SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A1
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from____________to______________
Commission File Number 33-94884
COATES INTERNATIONAL LTD.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2925432
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Highway 34 & Ridgewood Road, Wall Township, New Jersey 07719
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (908) 449-7717
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of the issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or in any amendment to
this Form 10-KSB. [ ]
Issuer did not generate any revenues for the year ended December 31, 1997.
During the year ended December 31, 1997, there was no established public trading
market for the issuer's Series A Preferred Stock. On December 31, 1997, there
were 6,564,424 shares of Series A Preferred Stock of the Issuer issued and
outstanding.
<PAGE>
Nicholson McLaren by CIL. In April and July 1996, CIL executed a License
Agreement and a Sales Representative Agreement with Nicholson McLaren. See
"Patents and Licenses."
Since its inception, the bulk of the development costs and related
operational costs of CIL have been funded primarily through cash generated from
the sale of stock, through capital contributions made by Gregory Coates and the
above described payments from Harley Davidson and Millwest. As a development
stage company, CIL has incurred losses from the inception of the Predecessor
Entity in August 1988 through December 31, 1997 of $24,809,078 and at December
31, 1997, had a negative net worth of ($547,976) and negative working capital of
($1,036,578).
The Company's auditors have included in its report, dated May 14, 1998,
and filed as an exhibit to the Form 10-KSB, prepared in connection with its
audit of the Company's financial statements for the firscal year ended December
31, 1997, its observations that (1) the Company has suffered recurring losses
during its development stage and has accumulated a deficit since its inception
to December 31, 1997, of over $24,000,000; (2) that the Company has minimal
liquid assets, while reporting over $1,000,000 in current liabilities and; (3)
that the Company's ability to generate revenues and achieve profitable
operations is principally dependent upon the execution and funding of
sub-license agreements with engine manufacturers or retrofitters and upon the
manufacture and sale of high performance engines. These observations have led
the auditors to opine that there exists substantial doubts about the Company's
ability to continue as a going concern.
Business Plan
CIL's ability to generate revenues and achieve profitable operations is
principally dependent upon the execution and funding of sub-license agreements
with engine manufacturers or retrofitters, and upon the manufacture and sale, by
CIL, of high performance automotive, motorcycle and marine racing engines. CIL
is actively attempting to market its technology and is in communication with
various persons and entities who may be interested in acquiring sub-licenses to
use the technology.
CIL is currently manufacturing several high performance automotive engines
modified with the Coates System on a limited basis at its Wall Township, New
Jersey manufacturing facility. During the Company's fiscal year ended December
31, 1997, the Company built or retrofitted ten (10) V8 302 automobile engines, 3
of which were installed in a Bronco truck, 1996 Ford Mustang and in a 1988 Ford
Mustang, respectively. Except as set forth herein, none of the engines have been
sold. CIL has received numerous oral and written inquiries from potential
customers, expressing an interest in acquiring high performance automotive
racing engines modified with the Coates System. After it completes manufacture
of a sufficient backlog of such engines, CIL intends to attempt to convert these
inquiries into binding sales orders, to fill such orders from its limited
inventory of engines and to continue to manufacture on a limited basis and
market high performance automotive, motorcycle and marine racing engines using
the Coates System technology. Assuming CIL obtains sufficient financing and a
sufficient number of orders, CIL management believes that it will be able to
produce racing engines using the Coates System technology at its Wall Township
facility on a limited basis at the rate of approximately 30 engines per month.
CIL expects that the bulk of its initial sales of engines, to the extent it is
able to effectuate same, will be at a base sales price in the range of $25,000
to $30,000 per engine although depending on type and size, some of the engines
may be priced as high as $75,000. To achieve such production levels, CIL will be
required to expand its production work force to approximately 15-20 production
workers.
1
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, the Registrant has duly caused this Amendment
No. 1 to its Form 10-KSB for the fiscal year ended December 31, 1997 to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date COATES INTERNATIONAL LTD.
