SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A1
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 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.
Yes __X__ No _____
The number of shares of Registrant's Preferred Stock Series A, $0.001 par
value, outstanding as of September 30, 1999, was 6,572,424 shares.
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COATES INTERNATIONAL, LTD.
[A DEVELOPMENT STAGE COMPANY]
INDEX
Page
Number
PART 1 - FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Condensed Balance Sheet
-September 30, 1999 3
Condensed Statements of Operations
- Three m onths ended September 30, 1999 and 1998
and since inception 4
Condensed Statements of Cash Flows - Three months
ended September 30, 1999 and 1998
and since inception 5
Notes to The Condensed 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
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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 to 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 United States patents (the "Coates Patents")
have been issued to George J. Coates. CIL holds an 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 September
30, 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.
Results of Operations for the Nine Months and Three Months Ended September 30,
1999 and 1998.
No revenues were recognized for the three months and nine month periods ended
September 30, 1999 and 1998. Total operating expenses for the nine months ended
September 30, 1999 were $475,885 compared to $671,831 for the same period in
1998. The decrease was attributed to an increase in depreciation and
amortization of approximately $42,000 offset by a decrease in general and
administrative expenses approximating $76,000 and a decrease in research and
development costs of approximately 162,000. The decrease in general and
administrative expenses is the result of forgiveness of debt in the current year
approximating $90,000 which offset other period general and administrative
expenses. The forgiveness of debt was the result of settlements in connection
with certain legal fees and printing costs.
Total operating expenses for the three months ended September 30, 1999 were
$221,636 as compared with $272,869 for the same period in 1998. This decrease
was attributed largely to a decrease in research and development costs
approximating $82,000 offset by an increase in general and administrative
expenses of approximately $25,000.
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Interest expense for the nine months ended September 30, 1999 was $98,883 as
compared to $36,538 for the same nine month period in 1998. This increase of
approximately $63,000 was due to a higher mortgage on the property in 1999. The
increase in interest expense of approximately $19,000 for the three months ended
September 30, 1999 was attributed also to the higher mortgage.
The net loss for the nine months ended September 30, 1999 was $573,899 as
compared with a loss of $707,545 for the same period in 1998. Once again, the
main reason for this decrease was the reduction in the current year's general
and administrative expenses due to the forgiveness of debt coupled with the
decrease in research and development costs of approximately $82,000. The net
loss for the three months ended September 30, 1999 was $269,674 as compared to a
net loss for the three months ended September 30, 1998 of $301,594. This
decrease was due to a decrease in research and development costs of
approximately $82,000 coupled with an increase in general and administrative
expenses of approximately $25,000 and an increase in interest expense of
approximately $19,000. Total losses since inception in August 1988 through
September 30, 1999 amount to $11,419,369.
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 July 15, 1999, the Company commenced a private offering for the placement of
Series A Preferred Stock with certain institutional and accredited investors in
reliance upon the exemption from applicable registration requirements provided
by Rule 506 of Regulation D promulgated under the Securities Act of 1933. These
securities are being offered solely to accredited investors as that term is
defined in Rule 501(a) of Regulation D. The Offering was structured, requiring
that a minimum of 150,000 shares be sold on a "best efforts, all or none basis"
or all the subscription funds held in escrow were to be returned and the private
offering would be terminated. The maximum number of shares offered was 750,000
at a price of $20.00 per share. Accordingly, the Company sought to raise a
minimum $3,000,000 and a maximum $15,000,000. After the expiration of the 90-day
offering period, the Company failed to achieve the acceptance of subscription
agreements for the minimum 150,000 Series A Preferred Shares and the offering
was terminated. On October 20, 1999, the Company recommenced its previous
private placement offering, under the same terms and conditions and began
qualifying this private placement under applicable blue sky regulations of the
several States. Assuming that this recommenced private offering is successful,
the proceeds will be used for, among other things, to facilitate the assembly
and production of the Company's rotary valve parts and engines. Management has
located a facility which would house the production and assembly operations and
become the corporate headquarters, while the existing building would remain a
research and development facility.
On September 29, 1999, the Company entered into a License Agreement with Well to
Wire Energy, Inc. ("WTW"), a Canadian corporation, whereby the Company granted
to WTW a license, exclusive in Canada, for the use of the Coates spherical
rotary valve system in connection with a natural gas fueled engine that
generates electricity. The licensing fee is $5,000,000 and the Company is also
to receive a royalty equal to 5% of the gross profits which WTW derives from all
sources. The Company, which retains the exclusive right to manufacture both the
engine and generator components for sale to WTW, received orders from WTW in
October 1999 totaling $41,000,000 comprising both cogeneration systems and
engines. The consummation of the license agreement with WTW and the finalization
of WTW's orders for the generator engines is contingent upon the successful
validation of the generator engine incorporating the Coates System.
The combination of the anticipated funds raised through the private offering and
the anticipated proceeds to be derived from the sale of the $5,000,000 license
to Well to Wire Energy Inc. following successful validation should more than
offset the general and administrative expenses for the twelve months ending
September 30, 2000 which are estimated at $100,000 per month or $1,200,000.
Although management is optimistic that at least the minimum of $3,000,000 will
be raised through the private offering, there can be no assurances that this
successful subscription amount will be achieved. Moreover, although management
is confident that its generator engine developed for WTW will achieve
operational validation, there can be no assurances that such operational
validation will be achieved.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Amendment No. 1 to its Form 10-QSB for
the quarter ended September 30, 1999 to be signed on its behalf by the
undersigned, thereunto duly authorized.
COATES INTERNATIONAL, LTD.
Date:November 16, 1999 By:/s/ George J. Coates
----------------------------------------------------
George J. Coates, President and Chief
Executivel Officer and Principal Financial Officer
coaQ9909.am1
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