SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
OR
[ ]TRANSITION REPORT PURSUANT O 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 Registrant as Specified in its Charter)
Delaware 22-2925432
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Highway 34 & Ridgewood Road, Wall Township, New Jersey 07719
(Address of Principal Executive Office) (Zip Code)
(732) 449-7717
(Registrant's telephone number including area code)
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 _____
The number of shares of Registrant's Preferred Stock Series A, $0.001 par
value, outstanding as of September 30, 1998, was 6,572,424 shares.
1
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COATES INTERNATIONAL, LTD.
[A DEVELOPMENT STAGE COMPANY]
INDEX
Page
Number
PART 1 - FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Balance Sheet
- September 30, 1998 3
Statements of Operations
- Three and six months ended September 30, 1998 and 1997
and since inception 4
Statements of Cash Flows
- Three and six months ended September 30, 1998 and 1997
and since inception 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition 7-8
And Results of Operations
PART II - OTHER INFORMATION 9
SIGNATURES 10
FINANCIAL DATA SCHEDULE 23
2
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PART I - Item 1
Coates International, Ltd.
(A Development Stage Company)
Balance Sheet
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Assets
Current Assets
<S> <C>
Cash $ 96,791
Restricted cash 112,000
Due from related parties 16,543
--------------
Total Current Assets 225,334
--------------
Property, Plant and Equipment, - Net of Accumulated Depreciation of $358,983 1,577,236
--------------
Other Assets
Mortgage Loan Costs, Net of Accumulated Amortization of $11,315 33,946
Deposit 2,500
--------------
Total Assets 1,839,016
==============
Liabilities and Stockholders' Equity
Current Liabilities
Mortgage payable 500,000
Accounts payable and accrued expenses 961,274
Accrued interest payable 106,559
Due to stockholder 12,505
--------------
Total Current Liabilities 1,580,338
--------------
Stockholders' Equity
Preferred stock, Series A, $.001 par value, 14,000,000 shares authorized - voting,
non-cumulative convertible, 6,572,424 shares issued and outstanding 6,572
Common stock, $.001 par value, 20,000,000 shares authorized - no shares issued -
Additional paid-in capital 10,703,368
Deficit accumulated during the development stage (10,451,262)
--------------
Total Stockholders' Equity 258,678
--------------
$ 1,839,016
Total Liabilities and Stockholders' Equity
==============
</TABLE>
See notes to the condensed financial statements.
3
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Coates International, Ltd.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period From
August 31,
1988 (Date of
Inception)
Through
September 30,
1998
----------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------- ----------------
1998 1997 1998 1997
--------------- --------------- --------------- --------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue $ - $ - $ - $ - $ 687,375
--------------- --------------- --------------- --------------- ----------------
Operating Expenses:
Research and development costs 98,410 68,373 282,958 204,564 3,336,180
General and administrative
expenses 171,247 193,699 384,055 766,610 7,328,125
Depreciation expense 3,212 9,975 4,818 29,925 324,488
--------------- --------------- --------------- --------------- ----------------
Total Operating Expenses 272,869 272,047 (671,831) 1,001,099 10,988,793
--------------- --------------- --------------- --------------- ----------------
Loss From Operations (272,869) (272,047) (671,831) (1,001,099) (10,301,418)
--------------- --------------- --------------- --------------- ----------------
Other Income (Expense):
Interest income 432 10,747 824 10,760 125,690
Interest expense (29,157) (3,600) (36,538) (10,800) (275,534)
--------------- --------------- --------------- --------------- ----------------
Total Other Income (Expense) (28,725) 7,147 (35,714) (40) (149,844)
--------------- --------------- --------------- --------------- ----------------
Net (Loss) $ (301,594) $ (264,900) $ (707,545) $ (1,001,139) $ (10,451,262)
=============== =============== =============== =============== ================
(Loss) Per Share $ (0.05) $ (0.04) $ (0.11) $ (0.17)
=============== =============== =============== ===============
6,572,424 6,022,954 6,572,313 5,983,602
Weighted Average Number of Shares
Outstanding
=============== =============== =============== ===============
</TABLE>
See notes to the condensed financial statements.