October 1, 1998 By s/George J. Coates
George J. Coates, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
s/George J. Coates
George J. Coates Director (Principal Executive October 1, 1998
Principal Financial Officer, Principal
Accounting Officer
s/Richard W. Evans
Richard W. Evans Director October 1, 1998
s/Michael J. Suchar
Michael J. Suchar Director October 1, 1998
coat10k.97a
2
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Financial Statements
December 31, 1997 and 1996
3
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Index to the Financial Statements
December 31, 1997 and 1996
Page
Independent Auditors' Report ........................... 1
Financial Statements
Balance Sheet....................................... 2
Statements of Operations............................ 3
Statement of Stockholders' Equity................... 4
Statements of Cash Flows............................ 5-6
Notes to the Financial Statements................... 7-10
4
<PAGE>
To the Board of Directors and Shareholders of
Coates International, Ltd.
We have audited the balance sheet of Coates International, Ltd. (A Development
Stage Company) as of December 31, 1997 and the related statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997 and
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Coates International, Ltd. (A
Development Stage Company) as of December 31, 1997, and the results of their
operations, and cash flows for the years ended December 31, 1997 and 1996 in
conformity with generally accepted accounting principles. We express no opinion
on the cumulative period from inception (August 31, 1988) through December 31,
1997 as shown in the cumulative columns on the statements of operations,
stockholders' equity and cash flows.
[GRAPHIC OMITTED]
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the notes to the financial
statements, the Company has insignificant revenues to date, has incurred losses
and has accumulated a deficit since its inception to December 31, 1997, of
$9,743,717 million in research and development activities. The Company also has
minimal liquid assets, while reporting $1,183,827 in current liabilities. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also discussed
in the notes to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
s/Rosenberg Rich Baker Berman & Company
ROSENBERG RICH BAKER BERMAN & COMPANY
Bridgewater, New Jersey
May 14, 1998
1
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Balance Sheet
December 31, 1997
(Restated)
Assets
Current Assets
Cash $ 35,249
Restricted cash 112,000
--------------
Total Current Assets 147,249
--------------
Property, Plant and Equipment - Net 1,582,054
--------------
Other Assets
Deposit 2,500
--------------
Total Assets 1,731,803
==============
Liabilities and Stockholders' Equity
Current Liabilities
Mortgage payable 160,000
Accounts payable and accrued expenses 904,706
Accrued interest payable 106,559
Due to stockholder 12,562
--------------
Total Current Liabilities 1,183,827
--------------
Stockholders' Equity
Preferred stock, Series A, $.001 par value, 14,000,000
shares authorized - voting, non-cumulative convertible
6,564,424 shares issued and outstanding 6,564
Common stock, $.001 par value, 20,000,000
shares authorized - no shares issued Additional
paid-in capital 10,285,129
Deficit accumulated during the development stage (9,743,717)
--------------
Total Stockholders' Equity 547,976
--------------
$ 1,731,803
Total Liabilities and Stockholders' Equity
==============
See notes to the financial statements.
2
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period From
August 31,
1988 (Date of
Inception)
Through
December 31,
1997
----------------
Years Ended December 31,
--------------------------------- ----------------
1997 1996
--------------- --------------- ----------------
(Unaudited)
(Restated) (Restated)
--------------- ----------------
<S> <C> <C> <C>
Revenue $ - $ 37,375 $ 687,375
--------------- --------------- ----------------
Operating Expenses:
Research and development costs 453,051 64,125 2,224,457
Research and development costs - related party 212,626 181,500 828,765
General and administrative expenses 721,829 1,315,282 6,944,070
Depreciation expense 40,292 40,915 319,670
--------------- --------------- ----------------
Total Operating Expenses 1,427,798 1,601,822 10,316,962
--------------- --------------- ----------------
Loss From Operations (1,427,798) (1,564,447) (9,629,587)
--------------- --------------- ----------------
Other Income (Expense):
Interest income 11,262 1,121 124,866
Interest expense (15,650) (36,784) (238,996)
--------------- --------------- ----------------
Total Other Income (Expense) (4,388) (35,663) (114,130)
--------------- --------------- ----------------
Net Loss $ (1,432,186) $ (1,600,110) $ (9,743,717)
=============== =============== ================
Net Loss Per Share $ (0.24) $ (0.27)
=============== ===============
6,033,669 5,963,600
Weighted Average Number of Shares
=============== ===============
</TABLE>
See notes to the financial statements.
