<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-K/A
                               (AMENDMENT NO. 1)

(MARK ONE)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.

[ ]  TRANSITION REPORTING PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.

                          COMMISSION FILE NO. 0-21911

                             SYNTROLEUM CORPORATION
             (Exact name of registrant as specified in its charter)

                DELAWARE                                73-1565725
    (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)                Identification No.)

                         1350 SOUTH BOULDER, SUITE 1100
                          TULSA, OKLAHOMA  74119-3295
              (Address of principal executive offices) (Zip Code)

      Registrant's telephone number, including area code:  (918) 592-7900

       Securities registered pursuant to Section 12(b) of the Act:  None

          Securities Registered Pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                                      and
                        Preferred Share Purchase Rights

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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

At March 1, 2000, the aggregate market value of the registrant's common stock
held by non-affiliates of the registrant was approximately $353,350,030 million
based on the closing price of such stock on such date of $22.00 per share
(assuming solely for this purpose that all of the registrant's directors,
executive officers and 10% stockholders are its affiliates).

At March 1, 2000, the number of outstanding shares of the registrant's common
stock was 27,297,168.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None.
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                               TABLE OF CONTENTS

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                                                    PART I

Item 1.      Business..............................................................................    2
Item 2       Properties............................................................................   25
Item 3       Legal Proceedings.....................................................................   25
Item 4.      Submission of Matters to a Vote of Security Holders...................................   25

                                                   PART II

Item 5.       Market for Registrant's Common Equity and Related Stockholder Matters................   26
Item 6.       Selected Financial Data..............................................................   27
Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations   28
Item 7A.      Quantitative and Qualitative Disclosures about Market Risk...........................   37
Item 8.       Financial Statements and Supplementary Data..........................................   37
Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.   37

                                                   PART III

Item 10.      Directors and Executive Officers of the Registrant...................................   38
Item 11.      Executive Compensation...............................................................   41
Item 12.      Security Ownership of Certain Beneficial Owners and Management.......................   44
Item 13.      Certain Relationships and Related Party Transactions.................................   45

                                                    PART IV

Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....................   47
</TABLE>

                           FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 10-K includes forward-looking statements as well
as historical facts.  These forward-looking statements include statements
relating to the Syntroleum Process and related technologies, gas-to-liquids
plants based on the Syntroleum Process, anticipated costs to design, construct
and operate these plants, the timing of commencement and completion of the
design and construction of these plants, obtaining required financing for these
plants, the economic construction and operation of gas to liquids plants, the
value and markets for plant products, testing, certification, characteristics
and use of synthetic fuels and alternative fuels, the continued development of
the Syntroleum Process (alone or with partners), anticipated capital
expenditures, anticipated revenues, the sale of our real estate inventory and
any other statements regarding future growth, cash needs, operations, business
plans and financial results.  When used in this document, the words
"anticipate," "believe," "estimate," "expect," "intend," "may," "plan,"
"project," "should" and similar expressions are intended to be among the
statements that identify forward-looking statements. Although we believe that
the expectations reflected in these forward-looking statements are reasonable,
these kind of statements involve risks and uncertainties.  Actual results may
not be consistent with these forward-looking statements.  Important factors that
could cause actual results to differ from these forward-looking statements
include the risks that the cost of designing, constructing and operating
commercial-scale gas to liquids plants will exceed current estimates,
commercial-scale gas to liquids plants will not achieve the same results as
those demonstrated on a laboratory or pilot basis, gas to liquids plants may
experience technological and mechanical problems, improvements to the Syntroleum
Process currently under development may not be successful, plant economics may
be adversely impacted by operating conditions, including energy prices,
construction risks and risks associated with investments and operations in
foreign countries, our ability to implement corporate strategies, competition,
intellectual property risks, our ability to obtain financing and other risks
described in this Annual Report on Form 10-K.

     As used in this Annual Report on Form 10-K, the terms "we," "our" or "us"
mean Syntroleum Corporation, a Delaware corporation, and its predecessors and
subsidiaries, unless the context indicates otherwise.

                                       1
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

     We are the developer and owner of the Syntroleum Process, a proprietary
process designed to catalytically convert natural gas into synthetic liquid
hydrocarbons.  The Syntroleum Process is a simplification of traditional gas to
liquids, or "GTL," technologies aimed at substantially reducing the capital and
operating costs and the minimum economical size of a GTL plant. A primary
advantage of the Syntroleum Process over competing processes is its use of air,
rather than pure oxygen, in the conversion process. We believe that the
Syntroleum Process can, in some circumstances, be cost effective in GTL plants
with throughput levels ranging from 2,000 to 50,000 barrels per day and larger.
Due to their relatively small size, we believe that GTL plants based on the
Syntroleum Process can be placed on skids, barges and ocean-going vessels,
allowing these mobile plants to be used at a variety of locations, including
isolated and offshore areas.  Although no commercial-scale GTL plant based on
the Syntroleum Process has been built yet, we have successfully demonstrated
many elements and variations of the Syntroleum Process in laboratory tests and
pilot plant operations.

     GTL plants can be designed to refine the synthetic liquid hydrocarbons,
also known as "synthetic crude oil," produced by the Syntroleum Process into
higher margin liquid fuels like diesel, kerosene and naphtha, or specialty
products like synthetic lubricants, synthetic drilling fluid, waxes, liquid
normal paraffins as well as chemical and fuel cell feedstocks.  Synthetic crude
oil produced by the Syntroleum Process has performance and environmental
benefits and is substantially free of contaminants normally found in crude oil,
including sulphur, aromatics and heavy metals.

     We believe that a significant opportunity exists for the use of cost-
effective GTL plants due to the large resource base of natural gas worldwide and
the large volume of natural gas that is currently stranded.  Stranded gas exists
in reservoirs that have been discovered but for which no economical market has
been found.  The United States Department of Energy has reported worldwide
identified natural gas reserves of 5,011 trillion cubic feet as of January 1,
1996.  Wood MacKenzie Consultants Limited and others have estimated that of the
world's identified natural gas reserves, approximately one-half, or 2,500
trillion cubic feet, are stranded.  If converted using GTL technology, this
stranded gas could generally produce approximately 250 billion barrels of
synthetic crude oil. According to industry sources, approximately 15.5 trillion
cubic feet of stranded natural gas was flared, vented or reinjected in 1996.  If
converted using GTL technology, this gas could generally produce approximately
1.5 billion barrels of synthetic crude oil per year, or 4.1 million barrels per
day.

BUSINESS STRATEGY

     Our objective is to be a leading GTL technology provider to the oil and gas
industry. Our business strategy to achieve this objective involves the following
key elements.

     Broadly License the Syntroleum Process. We intend to continue offering
licenses to the Syntroleum Process and related proprietary catalysts to the oil
and gas industry for the production of synthetic crude oil and liquid fuels
primarily outside of North America.  To date, we have entered into license
agreements with Texaco Inc., ARCO, Marathon Oil Company, YPF International,
Ltd., an affiliate of Repsol YPF, S.A., Enron Capital & Trade Resources Corp.,
and Kerr-McGee Corporation. In February 2000, we signed a letter of intent with
the Commonwealth of Australia to license the Syntroleum Process.  We believe
that substantial long-term revenues can be derived from license fees and
catalyst sales to licensees.

     To support our licensing efforts and facilitate the design and construction
of GTL plants by our licensees, we intend to continue to establish relationships
with engineering companies and manufacturers of critical components. We have
established strategic relationships with the engineering firms of Bateman
Engineering, Inc., Tessag Industrie-Anlagen GmbH (formerly Klockner Industrie-
Anlagen GmbH), a subsidiary of RWE AG, the sixth largest company in Germany, and
AMEC Process and Energy Limited, a British engineering company.  In addition, we
have established strategic relationships with critical component and process
vendors, including Criterion Catalyst Company, L.P. (a catalyst manufacturer
whose owners are Royal Dutch Shell Petroleum Company and Cytec

                                       2
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Industries), Catalytica Combustion Systems, Inc., GE Power Systems and Lyondell
Chemical Company. We continue to actively pursue similar relationships with
other engineering companies and component vendors.

     We generally obtain title or exclusive rights to inventions or improvements
that result from our joint development activities with others.  Under our
license agreements, we obtain royalty-free license rights, including sublicense
rights, to all inventions or improvements relating to the Syntroleum Process
that are commercially used by our licensees.  As a result of these rights, we
believe that widespread licensing, combined with our research and development
activities to further improve the Syntroleum Process, will enhance our ability
to gain an advantage over competing technologies and allow us to strengthen our
relationships with our existing licensees and attract new licensees.