4
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Coates International, Ltd.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period From
August 31,
1988 (Date of
Inception)
Through
September
30,
1998
-----------------
Nine Months Ended
September 30,
--------------------------------- -----------------
1998 1997
--------------- --------------- -----------------
(Unaudited) (Unaudited) (Unaudited)
--------------- --------------- -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities $ (642,920) $ (1,768,396) $ (8,634,094)
--------------- --------------- -----------------
Cash Flows From Investing Activities - - (1,621,710)
--------------- --------------- -----------------
Cash Flows From Financing Activities
Proceeds from mortgage payable 454,739 - 454,739
Repayment of mortgage payable (160,000) - (160,000)
Proceeds of additional paid-in capital 289,247 1,010,617 2,596,685
Proceeds from issuance of stock 129,000 950,000 7,467,148
Payment for treasury stock - - (30,000)
Proceeds from (repayment of) stockholder loans (8,524) - 24,023
--------------- --------------- -----------------
Net Cash Provided by Financing Activities 704,462 1,960,617 10,352,595
--------------- --------------- -----------------
Net Increase in Cash 61,542 192,221 96,791
Cash - Beginning of Periods 35,249 13,641 -
--------------- --------------- -----------------
Cash - End of Periods $ 96,791 $ 205,862 $ 96,791
=============== =============== =================
</TABLE>
See notes to the condensed financial statements.
5
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Coates International, Ltd.
(A Development Stage Company)
Notes to the Condensed Financial Statements
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Item 310 of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and nine months ended
September 30, 1998 and 1997 are not necessarily indicative of the results
that may be expected for the years ended December 31, 1998 and 1997,
respectively. The unaudited condensed financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1997.
RELATED PARTY TRANSACTION
Subcontract Labor - The Company subcontracts its project expense (payroll,
insurance and supplies) from an entity in which George J. Coates is the sole
stockholder. During the nine months ended September 30, 1998 and 1997,
$72,512 and $144,000, respectively, were paid for these services.
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.
MORTGAGE PAYABLE
The Company acquired a new mortgage during June 1998. The old mortgage of
$160,000 was settled from the proceeds of the new mortgage. Terms of the new
mortgage are such that the principal amount will be due in one year, monthly
interest payments only will be made at 18% per annum, and the mortgage is
secured by a first mortgage on the land and buildings of the Company with a
net book value at September 30, 1998 of $1,549,663. The Company's principal
stockholder and Chief Executive Officer has also personally guaranteed the
mortgage.
6
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Coates International Ltd. ("CIL" or the "Company") is a Delaware corporation
organized in October 1991 by George J. Coates, as the successor in interest to a
Delaware corporation of the same name incorporated in August 1988 (the
"Predecessor Entity"). As a result of a dispute with certain former
employee-directors who claimed top own approximately nine percent of the
Predecessor Entity's outstanding capital stock, the Predecessor Entity was
reorganized in November 1991. Pursuant to the reorganization, all of the
Predecessor Entity's assets subject to liabilities were distributed to CIL, the
non- litigating stockholders of the Predecessor Entity became the stockholders
of CIL, and the Predecessor Entity was dissolved.
CIL has completed the basic development of a spherical rotary valve system (the
"Coates System"), the development of which was initiated by its founder, George
J. Coates, for use in internal combustion engines of all types. With respect to
the Coates System, seven applicable Unites States patents (the "Coates Patents")
have been issued to George J. Coates. CIL holds a non-exclusive license from
George J. Coates and his son Gregory Coates, to manufacture, sell and grant
sub-licenses with respect to products based on the Coates Patents, within all of
the countries, their territories and possessions, comprising North America,
South America and Central America (the "License Areas"). George J. Coates and
Gregory Coates have also agreed, as long as CIL remains independent and viable,
not to compete with CIL in the manufacture, assembly, use or sale of internal
combustion engines utilizing the technology falling within the scope of the
Coates Patents in the Licensed Areas, or to grant any other exclusive or
non-exclusive license in the Licensed Areas except through CIL. In addition,
George J. Coates and Gregory Coates have executed an agreement granting CIL the
right to retain any moneys 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. Recently, during
October, 1998, George J. Coates and Gregory Coates granted CIL an exclusive,
worldwide license covering the Coates Patents, conditioned upon CIL successfully
raising equity capital: see copy of Exclusive Conditional Worldwide License
Agreement, dated October 9, 1998, attached as an exhibit to this Report.