3
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Statement of Stockholders' Equity
Inception (August 31, 1988) to December 31, 1997
<TABLE>
<CAPTION>
Common Stock Common Stock Series A Preferred
Class A Class C Stock Preferred Stock
----------------------- -------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------- --------- ---------- --------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
August 31, 1988 (Date of Inception -$ - -$ - -$ - -$ -
Issuance of Shares 854,500 854 - - - - - -
Issuance of Stock Pursuant to Private
Placement Offering 100,000 96 - - - - - -
Net Loss for the Period from August 31, 19
(Date of Inception) Through
December 31, 1988 - - - - - - - -
------------- --------- ---------- ------------------- --------- ----------- ---------
Balance - December 31, 1988 954,500 950 - - - - - -
Stock Dividend 50,000 50 450,000 450 - - - -
Issuance of Stock for Services Rendered 12,000 12 - - - - - -
Net Loss for Year Ended December 31, 1989 - - - - - - - -
------------- --------- ---------- ------------------- --------- ----------- ---------
Balance - December 31, 1989 1,016,500 1,012 450,000 450 - - - -
Issuance of Stock Pursuant to Private
Placement Offering 76,000 76 - - - - - -
Issuance of Stock 962,500 962 - - - - - -
Net Loss for Year Ended December 31, 1990 - - - - - - - -
------------- --------- ---------- ------------------- --------- ----------- ---------
Balance December 31, 1990 2,055,000 2,050 450,000 450 - - - -
Exchange of Preferred Stock for Common
Stock Class A (2,055,000) (2,050) - - - - 2,055,000 2,050
Exchange of Preferred Stock for Common
Stock Class C - - (450,000) - - - 450,000 450
Cancellation of Common Stock Class C - - - (450) - - (225,000) (220)
Issuance of Stock in Connection with
Reorganization 100 - - - - - - -
Dissolution of Coates International, Ltd. (100) - - - - - - -
Exchange of Series A Preferred Stock for (2,280,000)
Preferred Stock - - - - 2,280,000 2,280 (2,280)
Issuance of Stock - - - - 102,000 102 - -
Purchase of Treasury Stock - - - - - - - -
Stock Split 2:1 - - - - 2,382,000 2,382 - -
New Loss for Year Ended December 31, 1991 - - - - - - - -
------------- --------- ---------- ------------------- --------- ----------- ---------
</TABLE>
4A
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Additional During the Stockholders'
Paid-In Treasury Development Equity
Capital Stock Stage (Deficit)
----------- ----------- -------------- --------------
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
August 31, 1988 (Date of Inception $ -$ -$ -$ -
Issuance of Shares - - - 854
Issuance of Stock Pursuant to Private
Placement Offering 499,900 - - 499,996
Net Loss for the Period from August 31, 19
(Date of Inception) Through
December 31, 1988 - - (52,708) (52,708)
----------- ----------- -------------- --------------
Balance - December 31, 1988 499,900 - (52,708) 448,142
Stock Dividend (500) - - -
Issuance of Stock for Services Rendered (12) - - -
Net Loss for Year Ended December 31, 1989 - - (252,288) (252,288)
----------- ----------- -------------- --------------
Balance - December 31, 1989 499,388 - (304,996) 195,854
Issuance of Stock Pursuant to Private
Placement Offering 701,165 - - 701,241
Issuance of Stock - - - 962
Net Loss for Year Ended December 31, 1990 - - (392,564) (392,564)
----------- ----------- -------------- --------------