     Develop and Own GTL Plants. We intend to establish joint ventures with our
licensees and other oil and gas industry and financial partners to design,
construct and operate GTL plants designed to produce fuels and high margin
specialty products. Our license agreements do not permit our licensees to use
the Syntroleum Process for the production of specialty products due to our
desire to retain these markets for our own commercial development.  We are
developing our first commercial scale GTL specialty products plant, which we
plan to locate in Western Australia.  We expect this plant to be owned by a
joint venture between us, Enron, Methanex Corporation and others. Specialty
product plants would enable us to gain experience with the commercial operation
of plants based on the Syntroleum Process and, if successful, would provide more
consistent revenues than license fees.

     Further Reduce Costs Through Research and Development Activities and
Acquisitions.  We intend to continue our research and development activities
with a focus on developing further improvements to the Syntroleum Process and
further reducing the capital and operating costs of GTL plants based on the
Syntroleum Process. We conduct our research and development activities using our
own resources and through joint development arrangements with our licensees and
other industry partners.  Texaco, ARCO, Marathon, Bateman, GE Power Systems and
DaimlerChrysler AG have participated or are currently participating with us in
specific joint development projects.   In addition, we have a catalyst research
and development relationship with Catalytica Advanced Technologies, Inc.,
Criterion and Englehard Corporation.  We have also entered into a letter of
intent with the Commonwealth of Australia to work with Australian universities
and research institutions to advance our GTL technology.  We are actively
pursuing relationships with other oil and gas companies, engineering companies
and technology providers as potential joint development partners or providers of
complementary technologies that might enhance or improve the Syntroleum Process.

     We also review technological advances made by others and actively seek to
acquire technologies that enhance the Syntroleum Process.  Through our license
and joint development agreements, we have acquired proprietary technologies,
patents and patent applications relating to several improvements to the
Syntroleum Process.

     We believe that the network created through our license and joint
development agreements, along with our strategic alliances with engineering
companies and critical component vendors, will allow us to more rapidly
commercialize and improve the Syntroleum Process.  We also believe that this
network will provide us and our licensees with an important competitive
advantage and enhance our ability to attract additional licensees and joint
development partners.

     Our major customers for licensing and contract GTL plants are expected to
be energy companies worldwide with significant stranded natural gas reserves
that cannot be marketed economically and are therefore generally shut-in, flared
or reinjected.  We believe that these energy companies could significantly
enhance the value of their reserves by using the Syntroleum Process to convert
natural gas into liquids that could be marketed economically. Our major
customers for specialty products are expected to include many of these energy
companies, as well as a variety of manufacturing, chemical, refining and oil
field service companies.

                                       3
<PAGE>

INDUSTRY OVERVIEW

     We believe that significant opportunity exists for the use of cost-
effective GTL plants due to (1) the large volume of natural gas that is
currently stranded and (2) the significant liquid hydrocarbon markets available
to absorb the production from GTL plants.

  HISTORICAL DEVELOPMENT OF GTL TECHNOLOGY

     The basis for most GTL technologies, including the Syntroleum Process,
originated in 1923 when two German chemists, Franz Fischer and Hans Tropsch,
discovered that synthesis gas (carbon monoxide and hydrogen) could be
catalytically converted into synthetic hydrocarbons using a precipitated cobalt
catalyst.   In the Fischer-Tropsch reaction, the synthesis gas in contact with
the catalyst surface at appropriate temperatures and pressures causes a chemical
reaction that produces hydrocarbons and byproducts consisting primarily of water
and carbon dioxide.

     Prior to and during World War II, development of the Fischer-Tropsch
process occurred primarily in Germany.  Due to Germany's significant coal
resources and limited oil and gas resources, these development activities
focused exclusively on the conversion of coal into fuels and chemicals.  Between
1934 and 1945, nine government-funded coal-to-liquids plants were built in
Germany using coal as the feedstock.

     Following World War II, development efforts continued in the United States
and South Africa.  In 1950, Texaco participated in the Hydrocol plant, which was
an 8,000 barrel per day synthetic fuel plant that was built in Brownsville,
Texas and used natural gas as the feedstock. Although the plant was a technical
success, it was not economic to operate because a new gas pipeline and changes
in the price of oil created a more economic market for the natural gas, which
resulted in the shutdown of the plant in 1953.  In 1950, the South African
government formed a predecessor of Sasol (which was later privatized) to develop
synthetic fuels using coal as the feedstock.  Three coal-to-liquids plants were
built in South Africa between 1955 and 1982, and a natural gas based plant was
built in 1993.  Each of these plants is still in operation today.

     Following the oil embargo of 1973, further development efforts focused on
utilizing both coal and natural gas to produce synthesis gas for the Fischer-
Tropsch process.  Several major oil companies and several governments funded
research into synthetic fuels.  The worldwide recession of 1982 and the related
drop in oil prices resulted in the termination of most coal-related development
activities.  However, development activities related to the conversion of
natural gas continued during the 1980's and 1990's.  In 1985, Mobil built a gas
to liquids plant in Montuni, New Zealand, and in 1993 Shell built a gas to
liquids plant in Bintulu, Malaysia.  Neither of these plants remains operational
as a gas to liquids plant.  Several major oil companies, including BP Amoco,
Chevron, Conoco, Exxon, Phillips and Shell, have recently announced projects to
construct gas to liquids plants.

     We believe the generally accepted capital cost target for a GTL plant to be
cost effective for the production of transportation fuel is $30,000 per barrel
of daily plant capacity or less. This cost target is determined by calculating
the capital cost necessary to achieve an expected return on an investment in a
GTL plant. Factors influencing the expected return include operating costs,
feedstock cost and product prices. Capital costs at or below $30,000 per barrel
of daily plant capacity generally result in an expected return on the
investment, assuming operating costs comparable to those for a conventional
refinery, natural gas feedstock prices below $1.00 per million British thermal
units and oil prices above $18 per barrel.

     We believe that to date no company has built a commercial-scale GTL plant
that has broken this cost barrier. In addition, we believe that each of the
current competitive GTL technologies has taken in excess of ten years to
develop.

     NATURAL GAS RESOURCE BASE

     Set forth below and elsewhere in this Annual Report on Form 10-K are
estimates of identified reserves of oil and natural gas.  These estimates do not
constitute proved reserves in accordance with the regulations of the Securities
and Exchange Commission.  Under Securities and Exchange Commission regulations,
proved oil and gas reserves are the estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e., prices and
costs as of the date the estimate is made. We compiled these estimates of
identified reserves from the referenced industry publications and other publicly
available reports to identify the magnitude of the oil and gas resource base.
We have not independently verified this information. Accordingly, we can give no
assurance as to the existence or recoverability of the estimates of identified
reserves of oil and natural gas set forth in this Annual Report on Form 10-K.
References below and elsewhere in this Annual Report on Form 10-K to the
conversion of identified amounts of natural gas into amounts of synthetic crude

                                       4
<PAGE>

oil assume that all of the referenced natural gas could be converted at
anticipated conversion rates.  Actual amounts of synthetic crude oil produced
will vary based on the ability of the producer to extract the natural gas, the
composition of the natural gas and process conditions selected for the plant and
this variance may be material.

     The world's natural gas resource base is very large.  The United States
Department of Energy has reported worldwide identified natural gas reserves of
approximately 5,011 trillion cubic feet as of January 1, 1996.  If converted
using GTL technology, this gas could generally produce approximately 500 billion
barrels of synthetic crude oil.

     The following table presents the 1996 worldwide identified natural gas
reserves, consumption and ratio of reserves to consumption (i.e., reserve life)
by region.

       1996 WORLDWIDE NATURAL GAS RESERVES, CONSUMPTION AND RESERVE LIFE

<TABLE>
<CAPTION>
                                                                                          RESERVES TO
                                                                                          CONSUMPTION
                                                                             1996            RATIO
                       REGION                         RESERVES           CONSUMPTION    (RESERVE LIFE)
                       ------                         --------           -----------    --------------
                                                  (TRILLION  CUBIC        (TRILLION        (YEARS)
                                                       FEET)             CUBIC FEET)
<S>                                               <C>                    <C>             <C>
Central and South America.......................         214                 3.0                71
Africa and the Middle East......................       1,960                 6.0               327
Asia............................................         363                 8.0                45
Europe..........................................         169                12.3                14
North America...................................         299                26.0                11
Russia and other former Soviet Union regions....       2,006                22.0                91
                                                       -----                ----               ---
     Total......................................       5,011                77.3                65
                                                       =====                ====               ===
</TABLE>
______________________________
Source: Oil & Gas Journal, August 11, 1997

     Additionally, according to the August 11, 1997 edition of the Oil & Gas
Journal, identified natural gas reserves have grown at a rapid rate, almost
doubling in size from 2,540 trillion cubic feet in 1976 to 5,011 trillion cubic
feet in 1996.  This has extended the reserve life for worldwide identified
reserves from 53 years in 1976 to 65 years in 1996.  This increase occurred
despite the fact that, over the same time frame, demand for natural gas
increased 60%.  We believe these statistics demonstrate the need for a cost-
effective market for this resource.

