TAX FEES

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

ALL OTHER FEES

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


                                       21
<PAGE>

                                   SIGNATURES

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



DATE: November 2, 2005                      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.

<TABLE>
<CAPTION>
SIGNATURE                                   TITLE                                 DATE
---------                                   -----                                 ----
<S>                                         <C>                               <C>
/s/ George J. Coates
--------------------------
George J. Coates                            Director, Chief                   November 2, 2005
                                            Executive Officer,
                                            President, and
                                            Chief Financial Officer

/s/ Richard W. Evans
--------------------------
Richard W. Evans                            Director                          November 2, 2005


/s/ Michael J. Suchar
--------------------------
Michael J. Suchar                           Director                          November 2, 2005
</TABLE>


                                       22

<PAGE>


                           Coates International, Ltd.

                              Financial Statements

                                December 31, 2004

<PAGE>

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

                                                                  Page

Report of Independent Registered Public Accounting Firm             1

Financial Statements

      Balance Sheet                                                 2

      Statements of Operations                                      3

      Statements of Stockholders' Impairment                        4

      Statements of Cash Flows                                      5

      Notes to the Financial Statements                           6-11


<PAGE>

             Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying balance sheet of Coates International, Ltd. as
of December 31, 2004, and the related statements of operations, stockholders'
impairment and cash flows for the years ended December 31, 2004 and December 31,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Coates International, Ltd. as
of December 31, 2004, and the results of its operations and its cash flows for
the years ended December 31, 2004 and December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.

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


                                       /s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
April 11, 2005

                                       1

<PAGE>

                           Coates International, Ltd.
                                  Balance Sheet
                                December 31, 2004

<TABLE>
<CAPTION>
                                     Assets
<S>                                                                                  <C>
Current Assets
     Cash                                                                            $    180,182
     Inventory                                                                            290,312
                                                                                     ------------

        Total Current Assets                                                              470,494

 Property, Plant and Equipment, net of accumulated depreciation of $652,676             1,555,103

 Due from related party                                                                   377,765

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

        Total Assets                                                                    2,405,862
                                                                                     ============


                    Liabilities and Stockholders' Impairment

Current Liabilities
     Current portion of mortgage payable                                                    4,770
     Accounts payable                                                                      39,818
      Accrued interest                                                                     12,076
      Accrued expenses                                                                    532,232
     Due to related party                                                                 150,000
                                                                                     ------------

        Total Current Liabilities                                                         738,896

License deposits                                                                          940,000

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

        Total Liabilities                                                               2,542,308
                                                                                     ------------

Stockholders' Impairment
     Preferred stock, Series A, $.001 par value 14,000,000 shares authorized -
     no shares issued                                                                          --
     Common stock, $.00001 par value, 1,000,000,000 shares authorized -
         265,859,278 shares issued and outstanding                                          2,658
     Additional paid-in capital                                                        17,025,186
     Accumulated deficit                                                              (17,164,290)
                                                                                     ------------

        Total Stockholders' Impairment                                                   (136,446)
                                                                                     ------------

        Total Liabilities and Stockholders' Impairment                               $  2,405,862
                                                                                     ============
</TABLE>

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


                                       2
<PAGE>

                           Coates International, Ltd.
                            Statements of Operations

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                          ----------------------------------
                                                                                 (Restated)
                                                               2004                 2003
                                                          -------------        -------------
<S>                                                       <C>                  <C>
Revenue                                                   $          --        $          --
                                                          -------------        -------------

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

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

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

Other Income (Expense):
     Gain from legal settlement                                 225,000                   --
      Gain from settlement of legal expenses                    260,336                   --
     Interest income                                                288                3,158
     Interest expense                                          (125,187)            (142,341)
                                                          -------------        -------------

        Total Other Income (Expense)                            360,437             (139,183)
                                                          -------------        -------------

Loss Before Income Taxes                                       (897,139)          (1,963,113)

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

Net Loss                                                  $    (678,790)       $  (1,752,909)
                                                          =============        =============

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

Weighted Average Number of Shares                           265,692,098          265,269,092
                                                          =============        =============
</TABLE>

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

                                        3
<PAGE>

                           Coates International, Ltd.
                     Statements of Stockholders' Impairment

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

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

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

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

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

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

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

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

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

   Net loss for the year                           --                 --                 --           (678,790)           (678,790)
                                         ------------       ------------       ------------       ------------        ------------

Balance at December 31, 2004              265,859,278       $      2,658       $ 17,025,186       $(17,164,290)       $   (136,446)
                                         ============       ============       ============       ============        ============
</TABLE>

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

                                        4
<PAGE>

                           Coates International, Ltd.
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                      ------------------------------
                                                                          (Restated)
                                                         2004                2003
                                                      -----------        -----------
<S>                                                   <C>                <C>
Cash Flows From Operating Activities:

Net Loss                                              $  (678,790)       $(1,752,909)
     Adjustments to Reconcile Net Loss to
       Net Cash Used in
     Operating Activities
        Depreciation                                       62,743             63,300
        Amortization                                        3,243             12,972
        Write off of obsolete inventory                    12,394            137,413
        Stock issued for services, compensation
          and patent costs                                     --            148,438
Changes in Operating Assets and Liabilities
        Inventory                                              --           (154,607)
        Deferred offering costs                                --             44,870
        Accounts payable                                   16,022            (45,059)
        Accrued expenses                                 (289,258)            57,138
                                                      -----------        -----------
Net Cash (Used in) Operating Activities                  (873,646)        (1,488,444)
                                                      -----------        -----------