Balance December 31, 1990 1,200,553 - (697,560) 505,493
Exchange of Preferred Stock for Common
Stock Class A - - - -
Exchange of Preferred Stock for Common
Stock Class C - - - -
Cancellation of Common Stock Class C - - - (220)
Issuance of Stock in Connection with
Reorganization 1,000 - - 1,000
Dissolution of Coates International, Ltd. (1,000) - - (1,000)
Exchange of Series A Preferred Stock for
Preferred Stock 18,990 - - 18,990
Issuance of Stock 1,019,898 - - 1,020,000
Purchase of Treasury Stock - (25,000) - (25,000)
Stock Split 2:1 (2,382) - - -
New Loss for Year Ended December 31, 1991 - - (739,096) (739,096)
- ----------- ----------- -------------- --------------
</TABLE>
4B
<PAGE>
<TABLE>
<CAPTION>
Common Stock Common Stock Series A Preferred
Class A Class C Stock Preferred Stock
----------------------- -------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------- --------- ---------- --------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------ -------- --------- -------- ---------- -------- ---------- -------
Balance -December 31, 1991 - - - - 4,764,000 4,764 -
To Correct Balance at December 31, 1991 - - - - 772,500 772 -
Issuance of Stock for Service - - - - 500 - -
Issuance of Stock - - - - 115,850 116 -
Private Placement Costs - - - - - - -
Net Loss for Year Ended December 31, 1992 - - - - - - -
------------- --------- ---------- --------- ----------- --------- ----------- --------
Balance - December 31, 1992 - - - - 5,652,850 5,652 -
Issuance of Stock - - - - 82,250 83 -
Purchase of Treasury Stock - - - - - - -
Prior Period Adjustment - - - - - - -
Adjustment for Redeemable Preferred Stock - - - - (479,950) (480) -
Net Loss for Year Ended December 31, 1993 - - - - - - -
------------- --------- ---------- --------- ----------- --------- ----------- --------
Balance - December 31, 1993 - - - - 5,255,150 5,255 -
Issuance of Stock - - - - 2,000 2 -
Purchase of Treasury Stock - - - - - - -
Adjust Treasury Stock for Redeemable
preferred Stock - - - - (1,000) (1) -
Adjust Remaining Redeemable Preferred
Stock Issued in 1994 - - - - (1,000) (1) -
Restoration of Shares Not Redeemed by
Stockholders - - - - 415,200 415 -
Net Loss for Year Ended December 31, 1994 - - - - - - -
------------- --------- ---------- --------- ----------- --------- ----------- --------
Balance - December 31, 1994 - - - - 5,670,350 5,670 -
Restoration of Shares Not Redeemed by
Stockholders - - - - 18,250 18 -
Issuance of Stock in Exchange for U.S.
Patent Rights - - - - 275,000 275 -
Adjustments to Paid-in Capital - - - - - - -
Treasury Stock Adjustment - - - - - - -
Net Loss for Year Ended December 31, 1995 - - - - - - -
------------- --------- ---------- --------- ----------- --------- ----------- --------
Balance - December 31, 1995 (Restated) - - - 5,963,600 5,963 -
Adjustments to Paid-in Capital - - - - - - -
Net Loss for Year Ended December 31, 1996 - - - - - - -
------------- --------- ---------- --------- ----------- --------- ----------- -------
Balance - December 31, 1996 - - - - 5,963,600 5,963 -
Issuance of Stock - - - - 48,000 48 -
Restoration of Shares Not Redeemed by
Stockholders - - - - 24,325 24 -
Issuance of Stock in Exchange for Mortgage
Paydown - - - - 2,500 3 -
Issuance of Stock in Exchange for Exclusive
License - - - - 500,000 500 -
Issuance of Stock for Loans Reclassification - - - - 5,500 6 -
