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, 2000
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period from
________ to _______
Commission file number 33-948884
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
requirement s for the past 90 days.
Yes [X] No
On May 19, 2000 The Board of Directors and Majority Stock holders of CIL
unanimously agreed to convert all Preferred shares of stock to Common shares, at
a 10 Common for each Preferred shares. Par Valve $ .0001. The number of shares
of Registrant's Common Stock, $ 0.001 par value, outstanding as of September 30,
2000 was 66,072,910 shares.
From its inception in 1988 CIL has primarily devoted its attention to the
Research and Development of Technology associated with the CSRV combustion
engine. 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.
On September 29, 1999, the Company entered into a License Agreement with Well to
Wire Energy, Inc. (WTW), a Canadian oil and gas corporation, whereby the Company
granted to WTW a use
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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 percent of the gross profits which WTW derives from all
sources. The Company (CIL), which retains the exclusive right to manufacture the
engine for WTW, received in October 1999, a $41,000,000 order comprising both
co-generation systems and engines. The consummation of the License agreement
with WTW and finalization of WTWs orders for the generator engines is contingent
upon the successful validation of the prototype generator engine incorporating
the Coates System.
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 offset the
general and administrative expenses for the twelve months ending March 31, 2001
which are estimated at $100,000 per month or $1,200,000. 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.
On July 2, 2000, the first 855 cubic inch natural gas prototype built for Well
to Wire Energy, Inc. was completed. This engine was fired up on July 4, 2000.
The engine ran successfully, and was dismantled a number of times over a period
of ten days. After full assessment of this engine, a number of recommendations
were made for the first production field engines. The engine was delivered to
Well to Wire Energy, Inc. on July 22, 2000. CIL is now in the process of
manufacturing the first field engines for Well to Wire Energy, Inc. of Canada.
The cost of the prototype was $5,000,000. Well to Wire Energy, Inc. has paid CIL
a total of $1,270,000, of which $250,000 is a license deposit, and $1,020,000 is
a prototype deposit.
All other arrangements and pending arrangements other than WTW Energy licensing
agreements, have been put on hold because management believes that the
co-generator opportunity in Canada is the most significant. WTW has paid to date
$1,270,000 in deposits and signed a $5,000,000 license. CIL management expects
to start production of its co-generator engine for the oil and gas companies on
a significantly large scale. Both WTW, CIL and another oil and gas company are
in high level talks regarding a joint venture.
It is the intention of CIL to fund its business plan by the sale of equity
and/or debt instruments, and through the sale of sub-licenses. All of these
financing vehicles will be pursued simultaneously. It is not presently known
which, if any, of these alternatives will be utilized, whether they are
available to CIL, and if available, in what combination or in what amounts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet and financial condition did not change materially
during the quarter.
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, 1999.
Item 2 - CHANGES IN SECURITIES AND USES OF PROCEEDS - None
Item 3 - DEFAULTS UPON SENIOR SECURITIES - None
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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, 2000.
Item 7 - All Preferred Stock was converted to Common Shares at 10 Common for
each Preferred.
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Coates International, Ltd.
Condensed Balance Sheet
September 30, 2000
(Unaudited)
<TABLE>
<S> <C>
Assets
Current Assets
Cash $ 281,999
Restricted cash 112,000
Prepaid insurance 3,196
Deferred tax asset 251,000
648,195
Total Current Assets
1,634,209
Property, Plant and Equipment - Net of accumulated depreciation of $431,811
Other Assets
Mortgage loan costs, net of accumulated amortization of $56,489 45,402
Deposits 2,500
2,330,306
Total Assets
Liabilities and Stockholders' Equity
Current Liabilities 77,000
Note payable 7,211
Current portion of mortgage payable 730,251
Accounts payable and accrued expenses 118,468
Accrued interest payable 6,000
Due to stockholders 17,196
Due to related parties
Total Current Liabilities 956,126
Mortgage payable, net of current portion 883,697
Stockholders' Equity
Preferred stock, Series A, $.001 par value voting non-cumulative convertible,
14,000,000 shares authorized no shares issued and outstanding
Common stock, $.0001 par value, 200,000,000 shares authorized, 66,085,410 shares issued and 6,606
outstanding
Additional paid-in capital 11,061,789
Retained earnings (Deficit) (10,577,912)
Total Stockholders' Equity 490,483
Total Liabilities and Stockholders' Equity $ 2,330,306
============
</TABLE>
See notes to the condensed financial statements.
