Coates International Ltd (OTCMKTS:COTE) recorded strong gains of more than 38% on June 23, 2015 after it reported that another company intends to purchase $20 million worth of COTE stock. It released a press release on following day confirming the deal. Southridge Partners II LP will buy $20 million worth of company’s stock over the course of next three years. However, the enthusiasm that spurred from the news was short-lived as since then the stock has been moving south on the charts.

In last trading session, the stock price of COTE declined more than 5% to close the trading session at $0.00360. The decline came at a share volume of 11.28 million compared to average share volume of 36.35 million.

The significance

The new deal seems to be an attractive agreement, particularly when compared with Coates International previous funding plans. The company has issued and continues to release, extreme number of shares at huge discounts ranging from 30%-40%. The recent deal is good enough but it doesn’t mean that it will not dilute the stock further.

As a matter of fact, Southridge can buy huge amount of shares for $20 million. So, if the share price traded at the same level, the recent deal will leave Southridge with 1.3 billion shares of COTE common stocks in the first year. As of May 8, company reported 713 million shares of COTE common stock released and outstanding.

The performance

As per the latest financial report, Coates International Ltd (OTCMKTS:COTE) had $72,000 in cash reserves with total assets of $190,000. The picture seems dismal with massive current liabilities of $7.1 million in the reported period. The revenue was $5,000 whereas net loss amounted to $2.8 million. It is evident that the company had low cash reserves and mounting liabilities and massive net loss. The funds can help the company to record commercial success but at the same time will pose risk of share dilution.