SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A3
|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 (732) 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 $9,743,717 and at December
31, 1997, had a 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 $9,700,000; (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.
2
<PAGE>
that the overall weight may be greater than a comparable poppet valve train
system and that initial manufacturing costs will be greater than a comparable
poppet valve train system. Since Chrysler's visit in 1993, CIL has conducted
additional tests that counteract the majority of Chrysler's negative comments.
Pursuant to a July 1991 prototype manufacturing agreement signed by CIL
with Harley Davidson as a prelude to an anticipated license agreement, Harley
Davidson engineers (according to Harley Davidson) conducted dynamometer tests of
two prototype motorcycle engines modified to incorporate the Coates System. In
the fall of 1991, Harley Davidson advised CIL that relatively early in the test
process, each prototype engine experienced mechanical durability problems.
Subsequently, CIL has reassembled the Harley Davidson motorcycle engine, the
same engine previously tested by Harley Davidson, again utilizing the Coates'
technology. CIL is in the process of testing this reassembled motorcycle engine
which has now been running for over two years. Notwithstanding the facts that
the Harley Davidson motorcycle engine has been reassembled and has been running
for over two years, it has not been delivered nor tested by Harley Davidson.
Accordingly, there can be no assurances given that Harley Davidson will accept,
test and/or agree to license this reassembled Harley Davidson motorcycle engine.
Test Results. An automobile engine modified with the Coates System was
tested in February and August 1990 and February 1991 at the facilities of
Compliance and Research Services, Inc. ("CRS") an independent motor vehicle
testing contract laboratory recognized by the United States Environmental
Protection Agency ("EPA"), in tests set up to measure power and fuel economy.
The test results indicated emission levels of pollutants which were
substantially higher than maximum emission levels permitted pursuant to
regulations adopted by the EPA. However, the tests conducted were not emissions
tests and the engine of the vehicle being tested had been operated for more than
100,000 miles prior to testing. Furthermore, the engine tested was not equipped
with an EGR system or an air pump, two standard pollution control devices
required to be installed in most automobiles operating on U.S. roads today.
Subsequently, CRS conducted an emission test in February 1995 on a 1985 Mercedes
engine modified to utilize the Coates System as compared to a similar 1985
Mercedes engine not so modified. The test, conducted on a dynamometer and
characterized as a "hot start" test, comprised only one of the three required
Federal Testing Procedure or "FTP" tests required by the EPA to be passed before
any vehicles containing engines can be sold to the public for commercial use in
the United States. The test results were as follows:
Pollutants Emitted
(in Grams per Mile)
Total Total CarbonOxides of
Hydrocarbons Monoxide Nitrogen
Mercedes Engine
with Coates System .642 1.752 3.069
Mercedes Engine
without Coates System .978 4.237 3.032
Maximum allowable
EPA emission standards .41 3.4 1.0
4
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Coates International, Ltd.
(A Development Stage Company)
Statements of Operations
(Restated)
<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)
Statements of Cash Flows
(Restated)
<TABLE>
<CAPTION>
Period From
August 31,
1988 (Date of
Inception)
Through
December 31,
1997
-----------------
Years Ended December 31,
--------------------------------- -----------------
1997 1996
--------------- --------------- -----------------
(Unaudited)
(Restated) (Restated)
--------------- -----------------
Cash Flows From Operating Activities
<S> <C> <C> <C>
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)
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.
Restatement of Financial Statements
The statements of operations and cash flows for the year ended December 31,
1997 and for the period from August 31, 1988 (date of inception) through
December 31, 1997 have been restated to reduce previously reported research
and development costs-related party, by $10,000,000 in 1997 and $5,066,671
in years prior thereto. This restatement gives effect to a change in
reporting the cost of certain patents and licenses contributed to the
Company in exchange for preferred stock issued to GJC from their fair market
value to the contributor's basis.
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>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Amendment No. 3 to
its Form 10-KSB for the year ended December 31, 1997 to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date COATES INTERNATIONAL LTD.
December 14, 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 December 14, 1998
Principal Financial Officer, Principal
Accounting Officer
s/Richard W. Evans
Richard W. Evans Director December 14, 1998
s/Michael J. Suchar
Michael J. Suchar Director December 14, 1998
coat10k3.97a
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