                                       5
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NATURAL GAS FIELD SIZE DISTRIBUTION

     The table below lists an estimate of the distribution, by field size, of
natural gas fields located outside North America.  Only 86 of these fields are
larger than five trillion cubic feet, which is generally considered to be the
minimum size necessary to support the development of a full-scale liquid natural
gas  plant. We believe that fields with natural gas reserves as low as .01
trillion cubic feet can economically support a GTL plant based on the Syntroleum
Process.  Based on field size and portability, we believe GTL plants based on
the Syntroleum Process can potentially access over 2,000 of these fields,
representing approximately 95% of the total reserves held in these fields.

                         THE WORLD'S NATURAL GAS FIELDS

       RESERVES                        NUMBER OF FIELDS
       --------                        ----------------
(TRILLION CUBIC FEET)

     Between 50 and 500............           15
     Between 5 and 50..............           71
     Between 1 and 5...............          234
     Between .5 and 1..............          269
     Between .25 and .5............          276
     Between .1 and .25............          475
     Between .01 and .1............        1,195
     Less than .01                         1,913
                                           -----
           Total...................        4,448
                                           =====
_____________________
Source: Oil & Gas Journal, February 15, 1993

     STRANDED NATURAL GAS RESERVES

     Wood MacKenzie, an international consulting firm, and others have estimated
that of the world's identified natural gas reserves, approximately one-half, or
2,500 trillion cubic feet, are stranded.  If converted using GTL technology,
this stranded gas could generally produce approximately 250 billion barrels of
synthetic crude oil.

     The term "stranded gas" generally refers to gas which exists in reservoirs
that have been discovered, but no economical market can be found for the
production, or production would be too prolific for the limited markets
available.  Natural gas that is stranded can be managed in the following ways.

     Shut-in Natural Gas. When stranded natural gas reserves have no associated
oil reserves, the natural gas is typically not produced. Based on a resource
study prepared for us by Petroconsultants, Inc., there are at least 394 fields
of at least .5 trillion cubic feet located outside North America that are not
associated with oil reserves and hold approximately 1,488 trillion cubic feet of
currently unmarketable natural gas reserves. If converted using GTL technology,
this gas could generally produce approximately 149 billion barrels of synthetic
crude oil.

     Flared and Vented Natural Gas.  When stranded natural gas reserves are
associated with oil reserves, the natural gas produced is typically flared or
vented if allowed by applicable law. According to industry sources, an aggregate
of approximately 4.1 trillion cubic feet of natural gas was flared or vented
worldwide in 1996.  If converted using GTL technology, this gas could generally
produce approximately one million barrels per day of synthetic crude oil.

     Re-injected Natural Gas.  When flaring is not permitted by law and the
nature of the geologic formation permits, stranded natural gas is often
reinjected when associated with oil reserves. According to industry sources,
approximately 11.4 trillion cubic feet of natural gas was reinjected worldwide
in 1996.  If converted using GTL technology, this gas could generally produce
approximately three million barrels per day of synthetic crude oil.

                                       6
<PAGE>

     Shut-in Oil.  The presence of natural gas in association with oil reserves
often results in the oil and gas not being produced if flaring is not permitted
by law and reinjection of the natural gas is not a practical alternative due to
the nature of the geologic formation or the economics of the project. We are not
aware of any published estimates of shut-in oil reserves.

     The large amount of stranded natural gas is caused by four primary factors:
the overall size of the gas resource base and the relatively small size of many
fields, as discussed above, the location of the gas relative to its markets, the
cost to transport the gas to those markets and the relatively small size of the
markets for products like ammonia and methanol that can be made from the gas.

     Location of Gas Relative to Markets.  Much of the world's stranded natural
gas is located in areas where there is no local market and the distance to large
consuming areas is great. This makes transportation costs high and often renders
development projects uneconomic.  As shown in the table under "--Industry
Overview-Natural Gas Resource Base" above, the Africa, Middle East and Russia
and other former Soviet Union regions have a large percentage of reserves, low
levels of production and long distances from gas markets.  This situation
creates stranded gas, which is manifested in the high reserve-to-production
ratios shown.

     Transportation Costs.  Even in circumstances where a transportation system
is available for natural gas, the cost of transporting natural gas in a gaseous
state is generally substantially higher, on an energy equivalent basis, than
that of oil.  For example, according to published pipeline tariffs, the cost to
transport natural gas approximately 1,600 miles via pipeline from Houston to
Boston is approximately $.80 per million British thermal units, equal to $4.80
per barrel of oil equivalent, assuming 6 million British thermal units per
barrel, while the cost to transport crude oil from the Middle East via tanker to
Boston, a distance of approximately 6,500 miles, is less than $1.00 per barrel.

     Natural gas can also be transported as liquefied natural gas.  In an
article published in the July 3, 1995 edition of the Oil & Gas Journal, Mobil
Oil Corporation estimated that a five million ton per year liquefied natural gas
plant would incur capital costs of between $9 and $13 billion (including
conversion plant, dedicated liquefied natural gas tankers and regasification
facilities).  On the other hand, we estimate that a GTL plant producing the same
energy output would cost substantially less and would not necessarily require
dedicated shipping or unloading facilities.

     Small Alternative Natural Gas Markets. We estimate that the worldwide
liquefied natural gas market is approximately 1.2 million equivalent barrels per
day, which is relatively small compared to the approximately 57 million barrels
per day transportation fuels markets.  Natural gas can also be converted to
ammonia and methanol. We currently estimate that the market for ammonia on a
barrel of oil equivalent basis is approximately 780,000 barrels per day and the
market for methanol on a barrel of oil equivalent basis is approximately 280,000
barrels per day. These markets are small relative to the size of the worldwide
natural gas resource base and relative to the approximately 74 million barrels
per day market for crude oil and related products.

     MARKETS FOR SYNTHETIC CRUDE OIL PRODUCTS

     The markets for many of the products that can be produced using the
Syntroleum Process and conventional refining techniques are very large. We
believe that even if substantial volumes of synthetic crude oil created from
natural gas were to flow into these markets, these additional volumes would not
cause a significant degradation of price.  The following table presents the
worldwide consumption of refined petroleum products for the years 1986, 1991 and
1996.

              WORLDWIDE CONSUMPTION OF REFINED PETROLEUM PRODUCTS

PRODUCT                                 1986            1991            1996
-------                               ------          ------          ------
                                                 (millions of barrels)

Gasolines (1)...................       5,022           5,609           6,431
Middle Distillates (2)..........       6,012           6,820           8,253
Others (3)......................       6,600           7,216           7,790
                                      ------          ------          ------
    Total.......................      17,634          19,645          22,474
                                      ======          ======          ======

                                       7
<PAGE>

_________________
(1) Consists of aviation and motor gasoline and light distillate feedstock.
(2) Consists of jet and heating kerosenes and gas and diesel oils.
(3) Consists of fuel oil, refinery gas, propane, solvents, petroleum coke,
    lubricants, bitumen, wax and refinery fuel and loss.

Source: The British Petroleum Company p.c. Statistical Review of World Energy,
1997.

THE SYNTROLEUM SOLUTION

     We expect that the Syntroleum Process will be an attractive solution for
oil and gas companies with stranded natural gas reserves based on our belief
that the Syntroleum Process can be:

     . a relatively low cost process,

     . used in relatively small formats,

     . adaptable to feedstock quality, the location of the reserves and the
       desired end products, and

     . made portable in sizes up to 10,000 barrels per day.

     Low Cost.  Historically, the most significant obstacle to widespread
commercial use of GTL technology has been cost.  Because the Syntroleum Process
is less complex than traditional GTL technologies, we believe that GTL plants
based on the Syntroleum Process will have lower capital and operating costs than
comparable-sized GTL plants based on traditional technology.