CIL has a short operating history, during which it has primarily devoted its
attention to developing the technology associated with the Coates System. During
such time CIL has also arranged for certain tests in order to evaluate the
effectiveness of the technology. CIL has also devoted much time attempting to
interest various persons and entities in acquiring sub-licenses to use the
technology.
CIL is currently manufacturing components for high performance automotive
engines modified with the Coates System on a limited basis at its Wall Township,
New Jersey, manufacturing facility. Except as may be set forth herein, CIL has
not sold any automotive engines or components during the quarter ended September
30, 1998. CIL has received numerous oral and written inquiries from potential
customers, expressing an interest in acquiring high performance automotive
racing engines modified with the Coates System. No assurances can be given that
these inquiries will result in binding sales orders. CIL intends to aggressively
pursue all inquiries with the goal of obtaining firm orders. CIL's ability to
generate revenues and achieve profitable operations is principally dependent
upon the execution of sub-license agreements with engine manufacturers and
retrofitters and upon the Company's successful marketing and sales of high
performance automotive, motorcycle and marine racing engines. Despite limited
success to date due principally to its lack of funding, CIL will continue
aggressively to pursue the marketing of Coates System technology to potential
sub-licensees.
7
<PAGE>
Results of Operations for the Quarters Ended September 30, 1998 and 1997
No revenues were recognized during the quarters and nine months periods ended
September 30, 1998, and 1997. The Company was not able to successfully complete
certain prototype engine configurations and, as a consequence, did not obtain
binding orders, owing to a continuing shortage of working capital that dictated
a rigorous cost savings course of action. The relative scarcity of financial
and, especially, personal resources that could be brought to bear on the ongoing
research and development work is causing significant delays in advancing the
testing and trial of such engine configurations. Management is continuing to
seek additional funding, however at this time, cannot with any degree of
certainty predict whether such efforts will be successful.
The absence of revenues caused all operating and interest expenses to directly
reflect in the net result as losses. Total operating expenses incurred during
the last quarter amounted to $272,869 compared to $272,047 for the same period
in 1997. Somewhat higher research and development expenses, which showed little
change from the preceding quarter, were largely offset by lower general and
administrative expenses.
After recognizing $28,725 net interest expense, the Company's operations show a
net loss from operations of $301,594 or $0.05 per share for the quarter ended
September 30, 1998, compared to a net loss of $264,900 or $0.04 per share for
the same quarter in the preceding year. The corresponding figures for the nine
month periods show a loss of $707,545 or $0.11 per share in 1998, and a loss of
$1,001,139 or $0.17 per share in 1997.
Total losses since inception in August 1988 through September 30, 1998 amount to
$10,451,262 .
Liquidity and Capital Resources
The Company's balance sheet and financial condition did not change materially
during the quarter. However, the losses experienced during this period affected
cash flow and, therefore, the Company's cash position . Cash on hand currently
is insufficient to guaranty an orderly retirement of liabilities unless their
due dates are extended. The new mortgage obtained in June, 1998 in the amount of
$500,000 will be due within less than twelve (12) months. It is secured by a
first lien on the land and buildings of the Company in Wall Township, New
Jersey. Management is currently exploring various alternative financing
arrangements to raise additional capital through a combination of private
placements and debt financing. At the time of this Report, no binding financial
arrangements have been consummated.
8
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PART II - OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
The response to this item can be found in the Company's annual report on Form
10-KSB, Item 3, for the year ended December 31, 1997, which is being
incorporated herein by reference to such report.