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

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

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

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

                                       5
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Nature of Organization

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

      Basis of Financial Statement Presentation

            The financial statements of the Company have been prepared assuming
            the Company will continue as a going concern, which contemplates the
            realization of assets and the satisfaction of liabilities in the
            normal course of business. The Company has never been profitable and
            has incurred substantial losses from operations of $678,790 and
            $1,752,909 for the years ended December 31, 2004 and 2003,
            respectively. The Company expects that losses from operations will
            continue through 2005 and the Company anticipates that it will
            require additional financing in 2005, which may not be readily
            available. These factors raise substantial doubt about the Company's
            ability to continue as a going concern. The Company's plans include
            execution and funding of sublicense agreements with engine
            manufacturers or retrofitters, and the manufacture and sale, by the
            Company, of combustion engines modified with the Coates System in
            high performance automotive, motorcycle, marine racing engines, and
            other types of combustion engines. However, there can be no
            assurances that the Company will be successful in their efforts to
            generate profitable operations. The financial statements do not
            include any adjustments that might result from the outcome of this
            uncertainty.

      Principles of Consolidation

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

      Inventory

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

      Property, Plant & Equipment

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

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

      Loss Per Share

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

See notes to the financial statements.

                                       6
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Revenue Recognition

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

      Advertising Costs

            Advertising costs are charged to operations when incurred.
            Advertising expense was $25,001 and $6,233 for the years ended
            December 31, 2004 and 2003, respectively.

      Research and Development

            Research and development costs are charged to operations as
            incurred.

      Income Taxes

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

      Use of Estimates

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
            and assumptions that affect the reported amounts of assets and
            liabilities and disclosure of contingent assets and liabilities at
            the date of the financial statements and the reported amounts of
            revenues and expenses during the reporting period. Actual results
            could differ from those estimates.

2.    CONCENTRATIONS OF CREDIT AND BUSINESS RISK

      The Company maintains cash balances in several financial institutions.
      Accounts at each institution are insured by the Federal Deposit Insurance
      Corporation up to $100,000, of which the Company's accounts may, at times,
      exceed the federally insured limits.

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


See notes to the financial statements.


                                       7
<PAGE>

                           Coates International, Ltd.

Notes to the Financial Statements


3.    FAIR VALUE OF FINANCIAL INSTRUMENTS

      Cash, Accounts Payable and Accrued Expenses

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

      Limitations

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

4.    CONTINGENCIES

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

5.    INVENTORY

      Inventory at December 31, 2004 consists of the following:

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

6.    LICENSE DEPOSITS

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

      During 2002 the Company entered into various license agreements. Pursuant
      to such agreements, the Company received an aggregate $1,140,000 of
      license deposits.

      During 2003 license deposits totaling $500,000 were converted to 25,000
      shares of common stock of the Company, pursuant to the license agreement.
      No other license agreements have a convertible feature.

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

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


See notes to the financial statements.

                                       8
<PAGE>

                           Coates International, Ltd.
                        Notes to the Financial Statements


7.    PROPERTY, PLANT AND EQUIPMENT

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

         Land                                               $   920,550
         Building                                               579,450
         Building improvements                                  219,371
         Machinery and equipment                                449,113
         Furniture and fixtures                                  39,295
                                                            -----------
                                                              2,207,779
         Less:  Accumulated depreciation                      (652,676)
                                                            -----------

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

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


8. ACCRUED EXPENSES

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

         Legal fees                                          $  483,297
         General and administrative expenses                     48,935
                                                             ----------
                       Total                                 $  532,232
                                                             ==========


9. MORTGAGE PAYABLE

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

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

     Total maturities of mortgage payable are as follows:
         Year Ending December 31,
                  2005                                       $     4,770
                  2006                                             5,650
                  2007                                             6,500
                  2008                                             7,450
                  2009                                             8,600
                  2010 and thereafter                            835,212
                                                             -----------
                                                             $   868,182

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


See notes to the financial statements.

                                       9
<PAGE>

                           Coates International, Ltd.

Notes to the Financial Statements


10.   SALE OF COMMON STOCK

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


11.   INCOME TAXES Year Ended December 31,

      The current income tax benefit is comprised of the following:

                                              2004                 2003
                                         -------------       --------------
         Federal                         $          --       $           --
                                         =============       ==============
         State                           $     218,349       $      210,204
                                         =============       ==============


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

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

         Total deferred tax assets                            $    4,098,789
         Less valuation allowance                                 (4,098,789)
                                                              --------------
         Net deferred tax assets                              $           --
                                                              ==============

      The differences between income tax provisions in the financial statements
      and the tax benefit computed at the U.S. Federal statutory rate of 34% at
      December 31, 2004 are as follows:

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


      At December 31, 2004, the Company has available approximately $16,395,000
      of net operating losses and carryforward which may be used to reduce
      future federal taxable income and expire between December 31, 2008 and
      2022.

      At December 31, 2004, the Company has available approximately $598,478 of
      net operating losses to carryforward which may be used to reduce the
      future state taxable income and expire between December 31, 2006 and 2009.


See notes to the financial statements.

                                       10
<PAGE>


                           Coates International, Ltd.

Notes to the Financial Statements


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,
      2004 and 2003, the Company paid $192,000 and $113,000, respectively, for
      these services.

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

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

      As of December 31, 2004, the Company has outstanding loans and interest
      receivable from Coates Motorcycle and Precision Engineering in the amount
      of $344,878 and $32,887, respectively.

      During the fourth quarter of 2004, GJC lent $150,000 to the Company in
      order to fund operations.

13.   SETTLEMENT OF LITIGATION

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


See notes to the financial statements.

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