     Small Formats.  Given the large number of small fields containing
unmarketable natural gas, GTL plants that are economic only at high levels of
throughput have limited application.  For example, of the 4,448 natural gas
fields located outside North America shown in the table under "Industry
Overview-Natural Gas Field Size Distribution" above, (1) approximately 86
contain sufficient reserves to support a 50,000 barrels per day plant, (2)
approximately 234 contain sufficient reserves to support a 10,000 to 50,000
barrels per day plant, (3) approximately 269 contain sufficient reserves to
support a 5,000 to 10,000 barrels per day plant, and (4) approximately 275
contain sufficient reserves to support a 2,500 to 5,000 barrels per day plant,
in each case for a typical 30-year plant life.  In addition, approximately 1,670
of these 4,448 fields contain sufficient reserves to support a 2,000 barrels per
day plant for less than a 30-year plant life.  We believe that GTL plants based
on the Syntroleum Process can be cost-effective at throughput levels as low as
2,000 barrels per day and consequently could potentially be used at over 2000 of
these fields, representing approximately 95% of the total reserves held in these
fields.

     Adaptable.  We also believe that GTL plants based on the Syntroleum Process
can be adapted to use lower quality feedstock and can be located in isolated and
remote locations. Many impurities must be removed from natural gas prior to
processing using traditional GTL technology.  However, we believe that some
impurities like nitrogen and carbon dioxide will not need to be completely
removed from natural gas feedstock for GTL plants based on the Syntroleum
Process. Due to their relatively small size, we believe GTL plants based on the
Syntroleum Process can be placed on skids, barges and ocean-going vessels,
allowing these plants to be used at a variety of locations, including isolated
and offshore areas where we believe a majority of natural gas fields are
located.  Moreover, because the Syntroleum Process is a net energy generator, we
believe that these plants can be located in remote areas without the need for
any additional power supply.

     Portable.  Because of their high capital costs, gas pipelines and other
traditional methods for commercialization of natural gas resources require
significant reserves and established local markets to be economically feasible.
However, due to the potential portability of smaller-sized GTL plants based on
the Syntroleum Process, we believe that these plants may in some circumstances
be used to convert smaller quantities of in-place reserves than would be
necessary to support a traditional project.  We also believe that this
portability,

                                       8
<PAGE>

together with the global nature of the markets for liquid hydrocarbons, will
reduce the risk involved in GTL projects as compared to traditional methods of
commercialization.

IMPLEMENTATION OF SYNTROLEUM'S BUSINESS STRATEGY

     The following sets forth our progress to date in implementing our business
strategy.  Although we have made significant progress towards commercializing
the Syntroleum Process, we can give no assurance that licensees will construct
any plants under their license agreements, that we will be able to obtain
financing for specialty product or mobile GTL plants, that design and
construction of any of these plants will be successfully completed, that any of
these plants will be commercially successful or that these plants will be
constructed or utilized on a cost-effective basis.  See "Risks Relating to the
Syntroleum Process" and "Item 7.  Management's Discussion and Analysis of
Financial Condition and Results of Operations --Additional Financing
Requirements and Access to Capital Funding."

     LICENSING ARRANGEMENTS

     We currently market four types of license agreements:

     .   Master license agreements generally grant to the licensee the non-
         exclusive right to enter into an unlimited number of site license
         agreements to construct GTL plants based on the Syntroleum Process to
         produce fuels worldwide.  The licenses generally exclude the right to
         use the Syntroleum Process in North America due to our desire to retain
         this region for our own commercial development and in China and India
         due to intellectual property protection concerns.

     .   Volume license agreements generally grant to the licensee the non-
         exclusive right to enter into an unlimited number of site license
         agreements to construct GTL plants based on the Syntroleum Process in
         areas outside of North America, China and India, subject to specified
         aggregate production capacity limits.

     .   Regional license agreements generally grant to the licensee the non-
         exclusive right to enter into an unlimited number of site license
         agreements to construct GTL plants based on the Syntroleum Process
         within a designated region.  The designated regions are not expected to
         include North America, China or India.

     .   Site license agreements generally grant to the licensee the non-
         exclusive right to use the Syntroleum Process in a GTL plant at a
         single, specified location for the life of the plant.  This type of
         license may be granted under our master, regional or volume license
         agreements or may be granted to licensees for a specific site who have
         not otherwise entered into a master, regional or volume license
         agreement.

     By entering into a master, volume or regional license agreement, a licensee
obtains the right to use the Syntroleum Process, the right to acquire catalysts
from us for which we charge a fixed mark-up over our cost, secures pricing terms
for site licenses, and obtains rights to future improvements in our GTL
technology. To date, we have also entered into master license agreements with
Texaco, ARCO and Marathon, and we have entered into volume license agreements
with YPF, Enron and Kerr-McGee.  We have also signed a letter of intent with the
Commonwealth of Australia to license the Syntroleum Process.  We intend to
continue to market the Syntroleum Process for license primarily to major oil and
gas companies with significant stranded natural gas reserves.

  The following description summarizes the principal terms and conditions of the
forms of our license agreements.  This summary is not complete and is qualified
in its entirety by reference to the form of our master license agreement, a copy
of which has been filed as an exhibit to this Annual Report on Form 10-K.
Agreements entered into with specific licensees may differ in material respects
from the current forms of our various license agreements.

     Initial Deposits and License Fees.  At the inception of a master, volume or
regional license agreement, the licensee is generally required to make an
initial deposit to us, which is credited against future site-specific license
fees.  The amount of the initial deposit depends on market conditions and, in
the case of volume and regional license

                                       9
<PAGE>

agreements, the volume limitation and the size and location of the region
covered. We have received an aggregate of $11 million in cash as initial
deposits and option fees under our existing license agreements. In some cases,
we have acquired technologies or commitments to provide funding for future
development activities in lieu of initial cash deposits in cases where we viewed
these technologies or commitments as being more valuable than the initial cash
deposit.

     Generally, the amount of the license fee for site licenses under our
master, volume and regional license agreements is determined pursuant to a
formula based on the discounted present value of the product of (1) the annual
maximum design capacity of the plant, (2) an assumed life of the plant and
(3) our per barrel rate, which currently is approximately $.50 per barrel of
daily capacity. Our license fees for new plants may change from time to time
based on the size of the plant, improvements that reduce plant capital cost and
competitive market conditions. Our existing master and volume license agreements
allow for the adjustment of fees for new site licenses under certain
circumstances. We expect that license fees under existing agreements will be
paid in increments when certain milestones during the plant design and
construction process are achieved.

     Catalyst Sales and Process Design Packages.  Our license agreements grant
the licensee the right to acquire from us or vendors designated by us any
proprietary catalyst used in either the synthesis gas reaction or the Fischer-
Tropsch reaction, in each case at prices based on our cost plus a margin. We
currently estimate that these catalysts will be required to be replaced every
three to five years.  Licensees also have the right to acquire proprietary
reactors used in the Syntroleum Process from vendors approved by us.  In
addition, under our license agreements, licensees are required to purchase a
process design package for plants covered by the license from us at a fee based
on our costs plus a specified margin. We may, however, develop the process
design package with the assistance of a third party. We are also required to
provide certain technical support to licensees at specified fees.

     Other License Terms.  As part of our network model for improving our GTL
technology, we acquire a royalty-free license to any invention or improvement to
the Syntroleum Process that is developed by the licensee, together with the
right to grant corresponding sublicenses to our other licensees who have granted
us similar rights.  Licensees also acquire the right to use subsequent
inventions or improvements to the Syntroleum Process that we have acquired from
other licensees.  Our license agreements may be terminated by the licensee, with
or without cause, upon 90 days' notice to us.

     SPECIALTY PRODUCT GTL PLANTS

     We intend to design and construct GTL plants that produce specialty
products, including synthetic lubricants, synthetic drilling fluids, waxes,
liquid normal paraffins and chemical and fuel cell feedstocks.  We intend to own
these plants through joint ventures and retain significant equity interests in
these joint ventures.  In most cases, these specialty plants will require
additional refining technologies and expertise to convert and separate synthetic
crude oil into the desired products.

     We are developing a 10,000 barrel per day specialty product plant which we
call the "Sweetwater" plant.  We currently anticipate that this plant will
produce synthetic lube oil, normal paraffins, drilling fluid, and synthetic
light paraffins. The plant was initially planned to be constructed in Sweetwater
County, Wyoming.  However, after being approached by gas producers at
alternative sites at which lower cost natural gas could be obtained, we decided
to evaluate international sites as well.  In February 2000, we selected a site
on the Burrup Peninsula of Western Australia as the site for the plant.  The
site is about 4 kilometers from the North West Shelf LNG facility and near the
towns of Karatha and Dampier.  The site is approximately 1,000 miles north of
Perth, Australia.