Item 2 CHANGES IN SECURITIES - None
Item 3 DEFAULTS ON SENIOR SECURITIES - None
-----------------------------
Item 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITIES' HOLDERS - None
Item 5 OTHER INFORMATION - None
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(b) The Company filed a current report on Form 8-K on October 22,
1998 with the U.S. Securities and Exchange Commission, disclosing under Item 5,
the execution and delivery of a certain Exclusive Conditional Worldwide License
Agreement, dated October 9, 1998, by and between the Company, Mr. George J.
Coates and Gregory Coates, a copy of which is attached to this Report as an
Exhibit.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COATES INTERNATIONAL, LTD.
Date: December 7, 1998 By: s/George J. Coates
-------------------
George J. Coates
Chief Executive and Chief Financial Officer
coat10q.998
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EXHIBIT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 22, 1998
Coates International, Inc.
Exact name of Registrant as specified in charter)
Delaware 33-94884 22-2925432
(State or other (Commission (IRS employer
jurisdiction of file number) identification
incorporation no.)
Highway 34 & Ridge Road, Wall, New Jersey 07719
(Address of principal executive office) Zip Code
Registration telephone number, including area code: (732) 449-7717
Former name or former address, if changed since last report)
11
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Item 5. Other Events.
On October 9, 1998, Registrant received an exclusive, worldwide
license to make, use and sell products incorporating the patents
owned by George J. Coates, the founder and controlling shareholder
of Registrant, and his son, Gregory Coates, which cover the
"Coates Spherical Rotary Valve" system. This new license, which
supersedes the previous license, expands the territorial coverage
of the previous license held by Registrant from those countries,
their territories and possessions, comprising North America,
Central America and South America, to all the countries in the
world. The new license automatically terminates under certain
conditions involving bankruptcy or receivership and in the event
Registrant fails to obtain equity financing in the minimum amount
of $2,000,000 by January 17, 1999. A copy of the "Exclusive
Conditional Worldwide License Agreement", dated October 9, 1998 is
annexed to this Current Report as an exhibit.
In consideration of the grant of this worldwide license,
Registrant agreed to (a) issue to George J. Coates (i) 500,000
shares of its Series A Preferred Stock (ii) 500,000 shares of its
Common Stock and (iii) 500,000 shares of a new series of Series A
Preferred Stock with supervoting rights entitling its holder to
exercise 1,000 votes per share on all shareholder matters. In
addition, Registrant agreed to pay to George J. Coates (x) a
license payment in the amount of $2,500,000 when, as and if
Registrant has sufficient capital to make such payment and (y)
royalty payments in amounts equal to twenty (20%) percent of
royalties received by Registrant from its future licensing
activities.
12
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Item 7. Financial Statements and Exhibits.
(c) Exhibits.
(10) Exclusive Conditional Worldwide License Agreement, dated
October 9, 1998, by and between Coates International, Ltd.,
George J. Coates and Gregory Coates.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Current Report to be
signed on its behalf by the undersigned hereunto duly authorized.
October 22, 1998 Coates International, Ltd.
By: s/George J. Coates
George J. Coates, President
and Chief Executive Officer
coates2.8k
13
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EXCLUSIVE CONDITIONAL WORLDWIDE LICENSE AGREEMENT
THIS AGREEMENT, dated this 9th day of October, 1998, by and between GEORGE
J. COATES, individually, residing at 1811 Murray Drive, Wall Township, New
Jersey 07719 (hereinafter referred to as "LICENSOR I") and GREGORY COATES,
residing at 1811 Murray Drive Wall Township, New Jersey 07719 (hereinafter
referred to as "LICENSOR II"), and COATES INTERNATIONAL, LTD. having its
principle place of business at Route 34 and Ridgewood Road, Wall Township, New
Jersey 07719, (hereinafter referred to as "LICENSEE").