Completion of 1990 Stock Split 2:1 - - - - 20,499 20 -
</TABLE>
4C
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Additional During the Stockholders'
Paid-In Treasury Development Equity
Capital Stock Stage (Deficit)
<S> <C> <C> <C> <C>
----------- ----------- -------------- --------------
Balance -December 31, 1991 2,237,059 (25,000) (1,436,656) 780,167
To Correct Balance at December 31, 1991 (772) - - -
Issuance of Stock for Service 10,000 - - 10,000
Issuance of Stock 2,306,884 - - 2,307,000
Private Placement Costs (80,675) - - (80,675)
Net Loss for Year Ended December 31, 1992 - (996,055) (996,055)
----------- ----------- -------------- --------------
Balance - December 31, 1992 4,472,496 (25,000) (2,432,711) 2,020,437
Issuance of Stock 1,944,917 - - 1,945,000
Purchase of Treasury Stock - (55,000) - (55,000)
Prior Period Adjustment - - 219,224 219,224
Adjustment for Redeemable Preferred Stock (5,921,818) 65,000 - (5,857,298)
Net Loss for Year Ended December 31, 1993 - (1,270,966) (1,270,966)
----------- ----------- -------------- --------------
Balance - December 31, 1993 495,595 (15,000) (3,484,453) (2,998,603)
Issuance of Stock 39,998 - - 40,000
Purchase of Treasury Stock - (35,000) - (35,000)
Adjust Treasury Stock for Redeemable
preferred Stock (19,999) 20,000 - -
Adjust Remaining Redeemable Preferred
Stock Issued in 1994 (19,999) - - (20,000)
Restoration of Shares Not Redeemed by
Stockholders 4,586,883 - - 4,587,298
Net Loss for Year Ended December 31, 1994 - - (1,229,523) (1,229,523)
----------- ----------- -------------- --------------
Balance - December 31, 1994 5,082,478 (30,000) (4,713,976) 344,172
Restoration of Shares Not Redeemed by
Stockholders 19,982 - - 20,000
Issuance of Stock in Exchange for U.S.
Patent Rights 433,864 - - 434,139
Adjustments to Paid-in Capital 1,177,579 - - 1,177,579
Treasury Stock Adjustment (30,000) 30,000 - -
Net Loss for Year Ended December 31, 1995 - - (1,997,445) (1,997,445)
----------- ----------- -------------- --------------
Balance - December 31, 1995 (Restated) 6,683,903 - (6,711,421) (21,555)
Adjustments to Paid-in Capital 1,132,523 - - 1,132,523
Net Loss for Year Ended December 31, 1996 - (1,600,110) (1,600,110)
----------- ----------- -------------- --------------
Balance - December 31, 1996 7,816,426 - (8,311,531) (489,142)
Issuance of Stock 959,952 - - 960,000
Restoration of Shares Not Redeemed by
Stockholders 496,946 - - 496,970
Issuance of Stock in Exchange for Mortgage
Paydown 49,997 - - 50,000
Issuance of Stock in Exchange for Exclusive
License - - - 500
Issuance of Stock for Loans Reclassification 7,994 - - 8,000
Completion of 1990 Stock Split 2:1 (20) - - -
</TABLE>
4D
<PAGE>
<TABLE>
<CAPTION>
Common Stock Common Stock Series A Preferred
Class A Class C Stock Preferred Stock
----------------------- -------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------- --------- ---------- --------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additional Contributions of Capital From a
Shareholder - - - - - - -
Net Loss for Year Ended December 31, 1997 - - - - - - -
------------- --------- ---------- --------- ----------- --------- ----------- -------
Balance - December 31, 1997 -$ - -$ - 6,564,424$ 6,564 -$
============= ========= ========== ========= =========== ========= =========== =======
</TABLE>
See notes to the financial statements.