     In November 1999, we signed a project development agreement with Tessag
Industrie-Anlagen GmbH (formerly Klockner Industrie-Anlagen GmbH) to provide us
with a fixed price for the design and construction of the Sweetwater plant.
Tessag also agreed to pay liquidated damages in the event certain process and
product specifications are not achieved.  This commitment is important in order
to obtain the necessary debt financing for the project.  We currently expect
that Tessag will design and construct the plant.  Syntroleum is the managing
member of the this joint venture, but it may subcontract with a third party that
would manage the operations of the plant.

     We have entered into a gas purchase agreement with the North West Shelf
venture partners, whose members include Shell Development (Australia) Pty Ltd.,
Chevron Australia Pty Ltd., BP Development Australia Pty Ltd., Woodside Energy
Ltd., BHP Petroleum (North West Shelf) Pty Ltd., and Japan Australia LNG (MIMI),
a

                                       10
<PAGE>

partnership between Mitsui and Mitsubishi. Subject to several conditions, the
venture agreed to supply gas to the plant for 20 years.

     We have also entered into a letter of intent with Methanex Corporation
which provides for Methanex to become an equity investor in the project.  Under
the letter of intent, Methanex has contributed $2 million toward the cost of
engineering and would contribute an additional $43 million after certain
conditions are met, including finalizing debt and receipt of satisfactory
permits. Enron has contributed $1 million toward the development of the
project, and we are currently in discussions with Enron regarding its equity
participation in the Sweetwater project.

     The State of Western Australia has announced its intention to assist the
Sweetwater project with a AUD$19 million (approximately US$12 million) common
use infrastructure package, including a desalinization plant to which our
project will supply steam and from which our project will receive cooling water.

     In February 2000 we entered into a letter of intent with the Commonwealth
of Australia to license the Syntroleum Process as part of a program for
unlocking the value of Australia's energy reserves and improving the quality of
the environment.  Under this letter of intent, the Commonwealth would make a
AUD$30 million (approximately US$19 million) deposit, of which AUD$20 million
(approximately US$12.4 million) may be credited against future license fees.
The letter of intent also provides that the Commonwealth would make a 25-year,
AUD$40 million (approximately US$25 million) interest free loan to support the
further development and commercialization of GTL technologies in Australia.  The
transactions contemplated by our letter of intent with the Commonwealth are
subject to negotiation and execution of definitive license and loan
agreements.

     The capital costs of this plant are currently expected to be funded by a
combination of project senior and subordinated debt and additional equity
financing. Our ownership percentage in the project will depend on the terms of
subsequent financings.

     We are currently exploring sources of debt and equity capital to fund final
design and construction.  However, we can give no assurance that the necessary
capital for this project will be obtained.  The schedule for construction of
this plant has not yet been finally determined.  See "Item 7. Management's
Discussion and Analysis of Financial Condition and Result of Operations."

     RESEARCH AND DEVELOPMENT

     One of our key strategies is to continue to lower the cost of our GTL
technology through research and development.  Our current laboratory has 14
fixed tubular reactors, one HMX reactor, one moving bed slurry reactor and five
continuous stirred tank reactors in which automated tests are run and catalyst
systems are evaluated and developed. As of March 1, 2000, we had 47 employees in
our laboratory, pilot plant and engineering departments, 28 of whom are
chemists, engineers or other degreed professionals (16 with masters or Ph.D.
degrees) devoted to research and development activities.  A number of other
chemists, engineers and professionals that are employed by our licensees and
joint development partners are also contributing efforts to the further
development of the Syntroleum Process. We also own a 16,500 square foot
laboratory facility located on approximately 100 acres of land and plan to
expand our research and pilot plant capabilities further at this facility.

     We also have access to laboratory and test facilities through our joint
development partners. For example, both Texaco and ARCO have performed catalyst
tests at their own or contract facilities, and testing with Catalytica and
Marathon regarding low heating value gas combustion has been conducted at
Catalytica's and other test facilities. Additionally, we have our own technical
experts as well as access to the technical experts of our joint development
partners.  Several of our joint development partners have employees working on
research and development activities related to improving the Syntroleum Process.

     Our research and development efforts will take place in four primary areas:
process design, catalyst development, reactor design and heat integration/power
recovery.  For a discussion of our efforts in these areas, see "The Syntroleum
Process."

                                       11
<PAGE>

STRATEGIC RELATIONSHIPS

     We have sought to rapidly improve and commercialize the Syntroleum Process
by entering into relationships with engineering companies, component
manufacturers and others.  Each of these companies contribute some combination
of expertise, technology and financial resources useful in commercializing the
Syntroleum Process.  We believe that these relationships

      . help speed the commercialization of the Syntroleum Process,
      . help lower the cost of future GTL technology,
      . contribute to our marketing program,
      . facilitate GTL market growth and demand for GTL products, and
      . reduce competitive risks that smaller companies often face.

  To date, we have entered into joint development, testing or similar
arrangements with Texaco, ARCO, Marathon, Bateman, Criterion, Catalytica,
Advanced Technologies, GE Power Systems, Daimler Chrysler, AMEC, and Lyondell.
We intend to continue to seek additional strategic partners with expertise and
technologies from which we could benefit.

  Although we have entered into agreements with a number of strategic partners,
we can give no assurance that these agreements will not be terminated, that
these relationships will continue, or that the anticipated benefits of the
relationships will be obtained.  See "Risks Relating to the Syntroleum Process."

SALES AND MARKETING

     We intend to maintain an active marketing and sales effort to develop and
promote the Syntroleum Process through several channels.  We have been and will
continue to be an active participant at industry conferences relating to GTL
processes.  During 1999, representatives of our company spoke at 23 different
conferences at locations around the world. We also intend to continue to write
and publish papers on topics regarding the implications of GTL technology to the
industry.  Additionally, we will continue to educate and inform our customers
through the use of multi-media and print presentations. We also intend to
establish brand recognition for specialty products to be produced by our
specialty plants.  We have received trademark and service mark rights to the
name "Syntroleum" in the United States and have applications pending to register
the trademark in various foreign countries.

     In addition, Bateman, AMEC and other engineering companies are familiar
with our GTL technology and have assisted us in marketing the Syntroleum
Process.  Our agreements with engineering firms generally provide these firms
with the right to market the Syntroleum Process.  We believe that these
relationships will expand our marketing effort in a cost-effective manner. We
currently have five employees in our business development and marketing
departments, three of whom hold advanced degrees, and we also retain a full-time
sales representative in London, England.

                                       12
<PAGE>

THE SYNTROLEUM PROCESS

  The Syntroleum Process involves two catalytic reactions.  The first reaction
converts natural gas into synthesis gas, and the second reaction converts the
synthesis gas into hydrocarbons through the Fischer-Tropsch reaction over a
proprietary catalyst.  The following diagrams illustrate these reactions.

                                     STEP 1
                   CONVERSION OF NATURAL GAS TO SYNTHESIS GAS


                                                     Synthesis Gas
   Natural Gas   Air    Steam                   (diluted with Nitrogen)  Water
                                          Catalyst
     CH\\4\\ + O\\2\\ + N\\2\\ + H\\2\\O  (arrow) CO + H\\2\\ + N\\2\\ + H\\2\\O

                                     STEP 2
                          FISCHER - TROPSCH SYNTHESIS

          Synthesis Gas
    (diluted with Nitrogen)                        Hydrocarbons Nitrogen Water
                                 Catalyst
        H\\2\\ + CO + N\\2\\      (arrow)  C\\n\\H (\\2n+2\\) + N\\2\\ + H\\2\\O

     Our goal in developing this process has been to substantially reduce both
the capital and operating costs and the minimum economical size of a GTL plant.
We believe that by reducing the complexity of the process we have achieved this
goal.  We have developed and continue to develop variations of our basic process
design in an effort to further lower costs and increase the adaptability of the
Syntroleum Process to a wide variety of potential applications.

     We have two pilot plants in operation today. Our nominal two barrel per day
pilot plant is located in Tulsa, Oklahoma.  We are a joint participant with ARCO
in a 70 barrel per day demonstration plant located at ARCO's Cherry Point
refinery in the state of Washington.  These plants have successfully
demonstrated many elements and variations of the Syntroleum Process.  However,
no commercial-scale GTL plant based on the Syntroleum Process has yet been
constructed.

     Although we believe that the Syntroleum Process can be utilized in
commercial-scale GTL plants, we can give no assurance that commercial-scale GTL
plants based on the Syntroleum Process will be successfully constructed and
operated or that these plants will yield the same economics and results as those
demonstrated on a pilot plant basis.  In addition, improvements to the
Syntroleum Process currently under development may not prove to be commercially
applicable.  See "Risks Relating to the Syntroleum Process."