B A C K G R O U N D:
WHEREAS, LICENSOR I is the patentee and owns and has the right to license
certain PATENT RIGHTS (as hereinafter defined) used in the design and
construction of internal combustion engines employing spherical rotary valves
(the "COATES SPHERICAL ROTARY VALVE SYSTEM"); and
WHEREAS, LICENSOR II has loaned LICENSOR I funds to reimburse Coates
International, Ltd. for patent expenses; and
WHEREAS, LICENSOR I has granted to LICENSOR II and LICENSOR has accepted an
exclusive, revocable license with the right to sublicense; and
WHEREAS, LICENSOR I and LICENSOR II had each granted to LICENSEE, by
License Agreement, dated December 22, 1997, an exclusive revocable license for
all of the countries, their territories and possessions, comprising North
America, Central America and South America to make, use, sell and have made,
LICENSED PRODUCT falling within the scope of the PATENT RIGHTS; and
WHEREAS, it is the desire of LICENSOR I and LICENSOR II to modify and
expand upon the previously granted license for the consideration set forth
herein and to render the previously granted licenses superseded by this
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license and hence null and void.
NOW THEREFORE, in consideration of the premises and covenants and other
good and valuable consideration and the mutual promises of the performance of
the undertakings herein, it is agreed by and between the parties hereto as
follows:
ARTICLE I - DEFINITIONS
1.1 - "CSRV VALVE SYSTEM" shall mean a cylinder head or heads for an
internal combustion engine manufactured in accordance with the PATENT RIGHTS (as
hereinafter defined).
1.2 - "IMPROVEMENTS" shall mean any improvement, change, or modification to
the CSRV VALVE SYSTEM which may be developed, created, or acquired by either
party to this Agreement, but only to the extent that the same comes within the
scope of one or more of the claims of the patent rights (as hereinafter
defined).
1.3 - "PATENT RIGHTS" shall mean the patents as listed in Attachment 1.3.
1.4 - "PROTOTYPES" shall mean LICENSED PRODUCT manufactured for testing and
evaluation purposes only.
1.5 - "TERRITORY" shall mean all of the countries, their territories and
possessions, either currently existing or hereinafter formed, in the world.
ARTICLE II - LICENSES GRANTED
2.1 - LICENSES GRANTED TO LICENSEE
(1) LICENSOR I and LICENSOR II (hereinafter referred to jointly as
"LICENSOR") hereby grants to LICENSEE an exclusive license in the TERRITORY, to
make, use, sell, and have made, product falling within the scope of the PATENT
RIGHTS, and to prevent others from making, using, selling or having
15
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made product falling within the scope of the PATENT RIGHTS;
(2) LICENSOR hereby grants to LICENSEE the exclusive right to
manufacture and sell PROTOTYPES falling within the scope of the PATENT RIGHTS
anywhere in the world.
2.2 - IMPROVEMENTS
If LICENSORS have heretofore brought about or shall hereafter during the
term of this Agreement bring about any IMPROVEMENTS to the PATENT RIGHTS
LICENSORS shall promptly disclose such IMPROVEMENTS TO LICENSEE. Any such
IMPROVEMENTS shall become subject to this Agreement.
2.3 - PATENT MARKINGS
LICENSEE shall mark on an exposed surface of all products made through use
of the PATENT RIGHTS hereunder, appropriate patent markings identifying LICENSOR
I as the owner of the pertinent PATENT RIGHTS. The content, formal language used
in such markings shall be in accordance with the laws and practices of the
countries where such products bearing such markings are made, sold, or used and
shall be approved by LICENSOR I.
2.4 ACKNOWLEDGMENT OF LICENSE
On all CSRV VALVE SYSTEMS, LICENSEE and Sublicensee shall acknowledge that
the same are manufactured under license from LICENSOR I. Unless otherwise
agreed to by the parties, the following notice shall be used by LICENSEE and
sublicensees on an exposed surface of all products: "Manufactured under
License from George J. Coates". Sublicensees shall use the notice:
"Manufactured under License from Coates International, Ltd. and George J.
Coates." Such notices shall be used in all descriptive materials,
16
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instruction and service manuals relating to the CSRV VALVE SYSTEM.
ARTICLE III - PAYMENTS
3.1 - In consideration for the grant of this license, the LICENSEE shall
grant to LICENSORS, shares of stock in LICENSEE. The shares shall be granted as
follows: 500,000 Series A Preferred shares to LICENSOR I; 500,000 Common Shares
to LICENSOR I; the LICENSEE shall cause the creation of a new series of Series A
Preferred shares with voting rights for all shareholder matters equal to 1,000
votes per share and to issue 500,000 of the to-be-created new series A Preferred
shares to LICENSOR I.