4E
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Additional During the Stockholders'
Paid-In Treasury Development Equity
Capital Stock Stage (Deficit)
<S> <C> <C> <C> <C>
Additional Contributions of Capital From a
Shareholder 953,834 - - 953,834
Net Loss for Year Ended December 31, 1997 - - (1,432,186) (1,432,186)
----------- ----------- -------------- --------------
Balance - December 31, 1997 $ 10,285,129$ -$ (9,743,717)$ 547,976
=========== =========== ============== ==============
</TABLE>
4F
<PAGE>
<TABLE>
<CAPTION>
Period From
August 31,
1988 (Date of
Years Ended December 31, Inception)
December 31,
1997 1996 1997
______________ _______________ ______________
(Unaudited)
(Restated) (Restated)
______________ _____________
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Loss $ (1,432,186) $ (1,600,110) $ (9,743,717)
--------------- --------------- -----------------
Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities
Depreciation 40,292 40,915 319,670
Noncash research and development costs - 31,131 31,131
Changes in Assets and Liabilities
(Increase) Decrease in
Inventory 144,033 (144,033) -
Due to/from affiliated companies 4,485 (2,312) 57
Increase (Decrease) in
Accounts payable and accrued expenses (542,861) 629,407 904,706
Accrued interest payable (114,849) 18,371 62,340
--------------- --------------- -----------------
Total Adjustments (468,900) 573,479 1,317,904
--------------- --------------- -----------------
Net Cash Used in Operating Activities (1,901,086) (1,026,631) (8,425,813)
--------------- --------------- -----------------
Cash Flows from Investing Activities
Payments for property and equipment - (5,252) (413,032)
Loans to stockholders - (7,487) (774,039)
--------------- --------------- -----------------
Net Cash Used in Investing Activities - (12,739) (1,187,071)
--------------- --------------- -----------------
Cash Flows From Financing Activities
Proceeds of additional paid-in capital 938,147 1,017,242 2,307,438
Proceeds from issuance of stock 960,000 - 7,338,148
Payment for treasury stock - - (30,000)
Loans from stockholder 24,547 8,000 32,547
--------------- --------------- -----------------
Net Cash Provided by Financing Activities 1,922,694 1,025,242 9,648,133
--------------- --------------- -----------------
Net Increase (Decrease) in Cash 21,608 (14,128) 35,249
Cash - Beginning of Periods 13,641 27,769 -
--------------- --------------- -----------------
Cash - End of Periods $ 35,249 $ 13,641 $ 35,249
=============== =============== =================
</TABLE>
See notes to the financial statements.
5
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period From
August 31,
1988 (Date of
Inception
Years Ended December 31, Through
--------------------------------- December 31,
1997 1996 1997
--------------- --------------- -----------------
(Unaudited)
(Restated) (Restated)
--------------- -----------------
Supplemental Disclosures of Cash Flow
Information Cash paid during the periods
<S> <C> <C> <C>
for: Interest paid $ 18,499 $ 18,413 $ 64,656
=============== =============== =================
Income taxes paid $ - $ - $ -
=============== =============== =================
</TABLE>
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
The financial statements at December 31, 1996, include noncash financing
transactions of $40,000 as a result of mortgage payments made by a
shareholder which were treated as additional paid-in capital.
The financial statements at December 31, 1997 and 1996, include a noncash
financing transaction of $486,970 for the respective exchange and
reclassification of redeemable preferred stock to amounts due to certain
stockholders.
The financial statements at December 31, 1996, including a noncash operating
and financing transaction of $67,781 for the payment of interest to
rescission stockholders by a shareholder which was treated as additional
paid-in capital.
The financial statements at December 31, 1997 and 1996, include noncash
investing and financing transactions of $15,688 and $7,500 for the
acquisition of equipment by a shareholder which were treated as additional
paid-in capital.
The financial statements at December 31, 1996, include a noncash operating
and investing transaction of $31,131 for patent costs that were paid on
behalf of CIL's principal stockholder in 1995, which costs were expensed in
1996 (as research and development) in consideration of a granting of certain
rights to the Company.
The financial statements at December 31, 1997 include a noncash investing
and financing transaction of an $8,000 loan from a stockholder, made in the
prior year was exchanged for 500 shares of Series A preferred stock. In
addition, 2,500 shares of Series A preferred stock was exchanged for a
$50,000 decrease in the mortgage payable.
See notes to the financial statements.