     FISCHER-TROPSCH CATALYST SYSTEMS

     We have developed several different proprietary catalysts systems for use
in the Fischer-Tropsch reaction in order to allow for matching a catalyst system
to a particular reactor design and provide more flexibility in matching the
Syntroleum Process to the desired applications.

     Based upon pilot tests of catalysts that we have manufactured, we believe
that a number of proprietary catalyst systems meet or exceed the activity and
selectivity targets necessary for commercial application in some current
Syntroleum Process designs, including the catalysts associated with the moving
bed slurry reactor currently operating at the pilot plant jointly developed with
ARCO at ARCO's Cherry Point refinery.

     Most Fischer-Tropsch catalysts produce a very waxy synthetic crude oil.
Typically, more than 50% of a barrel of synthetic crude oil is solid at room
temperature due to the high wax content.  These waxy hydrocarbons are typically
processed through a hydrocracker to convert them into liquid hydrocarbons at
room temperature that can be further processed into transportation fuels.  Our
proprietary "high alpha" catalyst produces a very waxy synthetic

                                       13
<PAGE>

crude oil which can be further processed through hydrocracking to make liquid
synthetic fuels, or, with other refining processes, the waxy portion can be
converted into higher value specialty products such as synthetic lubricants.

     Under our agreement with Criterion, Criterion has manufactured, in its
commercial facilities, batches of our catalysts in quantities sufficient to
confirm that the performance of these catalysts is comparable to the same
catalyst produced by us and that these catalysts can be produced in commercial
quantities at targeted cost levels. We estimate that the useful life of our
Fischer-Tropsch catalysts will be three to five years under normal operating
conditions.

     We plan to refine existing catalysts and continue to develop additional
catalyst formulations for use in the Syntroleum Process.  Catalyst development
is a complex process requiring significant scientific skill and resources.  We
have in the past and intend to continue to devote substantial resources to
research and development activities to produce Fischer-Tropsch catalysts with
improved activity rates, selectivity and active life, all at reasonable
manufacturing cost.  In addition, we intend to enhance our catalyst development
activities through catalyst joint development programs with our joint
development partners.  From time to time, we also retain catalysis experts on a
consulting basis to assist in catalyst development.

     FISCHER-TROPSCH REACTOR DESIGNS

     We have tested at our pilot plant three different proprietary Fischer-
Tropsch reactor designs and associated catalysts for use in the Syntroleum
Process.  These include a fixed bed vertical tubular reactor, a fluidized bed
reactor for use with our chain-limiting catalyst and the proprietary hybrid
multi-phase HMX reactor developed under our joint development agreement with
Texaco.  In addition, we have tested a large bench scale moving bed slurry
reactor developed under our agreement with ARCO.  ARCO has constructed and is
currently operating a 70 barrel per day pilot plant that is testing the moving
bed slurry reactor on a larger scale. A horizontal reactor design is also being
developed by us and may be preferred in GTL plants on ships operating in rough
water conditions, where its low center of gravity may be an important feature.
We have several pending United States and foreign patent applications related to
our Fischer-Tropsch reactors.

     HEAT INTEGRATION AND POWER RECOVERY

     Compression energy is the primary energy consumer in the Syntroleum
Process.  Engineering studies conducted by Bateman and others have demonstrated
that the heat generated by the two catalytic reactions in the Syntroleum Process
can be captured in the form of mechanical and electrical energy sufficient to
supply all of a GTL plant's needs plus a surplus for other uses, if desired.  We
have developed several heat integration and power recovery schemes to broaden
the flexibility of the Syntroleum Process and, in some cases, lower the capital
cost as well as the number of pieces of major equipment necessary for operation
of a GTL plant.

     Different configurations of GTL plants based on the Syntroleum Process can
also change the energy sources within the plant and the excess energy produced.
For example, a steam turbine can be incorporated into the process and utilize
the steam produced by the auto-thermal reformer and Fischer-Tropsch reactions to
produce energy for compression,  and electrical power for commercial sale.  In
addition, we have developed a configuration that utilizes the low heating value
residue stream from the process as feedstock for a specially designed gas
turbine that can utilize very low heating value gas.  Several of these heat
integration and power recovery schemes are the subject of United States patents
and patent applications and foreign patent applications and are a part of our
joint development efforts with others.

     ADVANTAGES OVER COMPETING PROCESSES

     We believe that the method by which our process uses air directly from the
atmosphere is a unique characteristic and a primary competitive advantage of the
Syntroleum Process.  Competitive processes for the conversion of natural gas
into synthetic hydrocarbons generally utilize either steam reforming or a
combination of steam reforming and partial oxidation with pure oxygen in the
conversion of natural gas to synthesis gas.  Steam reformers react steam with
natural gas to produce synthesis gas.  A steam reformer is a relatively complex
unit that consists of a large fired heater with catalyst-filled tubes.  Because
the reaction operates at high temperature and pressure, the tubes are made of
exotic alloys and are expensive.  Operating costs are increased due to the
endothermic nature of the process, which requires a continuous input of heat.
Processes that utilize a combination of steam reforming and partial oxidation
with pure oxygen also require an air separation plant to produce pure oxygen.

                                       14
<PAGE>

The air separation plant must be constructed with expensive metals and
materials, because its operation involves very low temperatures and requires
significant energy input, as well as operating risks inherent in handling pure
oxygen.  Moreover, the use of pure oxygen generates synthesis gas that is free
of nitrogen.  While the Fischer-Tropsch reaction in competitive processes is
designed to occur without the presence of nitrogen, the Syntroleum Process is
designed to utilize the nitrogen in the Fischer-Tropsch process to remove a
portion of the heat generated by the process.  Use of the auto thermal reformer
reactor in the Syntroleum Process also provides advantages over competitive
processes because of its relatively low capital and operating costs.  In
addition to lowering the capital cost, the elimination of an air separation
plant and steam reformer has the additional advantage of reducing the size and
complexity and lowering the energy requirement of GTL plants based on the
Syntroleum Process.

     We believe that another advantage of the Syntroleum Process is the absence
of recycle loops necessary in some competitive processes, which also tends to
lower capital costs.  In the Fischer-Tropsch stage of some competitive
processes, a recycle loop is utilized in order to maximize the output of
hydrocarbons and help control the heat generated by the reaction.  As a result,
these processes are designed to avoid the introduction of inert gases (including
nitrogen) into the process, which would otherwise build up in the system and
hinder the reaction.

     FEEDSTOCKS

     The Syntroleum Process is designed to produce approximately six million
British thermal units of liquid hydrocarbons from between 10 and 12 million
British thermal units of natural gas feedstock, although conversion efficiency
may vary depending on gas composition and process conditions selected for each
plant. One of the benefits of the Syntroleum Process is its ability to utilize
natural gas containing nitrogen and carbon dioxide, up to specified levels,
without removing these impurities prior to consumption by the plant.  However,
natural gas that contains sulphur, metals and other materials that poison
catalysts must be processed in order to remove these contaminants prior to the
use of the natural gas in the first catalytic reaction.

     PRODUCTS: SYNTHETIC CRUDE OIL, NAPHTHA AND DISTILLATES

     The synthetic crude oil produced from GTL plants is widely compatible with
the existing crude oil-based energy infrastructure and can be either sold as is
or further refined to produce fuels, including diesel, kerosene or naphtha.  We
believe that these products have environmental and performance benefits when
compared to similar products produced from conventional crude oil.

     Synthetic Crude Oil.  Synthetic crude oil is high quality and has a
consistent composition, water-white color (clear) and high paraffin content.
Impurities commonly associated with crude oil, like sulfur, metals, basic
sediment and water (BSandW) and salt, are not present in synthetic crude oil.
These properties make synthetic crude oil easier to refine into finished
products with superior environmental characteristics.  Total worldwide demand
for crude oil is approximately 70 million barrels per day.

     Naphtha.  Naphtha is a light product generally in the molecular range of
five to nine carbon atoms.  Naphtha is a common feedstock for the production of
ethylene.  Refiners can also use naphtha as a component in gasoline.  It is
often upgraded via catalytic reforming to improve its octane for the production
of gasoline.  We believe that synthetic naphtha will make an excellent fuel for
emerging fuel cell technology.  It is non-toxic, contains approximately twice
the hydrogen content of other fuels being considered for fuel cells, and can be
distributed using existing infrastructure.  Historically, naphtha prices have
averaged between $15 and $25 per barrel.