3.2 - In further consideration of the granting of this License, LICENSEE
shall (a) pay all costs associated with the PATENT RIGHTS identified herein in
the TERRITORY; (b) pay to LICENSOR I a license payment fee in the amount of
$2,500,000, payable when, as and if the LICENSEE has sufficient capital to make
such payment, and; (c) pay to LICENSOR I a royalty payment in the amount of
twenty (20%) percent of any and all royalties received by the LICENSEE pursuant
to any and all license, royalty or other agreement with any third party in the
TERRITORY derived from the manufacture, assembly or sale of any part, accessory,
component or engine incorporating any aspect of the PATENT RIGHTS, the CSRV
VALVE SYSTEM or IMPROVEMENTS.
ARTICLE IV - REPRESENTATIONS, OBLIGATIONS, WARRANTIES AND
DISCLAIMERS
4.1 - LICENSOR I represents and warrants that LICENSOR I is the rightful
owner of the PATENT RIGHTS and has the exclusive right to license all of the
PATENT RIGHTS and that all such PATENT RIGHTS pertaining to the CSRV VALVE
17
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SYSTEM under LICENSOR'S control and possession in the TERRITORY are set forth in
Attachment 1.4. Further, LICENSOR I and LICENSOR II have the power and authority
to execute, deliver and perform its obligations under this Agreement, nor the
performance of its obligations hereunder will constitute a breach of the terms
or provisions of any contract or agreement to which LICENSOR is a party.
4.2 - LICENSEE will use its best efforts to execute all such tasks as may
be necessary to bring about the speedy manufacture, sale or use of products
manufactured with the use of the PATENT RIGHTS consistent with good business
practice; and ensure that all steps within its power are undertaken with all
reasonable speed to ensure that such products made by LICENSEE comply with
relevant government regulations and to ensure that all steps within its power
are undertaken with all reasonable speed to ensure that sublicenses are
negotiated and executed with respect to the PATENT RIGHTS.
ARTICLE V - DURATION AND TERMINATION
5.1 - Subject to the provisions of Section 5.1 hereof, all rights and
obligations under this Agreement shall expire upon the last to expire patents of
the PATENT RIGHTS.
5.2 - This Agreement shall terminate effective immediately upon:
(a) The filing by LICENSEE of an involuntary petition in bankruptcy,
the entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator, receiver, trustee in bankruptcy or liquidator for LICENSEE in
18
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any insolvency, readjustment of debt, marshaling of assets and liabilities,
bankruptcy or similar proceedings, or the winding up or liquidation of its
affairs, and the continuance of any such petition, decree or order
undismissed or unstayed and in effect for a period of sixty (60)
consecutive days; or
(b) The voluntary or involuntary consent of LICENSEE to the
appointment of a conservator, receiver, trustee in bankruptcy or liquidator
in any insolvency, readjustment of debt, marshaling of assets and
liabilities, bankruptcy or similar proceedings of or relating to LICENSEE,
or relating to substantially all of its property, or if LICENSEE shall
admit in writing its inability to pay its debts generally as they become
due, file a petition to pay its debts generally as they become due, file a
petition to take advantage of any applicable insolvency, reorganization or
bankruptcy statute, make an assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations; or
(c) the failure of LICENSEE to successfully consummate the private
placement of the minimum 400,000 of its Common Shares being offered pursuant to
LICENSEE'S Confidential Private Offering Memorandum, dated October, 1998,
pursuant to the terms and provisions set forth therein.
ARTICLE VI - LIMITATION OF ASSIGNMENT BY LICENSEE
6.1 - This License is non-assignable and the rights, duties and privileges
of LICENSEE hereunder shall not be sold, transferred, hypothecated, or assigned
by LICENSEE, either in whole or in part without the consent of
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LICENSORS.
