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 March 31, 1999
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.
Ye s X No
The number of shares of Registrant's Preferred Stock Series A, $0.001 par
value, outstanding as of March 31, 1999, was 6,572,424 shares.
1
<PAGE>
COATES INTERNATIONAL, LTD.
[A DEVELOPMENT STAGE COMPANY]
INDEX
Page
Number
PART 1 - FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Balance Sheet
- March 31, 1999 3
Statements of Operations
- Three months ended March 31, 1999 and 1998
and since inception 4
Statements of Cash Flows
- Three months ended March 31, 1999 and 1998
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 11
2
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Balance Sheet
March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Assets
Current Assets
<S> <C>
Cash $ 101,965
Restricted cash 192,000
Prepaid insurance 3,370
Due from related parties 22,493
--------------
Total Current Assets
319,828
Property, Plant and Equipment - Net 1,576,158
--------------
Other Assets
Mortgage loans costs, net of accumulated amortization of $46,760 64,860
Deposit 2,500
--------------
Total Assets 1,963,346
==============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 1,086,676
Accrued interest payable 106,559
Due to stockholders 29,605
--------------
Total Current Liabilities 1,222,840
--------------
Mortgage payable 900,000
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 10,910,964
Deficit accumulated during the development stage (11,077,030)
--------------
Total Stockholders' Equity (Impairment) (159,494)
--------------
$ 1,963,346
Total Liabilities and Stockholders' Equity ==============
</TABLE>
See notes to the condensed financial statements.
3
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period From
August 31,
1988 (Date of
Inception)
Through
March 31,
1999
----------------
Three Months Ended
March 31,
--------------------------------- ----------------
1999 1998
--------------- --------------- ----------------
(Unaudited) (Unaudited) (Unaudited)
--------------- --------------- ----------------
<S> <C> <C> <C>
Revenue $ - $ - $ 687,375
--------------- --------------- ----------------
Operating Expenses:
Research and development costs 46,249 67,619 2,545,228
Research and development costs - related party 22,102 25,121 951,490
=======
General and administrative expenses 109,776 89,393 7,673,166
Depreciation and amortization expense 28,580 1,606 397,323
--------------- --------------- ----------------
Total Operating Expenses 206,707 183,739 11,567,207
--------------- --------------- ----------------
Loss From Operations 206,707 (183,739) (10,879,832)
--------------- --------------- ----------------
Other Income (Expense):
Interest income 62 94 125,826
Interest expense (24,915) (3,600) (323,024)
--------------- --------------- ----------------
Total Other Income (Expense) (24,853) (3,506) (197,198)
--------------- --------------- ----------------
Net Loss $ (231,560) $ (187,245) $ (11,077,030)
=============== =============== ================
Net Loss Per Share $ (0.04) $ (0.03)
=============== ===============
Weighted Average Number of Shares 6,572,424 6,571,091
=============== ===============
</TABLE>
See notes to the condensed financial statements.
4
<PAGE>
Coates International, Ltd.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period From
August 31,
1988 (Date of
Inception)
Through
March 31,
1999
-----------------
Three Months Ended
March 31,
--------------------------------- -----------------
1999 1998
--------------- --------------- -----------------
(Unaudited) (Unaudited) (Unaudited)
--------------- --------------- -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities $ (247,784) $ (180,306) $ (9,512,471)
--------------- --------------- -----------------
Cash Flows From Investing Activities (222,808) - (1,456,640)
--------------- --------------- -----------------
Cash Flows From Financing Activities
Proceeds from mortgage payable 900,000 - 1,400,000
Repayment of mortgage payable (500,000) - (660,000)
Proceeds of additional paid-in capital 140,882 48,747 2,823,281
Proceeds from issuance of stock - 129,000 7,488,148
Payment for treasury stock - - (30,000)
Loans from stockholders 17,100 - 49,647
--------------- --------------- -----------------
Net Cash Provided by Financing Activities 557,982 177,747 11,071,076
--------------- --------------- -----------------
Net Increase (Decrease) in Cash 87,390 (2,559) 101,965
Cash - Beginning of Periods 14,575 35,249 -
--------------- --------------- -----------------
Cash - End of Periods $ 101,965 $ 32,690 $ 101,965
=============== =============== =================
</TABLE>
See notes to the condensed financial statements.
5
<PAGE>
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 ended March 31, 1999
and 1998 are not necessarily indicative of the results that may be expected
for the years ended December 31, 1999 and 1998. 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, 1998.
RELATED PARTY TRANSACTION
Subcontract Labor - The Company previously subcontracted its project expense
(payroll, insurance and supplies) from an entity, Coates Prescision
Engineering, Inc., in which George J. Coates is the sole stockholder. During
the three months ended March 31, 1999, the Company did not pay for any
project labor expense through Coates Prescision Engineering, Inc.; however,
during the three months ended March 31, 1998 and 1997, the Company did pay
$25,121 and $52,000, respectively, for such services to said entity.
6
<PAGE>
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.
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 March 31,
1999. 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 continues to
aggressively pursue the marketing of Coates System technology to potential
sub-licensees worldwide.
7
<PAGE>
Results of Operations for the Quarters Ended March 31, 1999 and 1997
No revenues were recognized during the quarter periods ended March 31, 1999, and
1998. 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 $202,707 compared to $183,739 for the same
period in 1998. Higher general and administrative expenses were largely offset
by lower research and development costs.
After recognizing $24,853 net interest expense, the Company's operations show a
net loss from operations of $231,560 or $0.04 per share for the quarter ended
March 31, 1999, compared to a net loss of $187,245 or $.03 per share for the
same quarter in the preceding year.
Total losses since inception in August 1988 through March 31, 1999 amount to
$10,879,832.
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. On March 28, 1999, the Company refinanced its Wall
Township, New Jersey executive office and testing facility property with Eastern
Savings Bank, FSB or New York. The Company obtained a mortgage loan in the gross
amount of $900,000, secured by a first mortgage lien of its property. This
mortgage accrues interest on the outstanding principal balance of 15.99% per
annum, requires monthly payments of $12,521 and becomes due and payable in
March, 2004. Management continues to explore 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
<PAGE>
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, 1998, 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 did not file any current reports on Form 8-K
during the quarter ended March 31, 1999.
9
<PAGE>
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: May 17, 1999 By: s/George J. Coates
-------------------
George J. Coates
Chief Executive and Chief Financial Officer
coat10q.399
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1999 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-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 293,965
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 319,828
<PP&E> 1,961,219
<DEPRECIATION> 385,061
<TOTAL-ASSETS> 1,963,346
<CURRENT-LIABILITIES> 1,222,840
<BONDS> 900,000
0
6,572
<COMMON> 0
<OTHER-SE> (159,494)
<TOTAL-LIABILITY-AND-EQUITY> 1,963,346
<SALES> 0
<TOTAL-REVENUES> 62
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 206,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,915
<INCOME-PRETAX> (231,560)
<INCOME-TAX> 0
<INCOME-CONTINUING> (231,560)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (231,560)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
