Coates International Ltd (OTCMKTS:COTE) is Back Above a Penny

Back in 2007, Robert Farago, the founder of a controversial, but well renowned website called The Truth About Cars, wrote an article about Coates International Ltd (OTCMKTS:COTE)’s valve train technology and he listed numerous reasons why he is not convinced. He concluded his review by saying that he is skeptical, but he did point out that depending on what happens in the future, he might change his mind. So, has he changed his mind?

Well, he hasn’t covered COTE‘s spherical valves since then which means that we can’t be sure what he thinks of them now, seven and a half years later. It must be said, however, that COTE and its CEO, George Coates, haven’t really done much to assure Mr. Farago that they are in the process of transforming the auto industry as we know it. The vehicles that move thanks to the power of internal combustion still rely on those boring old poppet valves and the dismal revenues the company has been generating are coming from sub-licensing agreements.

Now, though, Mr. Coates is hard at work trying to convince us that COTE is finally shifting gears. Last week, for example, he announced that a big, government-owned Chinese ship builder has signed a cooperation agreement with COTE. No details were given on what the cooperation will involve, but Mr. Coates did say that he will soon have a trip to China.

He also said that the agreement is “opening up new opportunities for Coates International Ltd.” and thanks to this, the stock has been moving in the right direction ever since. In a matter of just four trading days, the ticker managed to more than double its value and after a 42% jump and a dollar volume of nearly $200 thousand, it reached a close of over $0.01 per share for the first time in almost two months.

So, investors seem to be excited and certain message board users are making sure that they stay that way. Phone calls (with people who, as it seems, must not be named) are being discussed and by the looks of things, more positive news is expected in the coming days and weeks.

If you’ve been reading our articles on COTE closely, however, you’d know that positive news isn’t something that’s been missing around the company over the years. Unfortunately, it has led to nothing more than problems with the SEC and losses for regular investors who got a bit carried away with the hype.

We should also point out that the cooperation agreement with the Chinese ship builder isn’t the only new development around COTE. On Monday, the company filed an 8-K form which said that the management team is determined to reduce its reliance on toxic debt. It said it just a couple of paragraphs after informing us that a brand new note has been issued which is convertible into free trading stock at a 39% discount. That, in case you’re wondering, fits pretty well in the description of toxic debt.

Some questions popped up around the financing agreement with Southridge Partners as well. As you probably know, Southridge were supposed to buy up to $20 million worth of common stock and COTE were so happy about the deal that they issued a full press release dedicated to the filing of the S-1 form. The SEC looked through the S-1 in question, however, and they advised COTE to withdraw the registration statement. COTE did just that and they failed to tell us what will happen to the purchase agreement. What does that mean?

It means that at the moment COTE is a company with a dreadful-looking 10-Q that has a history of broken promises, plenty of dilutive debt, and what they’ve been calling “the single most significant development in engine technology in the past thirty years” for the past twenty-five years.