6
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
Coates International, Ltd. ("CIL" or the "Company") is a Delaware
corporation organized in October 1991 by its President and majority stockholder
George J. Coates ("GJC') as the successor in interest to a Delaware corporation
of the same name incorporated in August 1988.
CIL has developed a spherical rotary valve system (the"Coates System") for
use in piston driven internal combustion engines of all types and is
manufacturing automotive engines modified with the Coates system on a
limited scale basis at its Wall Township, New Jersey facility. CIL also has
an exclusive license to sell and grant sublicenses with respect to products
using the Coates System based on the Coates Patents. Since there has been no
significant revenue generated from the sales of engines modified with the
Coates System, or from the granting of sub-licenses, the Company is
considered to be a Development Stage Company for financial reporting
purposes.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. CIL's ability to generate revenues
and achieve profitable operations is principally dependent upon the
execution and funding of sub-license agreements with the engine
manufacturers of retrofitters, and upon the manufacture and sale, by CIL, of
high performance engines. The Company has suffered recurring losses during
its development stage and has accumulated a deficit since its inception to
December 31, 1997, of $9,743,717. The Company also has minimal liquid
assets, while reporting $1,183,827 in current liabilities. The
aforementioned raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary in the event the Company cannot continue
as a going concern.
Management's plans are to raise additional capital through a common stock
offering, sell sub-licenses to use its technology to interested purchasers
as well as to obtain firm orders on its engines for delivery to interested
customers. On this accord, the Company plans to construct a manufacturing
facility as well as to acquire the necessary machinery and equipment for a
full scale assembly line.
Property, Plant & Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight line method over the estimated useful life of the assets:
40 years for building and building improvements, 5 to 7 years for machinery
and equipment and 5 to 10 years for furniture and fixtures. Repairs and
maintenance expenditures which do not extend the useful lives of the related
assets are expensed as incurred.
In the event that facts and circumstances indicate that long-lived assets
may be impaired, an evaluation of recoverability would be performed and,
accordingly, a determination of the write-down related to the specific
assets made.
Earnings (Loss) Per Share
The Company has not issued any common stock, but the preferred stock has
voting privileges. (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
preferred shares outstanding during the periods.
Research and Development
Research and development (R&D) costs are charged to operations as incurred.
7
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Income Taxes
In accordance with the provisions of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), deferred taxes are
recognized for operating losses that are available to offset future taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to realized. The Company incurred
net operating losses for financial-reporting and tax-reporting purposes.
Accordingly, the benefit from income taxes has been offset entirely by a
valuation allowance against the related deferred tax asset for the year
ended December 31, 1997.
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.
Reclassification
Certain items pertaining to the prior year have been reclassified to conform
with the current year's presentation.
CONCENTRATIONS OF CREDIT AND BUSINESS RISK
The Company maintains cash balances in several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000, of which the Company's accounts may, at times,
exceed the federally insured limits.
The Company intends to market its engines modified with the Coates System to
the automotive racing market.
Development of the Coates System technology was initiated by GJC, CIL's
founder, President and controlling stockholder in the late 1970's and
development efforts have been conducted continuously since such time. From
July 1982 through May 1993, seven U.S. patents as well as a number of
foreign patents were issued to GJC with respect to the Coates System. Since
the inception of CIL in 1988, all aspects of the business have been
completely dependent upon the activities of GJC (who is a resident alien and
not a U.S. citizen and who does not have an employment contract with CIL).
The loss of GJC's availability or services due to death, incapacity or
otherwise would have a material adverse effect on the Company's business and
operations.
RESTRICTED CASH
The Company placed $112,000 in an escrow account (pursuant to a court order)
of net proceeds raised from a 48,000 CIL Series A Preferred Stock private
placement offering in July 1997. The funds were escrowed for the payment of
interest due to two former stockholders.
8
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Notes to the Financial Statements
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost, less accumulated depreciation,
consists of the following at December 31, 1997:
Land $ 920,550
Building 579,450
Building improvements 145,871
Machinery and equipment 251,054
Furniture and fixtures 39,295
---------------
1,936,220
Less: Accumulated depreciation (354,166)
---------------
Total $ 1,582,054
===============
Depreciation expense amounted to $40,292 and $40,915 for the years ended
December 31, 1997 and 1996, respectively.