ARTICLE VII - GOVERNING LAW
orced in
7.1 - This Agreement shall be governed by and construed and enforced in
accordance with the Laws of the State of New Jersey and each party hereby
submits to the jurisdiction of any state or federal court in the State of New
Jersey in the event of any claims arising under this Agreement.
ARTICLE VIII - ENTIRE AGREEMENT
8.1 - This Agreement sets forth the entire Agreement and understanding by
and between LICENSOR and LICENSEE as to the subject matter hereof and has
priority over all documents, verbal consents and understandings made before the
execution of this Agreement and none of the terms of this Agreement shall be
amended or modified except in a written document signed by LICENSORS and
LICENSEE hereto.
8.2 - Should any portion of this Agreement be declared null and void by
operation of law, or otherwise, the remainder of this Agreement shall remain in
full force and effect.
8.3 - This Agreement is understood by the parties hereto to specifically
supersede both the February 17, 1997 License from LICENSOR I to LICENSEE and any
subsequent amendments thereto as well as the Agreement from LICENSOR II to
LICENSEE dated February 22, 1997 as well as the License Agreement, dated
December 22, 1997, executed and delivered by and between LICENSOR I, LICENSOR II
and LICENSEE and any subsequent amendments thereto.
20
<PAGE>
ARTICLE IX - NOTICES
9.1 - Any notice, consent or approval required under this Agreement shall
be in English and in writing, and shall be delivered to the following addresses
(a) personally by hand, (b) by Certified Air Mail, postage prepaid, with return
receipt requested, or (c) by telefax, confirmed by such Certified Air Mail:
If to the LICENSORS:
Mr. George J. Coates
c/o COATES INTERNATIONAL, LTD.
Route 34 & Ridgewood Road
Wall Township, NJ 07719-9738
Telephone: (732) 449-7717
Telefax: (732) 449-7736
Mr. Gregory Coates
c/o COATES INTERNATIONAL, LTD.
Route 34 & Ridgewood Road
Wall Township, NJ 07719-9738
Telephone: (732) 449-7717
Telefax: (732) 449-7736
If to LICENSEE:
COATES INTERNATIONAL, LTD.
Route 34 & Ridgewood Road
Wall Township, NJ 07719-9738
All notices shall be deemed effective upon the date delivered by hand or
sent. If either party desires to change the address to which notice is sent to
such party, it shall so notify the other party in writing in accordance with the
foregoing.
21
<PAGE>
ARTICLE X - MISCELLANEOUS
10.1 - Headings and References - Headings in this Agreement are included
herein for ease of reference only and have no legal effect. Reference herein to
Sections or Attachments are to Sections and Attachments to this Agreement,
unless expressly stated otherwise.
10.2 - Reference on Disclosure of Terms and Provisions
(a) This Agreement shall be distributed solely to: (i) those
personnel of LICENSORS and LICENSEE who shall have a need to know of its
contents; (ii) those persons whose knowledge of its contents will facilitate
performance of the obligations of the parties under this agreement; (iii) those
persons, if any, whose knowledge of its contents is essential in order to permit
LICENSEE or LICENSORS to place, maintain or secure benefits as required by law,
regulation or judicial order.
IN WITNESS WHEREOF, the parties have cause this Agreement to be executed as
of the date first above written by their authorized representatives.
ATTEST:
s/George J. Coates
GEORGE J. COATES - INDIVIDUALLY
s/Gregory Coates
GREGORY COATES - INDIVIDUALLY
COATES INTERNATIONAL, LTD.
BY: s/George J. Coates
GEORGE J. COATES
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
coatlic2.agr
22
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1998 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> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jul-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 208,791
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 225,334
<PP&E> 1,936,219
<DEPRECIATION> 358,983
<TOTAL-ASSETS> 1,839,016
<CURRENT-LIABILITIES> 1,580,338
<BONDS> 0
0
6,572
<COMMON> 0
<OTHER-SE> 252,106
<TOTAL-LIABILITY-AND-EQUITY> 1,839,016
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 272,869
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,725
<INCOME-PRETAX> (301,594)
<INCOME-TAX> 0
<INCOME-CONTINUING> (301,594)
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