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Coates International, Ltd.
Condensed Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 320,000 $ -- $ 720,000 $ --
Operating Expenses:
Research and development costs 126,981 16,035 252,427 72,609
Research and development costs - related party 50,986 -- 139,361 48,189
General and administrative expenses 36,288 196,338 214,485 308,297
Depreciation and amortization expense 15,259 9,263 34,682 46,790
Total Operating Expenses 229,514 221,636 640,955 475,885
Income (Loss) From Operations 90,486 (221,636) 79,045 (475,885)
Other Income (Expense):
Interest income 184 173 1,882 869
Interest expense (36,586) (48,211) (108,044) (98,883)
Miscellaneous income 15,000 -- 15,000 --
Total Other Income (Expense) (21,402) (48,038) (91,162) (98,014)
Net Income (Loss) Before Benefit From Income Taxes 69,084 (269,674) (12,117) (573,899)
Net Income (Loss) $ 69,084 $ (269,674) $ (12,117) $ (573,899)
Income (Loss) Per Share $ 0.00 $ 0.00 $ 0.00 $ (0.01)
Weighted Average Number of Common 66,085,410 65,724,240 66,085,410 65,724,240
Shares 0 0 0 0
Outstanding
============ ============ ============ ============
</TABLE>
See notes to the condensed financial statements.
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Coates International, Ltd.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities $(132,505) $(428,120)
Cash Flows From Investing Activities (74,000) (19,564)
Cash Flows From Financing Activities
Proceeds from note payable 77,000 --
Proceeds from mortgage payable -- 900,000
Repayment of mortgage payable (4,659) (501,496)
Proceeds of additional paid-in capital 69,965 171,742
Proceeds from issuance of stock 35 --
Payment for treasury stock -- --
(Repayment of) Proceeds from stockholder loans (10,000) 9,338
Payment for mortgage loan costs -- (65,343)
Net Cash Provided by Financing Activities 132,341 514,241
Net (Decrease) Increase in Cash (74,164) 66,557
Cash - Beginning of Periods 356,163 14,575
Cash - End of Periods $ 281,999 $ 81,132
========= =========
</TABLE>
See notes to the condensed financial statements.
<PAGE>
Coates International, Ltd.
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 nine months
ended September 30, 2000 and 1999 are not necessarily indicative of the
results that may be expected for the years ended December 31, 2000 and
1999. 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-K for the year
ended December 31, 1999.
RELATED PARTY TRANSACTION
Subcontract Labor - The Company subcontracts its project expense (payroll,
insurance and supplies) from an entity in which George J. Coates (an
officer and director of the Company) is the sole stockholder. During the
nine months ended September 30, 2000 and 1999, $139,361 and $48,189,
respectively, were paid for these services.
CAPITAL STOCK
During the nine months ended September 30, 2000, the Company converted all
shares of its Series A preferred stock into common stock, on the basis of
10 shares of common stock for each share of Series A preferred stock. The
Company also increased its authorized shares of common stock from
20,000,000 to 200,000,000 shares and changed the par value from $0.001 to
$0.0001.
Prior period earnings per share calculations have been restated to reflect
the above.
NOTE PAYABLE
Note payable to bank with interest at 13.64% due in equally monthly
installments of $6,907 including interest through September 2001. Secured
by equipment with a net book value of $66,660.