     Distillate/Synthetic Diesel Fuel.  Distillate is a range of fuels from ten
to 20 carbon atoms and includes jet fuel, kerosene and diesel fuel. Our
synthetic diesel product has significant benefits over conventional refinery
products because it is virtually free of sulfur and, due to its high percentage
of straight chain molecules, has a very high cetane number.  In California,
current regulatory requirements generally result in a cetane number of
approximately 50 for diesel while the cetane number of diesel produced from
synthetic crude oil is between 70 and 75.  As a result, this product makes a
superior blending stock for upgrading conventional fuels.  Historically,
distillate prices have ranged from a low of $23 to a high of $31 per barrel.

  Synthetic diesel fuel produced using the Syntroleum Process contains
significantly reduced sulfur and aromatic content which reduces pollution levels
commonly associated with conventional diesel fuel, while maintaining a high
cetane rating which promotes high operating efficiency.  Synthetic diesel fuel
can burn in

                                       15
<PAGE>

conventional diesel engines, can be distributed using existing infrastructure
and will not require modification to existing diesel engines. Southwest Research
Institute has tested diesel fuels produced by the Syntroleum Process. The first
study, presented in 1997, found that engines that were run using Fischer-Tropsch
diesel fuel emitted less carbon monoxide, fewer hydrocarbons, fewer particulates
and less NO\\x\\ when compared to emissions from currently available diesel fuel
that satisfies United States government specifications. More recently, Southwest
Research has concluded additional testing comparing our synthetic diesel with
three different clean diesel fuels in both heavy and light duty engines. The
tests demonstrated that our fuel burned more cleanly than any of the others.

  Based on these results, we are applying for certification that these fuels
qualify as alternate fuels under the guidelines set by the Environmental
Protection Agency, the Department of Energy, and the Department of
Transportation.  We have also entered into an agreement with DaimlerChrysler to
test and develop synthetic diesel fuel and we are also working with Argonne
National Laboratories to develop a clean fuel for use in emerging fuel cell
technology.  These testing programs are part of our efforts to develop a new
family of high performance and environmentally superior synthetic fuels for use
in diesel engines.

     PRODUCTS: SPECIALTY PRODUCTS

     We intend to design, construct and own significant equity interests in GTL
plants designed to produce specialty products.  These plants will be designed to
use our proprietary high alpha catalyst to produce synthetic crude oil, which
will then be further refined using conventional refining equipment and
proprietary processes licensed from others to convert a portion of the synthetic
crude oil into lubricants and drilling fluid.  We have retained the exclusive
right to manufacture these products using the Syntroleum Process under our
license agreements.  The targeted specialty products include the following.

     Synthetic Lube Base Oil. We anticipate that specifications for motor oil
will become more stringent in the future as automobile manufacturers respond to
tightening emissions requirements.  This could result in increased demand for
high quality base oils as blending stock.  We have licensed from Lyondell a
proprietary process and catalyst used in the production of a high quality lube
oil blending stock that could be blended with conventional lubricants to
increase overall quality of the finished product.  According to industry
publications, worldwide demand for all lubricants is approximately 800,000
barrels per day.  Historically, lube oil prices have varied from approximately
$40 per barrel for the lowest quality grades to over $200 per barrel for the
highest quality synthetic grades.

     Synthetic Drilling Fluid.  Drilling fluids are used in the drilling of oil
and gas wells as a coolant and lubricant for the drill bit and to enhance safety
during offshore drilling operations by maintaining well pressure.  Drilling
fluid can accumulate under platforms mixed with well cuttings.  Oil based
fluids, which have been used historically, degrade slowly and can suffocate
aquatic plant and animal life.  In response to increased environmental
pressures, synthetic drilling fluids have been developed and used in the Gulf of
Mexico and other offshore locations, where prices have generally ranged between
$250 and $300 per barrel.  In response to this market opportunity, we have, in
conjunction with Amoco Production Company, developed a synthetic drilling fluid
product that we expect will meet all current applicable environmental
requirements.

     Waxes.  Waxes are longer linear chain hydrocarbon molecules that are solids
at room temperature and have a variety of applications, including adhesives,
candles and coatings.  According to industry publications, United States demand
for waxes in 1995 was approximately 21,000 barrels per day.  These markets have
primarily been supplied with petroleum derived waxes.  Historically, prices have
varied between $30 per barrel for the lowest quality wax to over $150 per barrel
for high melting point synthetic wax.

     Normal Paraffins.  Normal paraffins are saturated linear hydrocarbons with
molecular ranges between ten and 15 carbon atoms.  These products must be 98%
pure, have low odor levels and be of water clear quality.  They are primarily
used in the production of laundry detergent, cosmetics and pharmaceuticals,
paints, stains, ink oils, aluminum rolling oils and lamp oils.  Historically,
prices for normal paraffins have averaged between $50 and $85 per barrel.

     Fuel Cell Feedstock.  We have conducted successful tests at Argonne
National Laboratories, Northwest Power Systems and by Epyx Corp. of our
synthetic fuel as a feedstock for fuel cells in the power generation and

                                       16
<PAGE>

transportation markets.  Our feedstock offers high hydrogen density, virtually
zero sulfur content, and compatibility with the existing fuel distribution
infrastructure.

     BYPRODUCTS AND EMISSIONS

     A byproduct of the Syntroleum Process is synthesized water that, with
treatment to remove organic materials, could be sold commercially as industrial
or irrigation water in areas where sufficient demand exists.  Based on pilot
plant tests, we believe that approximately 1.3 barrels of synthesized water can
be produced for each barrel of synthetic crude oil produced.

     Depending on the process configuration, emissions from the Syntroleum
Process are expected to include nitrous oxide, carbon monoxide, carbon dioxide
and light hydrocarbons, which we believe will generally be within applicable
emissions standards.  Spent catalysts are expected to be processed by a catalyst
reclaimer who will recover useful metals and be responsible for disposal of the
nonreclaimed portion of the catalyst.

RISKS RELATING TO THE SYNTROLEUM PROCESS

     COMMERCIAL-SCALE GTL PLANTS BASED ON THE SYNTROLEUM PROCESS MIGHT NEVER BE
SUCCESSFULLY CONSTRUCTED OR OPERATED.

     To date, no commercial-scale GTL plant based on the Syntroleum Process has
been constructed.  A commercial-scale GTL plant based on the Syntroleum Process
might never be successfully built either by us or by any of our licensees.  Our
success depends on our ability, and the ability of our licensees, to
economically design, construct and operate GTL plant based on the Syntroleum
Process on a commercial scale.  The successful commercial construction and
operation of a GTL plant based on the Syntroleum Process depends on a variety of
factors, many of which are outside our control.  Although we are currently
developing our first commercial-scale GTL plant, we do not know for certain when
construction of this plant will begin or when it will become operational.

     COMMERCIAL-SCALE GTL PLANTS BASED ON THE SYNTROLEUM PROCESS MIGHT NOT
PRODUCE RESULTS NECESSARY FOR SUCCESS, INCLUDING RESULTS DEMONSTRATED ON A
LABORATORY AND PILOT PLANT BASIS, AND THOSE PLANTS COULD BE ADVERSELY IMPACTED
BY MECHANICAL PROBLEMS OR OTHER CONSTRUCTION OR OPERATING CONDITIONS.

     A variety of results necessary for successful operation of the Syntroleum
Process could fail to occur at a commercial plant, including operations and
reactions successfully tested on a laboratory and pilot plant basis. Results
that could cause commercial GTL plants to be unsuccessful include:

     . lower reaction activity than demonstrated in laboratory and pilot plant
       operations, which would increase the amount of catalyst or number of
       reactors required to convert synthesis gas into liquid hydrocarbons and
       increase capital and operating costs,

     . shorter than anticipated catalyst life, which would require more frequent
       catalyst purchases.

     . excessive production of gaseous light hydrocarbons from the Fisher-
       Tropsch reaction compared to design conditions, which would lower the
       anticipated amount of liquid hydrocarbons produced and lower revenues and
       margins from plant operations, and

     . inability of the gas turbine integrated into the Syntroleum Process to
       burn the low heating value tail gas that is produced by the process,
       which would result in the need to incorporate other methods to generate
       horsepower for the compression process that may increase capital and
       operating costs.

     In addition, the plants could experience mechanical difficulties, either
related or unrelated to elements of the Syntroleum Process. Construction or
operating conditions may also impact commercial plants, including the size of
the equipment, the amount and quality of natural gas feedstock, the market for
plant products, and other conditions that we may not be able to anticipate.  In
addition, we do not have any experience managing the design, construction or
operation of commercial GTL plants or any commercial plants, and we may not be
successful in doing so.