MORTGAGE PAYABLE
The mortgage payable is collateralized by the land and the building that the
Company uses as its principal place of business. The mortgage bears interest
at the rate of 9% per annum and was due February 4, 1994. The Company is
making interest only payments on the mortgage which has not been demanded in
full by the mortgagor. The balance has been classified as a current
liability and has been guaranteed by GJC.
INCOME TAXES
The Company has available net operating loss carryforwards at December 31,
1997, which may be used to reduce Federal taxable income and tax liabilities
in future years, approximating $8,500,000 which begin to expire December 31,
2003 through 2012.
The Company's total deferred tax asset and valuation allowance at December
31, 1997 is as follows:
Total deferred tax asset $ 3,000,000
Less valuation allowance (3,000,000)
---------------
$ -
Net deferred tax asset
===============
LICENSES
The Company has incurred legal and related costs associated with licenses.
Such costs amounted to $73,111 and $75,305 for the years ended December 31,
1997 and 1996. As the probable future economic benefit of such costs is
uncertain, they have been expensed.
9
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Notes to the Financial Statements
RELATED PARTY TRANSACTIONS
Due to Stockholder represent net advances/repayments made to the Company
which amounts to $12,562 at December 31, 1997 and are unsecured,
non-interest bearing and payable on demand.
The Company subcontracts its project expense from any entity of which GJC is
the sole shareholder. During the years ended December 31, 1997 and 1996, the
Company paid $212,626 and $181,500, respectively, for these services.
The Company has signed a licensing agreement with a company and its
affiliates of which the President is a less than 1% stockholder of CIL.
COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various lawsuits incident to the ordinary
course of business which are not possible to determine the probable outcome
or the amount of liability, if any, under these lawsuits. However, in the
opinion of management, the disposition of these lawsuits will not have a
material adverse effect on the Company's financial position, results of
operations, or cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts payable and accrued expenses:
The carrying amount approximates fair value because of the short
maturity of these instruments.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and therefore cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates.
NEW AUTHORITATIVE ACCOUNTING PROFESSION PRONOUNCEMENT
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Other Comprehensive Income".
SFAS No. 130 is effective for periods beginning after December 15, 1997. The
provisions of SFAS No. 130 may be early applied in which the Company chose not
to do so. It is unlikely that the provisions for SFAS No. 130 will even apply
nor have a material impact on the Company.
10
<PAGE>
Rosenberg Rich Baker Berman & Company
380 Foothill Road
Bridgewater, New Jersey 08807
Independent Auditors' Consent
We consent to the filing of our report, dated May 14, 1998, as an Exhibit
to (a) the Form 10-KSB of Coates International, Ltd. for the fiscal year ended
December 31, 1997 and to (b) Amendment No. 1 to the Form 10-KSB for the fiscal
year ended December 31, 1997.
ROSENBERG RICH BAKER BERMAN & COMPANY
Bridgewater, New Jersey
September 25, 1998
aud-cons.co2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE DECEMBER 31, 1997 FINANCIAL STATEMENTS OF COATES INTERNATIONAL,
LTD. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000948426
<NAME> Coates International, ltd.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1996
<PERIOD-END> Dec-31-1997
<CASH> 147,249
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 147,249
<PP&E> 1,936,219
<DEPRECIATION> 354,165
<TOTAL-ASSETS> 1,731,803
<CURRENT-LIABILITIES> 1,183,827
<BONDS> 160,000
0
6,564
<COMMON> 0
<OTHER-SE> 541,412
<TOTAL-LIABILITY-AND-EQUITY> 1,731,803
<SALES> 0
<TOTAL-REVENUES> 11,262
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<OTHER-EXPENSES> 1,427,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,650)
<INCOME-PRETAX> (1,432,186)
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<INCOME-CONTINUING> (1,432,186)
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