                                       17
<PAGE>

     IMPROVEMENTS TO THE SYNTROLEUM PROCESS ARE CURRENTLY UNDER DEVELOPMENT WILL
REQUIRE ADDITIONAL EFFORTS, AND IF THESE IMPROVEMENTS ARE NOT COMMERCIALLY
VIABLE, THE DESIGN AND CONSTRUCTION OF GTL PLANTS BASED ON THE SYNTROLEUM
PROCESS COULD BE DELAYED OR PREVENTED.

     A number of improvements to the Syntroleum Process are in various early
stages of development.  These improvements will require substantial additional
investment, development and testing prior to their commercialization. We might
not be successful in developing these improvements and, if developed, they may
not be capable of being utilized on a commercial basis.  If improvements to the
Syntroleum Process currently under development do not become commercially viable
on a timely basis, the design and construction of GTL plants by us and our
partners and by our licensees could be delayed or prevented.

     Improvements to the heat integration of the Syntroleum Process may not
occur because further integration of the gas turbine into the process might not
be technically feasible due to the operating tolerances of the materials in the
gas turbine.  Our horizontal reactor, which is designed to have a low center of
gravity for marine applications, may not be commercially applicable due to
operational difficulties. During 1999, we engaged in pilot testing of a new auto
thermal reforming reactor design and a moving bed slurry reactor and associated
catalyst under a joint development program with ARCO.   While this pilot test is
ongoing, it might not prove successful.

     IF WE DO NOT SUCCESSFULLY RESPOND TO TECHNOLOGICAL ADVANCES BY OTHERS, THE
SYNTROLEUM PROCESS MAY BECOME OBSOLETE.

     As GTL technologies continue to be developed by our competitors, one or
more of our current technologies may become obsolete. As a result, our ability
to create and maintain technological advantages will be important to our future
success.  As new technologies develop, we may be placed at a competitive
disadvantage, and competitive pressures may force us to implement new
technologies at substantial cost.  We may not be able to successfully develop,
or expend the financial resources necessary to acquire, new technology.

  THE ECONOMIC APPLICATION OF GTL PLANTS BASED ON THE SYNTROLEUM PROCESS DEPENDS
ON FAVORABLE CRUDE OIL PRICES AND OTHER ENERGY AND PRODUCT PRICES.

     Our belief that the Syntroleum Process can, in some circumstances, be cost
effective at GTL plants with throughput levels ranging from 2,000 to 50,000
barrels per day and larger is based on our assumption that oil prices in the
range of $15 to $20 per barrel will prevail.  However, the markets for oil and
natural gas have historically been very volatile and are likely to continue to
be very volatile in the future.  Although crude oil prices are currently high
relative to historical prices, crude oil prices fell during 1998 to historically
low levels of below $10 per barrel and could return to low levels in the future.

     The effect of oil and natural gas prices on the cost-effective operation of
a GTL plant depends significantly on the plant products and whether the natural
gas converted by the plant is associated with oil reserves. We anticipate that
GTL plants designed to produce specialty products, and GTL plants that are used
to convert natural gas which is associated with oil reserves, may continue to be
cost effective at price levels below the range of $15 to $20 per barrel for oil.
However, GTL plants that are used to convert natural gas that is not associated
with oil reserves and are designed to produce fuels, like those our licensees
are entitled to construct, are generally not expected to be cost effective at
price levels below that range.

     Because the synthetic crude oil, liquid fuels and specialty products that
GTL plants are expected to produce will compete in markets with oil and refined
petroleum products, and because natural gas will be used as the feedstock at GTL
plants based on the Syntroleum Process, an increase in natural gas prices
relative to prices for oil and refined products, or a decrease in prices for oil
and refined products, could adversely affect the operating results of these
plants.  Factors that could cause changes in the prices and availability of oil,
natural gas and refined products include the level of consumer product demand,
weather conditions, domestic and foreign government regulation, the actions of
the Organization of Petroleum Exporting Countries, political conditions in oil
and natural gas producing countries, the supply of foreign crude oil and natural
gas, the location of GTL plants relative to natural gas reserves and pipelines,
the capacities of pipelines, fluctuations in seasonal demand, governmental
regulations, the price and availability of alternative fuels and overall
economic conditions.  We cannot predict the future markets and prices for oil,
natural gas or refined products.  Adverse operating results at GTL plants will
adversely affect operating results at

                                       18
<PAGE>

the GTL plants in which we retain equity interests and reduce the licensing fees
we receive for both new license agreements and new plant construction.

  ADVERSE OPERATING CONDITIONS, HIGHER THAN EXPECTED CONSTRUCTION COSTS,
UNANTICIPATED DELAYS OR LOWER THAN ANTICIPATED DEMAND FOR PLANT PRODUCTS WOULD
EACH ADVERSELY AFFECT THE ECONOMIC APPLICATION OF GTL PLANTS BASED ON THE
SYNTROLEUM PROCESS.

     The economic application of GTL technology depends on a number of factors,
including site location, infrastructure, weather conditions and a variety of
other operating conditions.  Our belief in the economic application of GTL
plants based on the Syntroleum Process is based on assumptions relating to the
operating conditions of the plants and assumptions regarding the capabilities of
the Syntroleum Process based on our laboratory and pilot plant data.  Numerous
events could occur that would be inconsistent with these assumptions.  For
example, the plants could be located in areas that require more infrastructure
than we have assumed.  In addition, GTL plant construction cost estimates
prepared for us could be understated, necessary permits may not be issued by
regulatory authorities or may not be issued within the expected time frames, the
plants could take longer to construct than anticipated, and the demand for the
products produced by the plants may not materialize or may materialize at lower
price levels than we currently anticipate.

     THE CONSTRUCTION OF THE SWEETWATER PLANT AND OTHER  GTL PLANTS BASED ON THE
SYNTROLEUM PROCESS WILL BE SUBJECT TO THE RISKS OF DELAY AND COST OVERRUNS
INHERENT IN ANY LARGE CONSTRUCTION PROJECT.

     The construction of GTL plants based on the Syntroleum Process, including
the Sweetwater plant we are currently developing and plan to construct in
Western Australia, will be subject to the risks of delay or cost overruns
inherent in any large construction project resulting from numerous factors,
including the following:

     .  shortages of equipment, materials or skilled labor,
     .  unscheduled delays in the delivery of ordered materials and equipment,
     .  engineering problems, including those relating to the commissioning of
        newly designed equipment,
     .  work stoppages,
     .  weather interference,
     .  unanticipated cost increases, and
     .  difficulty in obtaining necessary permits or approvals.

     SUFFICIENT MARKETS FOR THE SYNTHETIC PRODUCTS OF THE SYNTROLEUM PROCESS OR
PRODUCTS WHICH UTILIZE THESE SYNTHETIC PRODUCTS, INCLUDING FUEL CELLS, MAY NEVER
DEVELOP OR MAY TAKE LONGER TO DEVELOP THAN WE ANTICIPATE.

     Sufficient markets may never develop for the synthetic products of the
Syntroleum Process, or may develop more slowly than we anticipate.  The
development of sufficient markets for the synthetic products of the Syntroleum
Process may be affected by many factors, some of which are out of our control,
including:

     .  the cost competitiveness of the synthetic products of the Syntroleum
        Process,
     .  consumer reluctance to try a new product,
     .  environmental, safety and regulatory requirements, and
     .  the emergence of more competitive products.

     In addition, a new market may fail to develop for products which utilize
our synthetic products.  For example, the establishment of a market for the use
of these products as fuel for fuel cells is uncertain, in part because fuel
cells represent an emerging market, and we do not know whether distributors will
want to sell them or if end-users will want to use them.

     If sufficient markets fail to develop or develop more slowly than we
anticipate, we may be unable to recover the losses we will have incurred in the
development of our technology and may never achieve profitability.

                                       19
<PAGE>

     OUR RECEIPT OF LICENSE FEES DEPENDS ON SUBSTANTIAL EFFORTS BY OUR
LICENSEES, AND OUR LICENSEES COULD CHOOSE NOT TO CONSTRUCT A GTL PLANT BASED ON
THE SYNTROLEUM PROCESS OR TO PURSUE ALTERNATIVE GTL TECHNOLOGIES.

     Our licensees will control whether any plant site licenses are issued and
any resulting additional license fees are due under our license agreements.
Licensees may need to undertake substantial activities before any plant site
license is issued and license fees are due.  These activities may include
performing feasibility studies, obtaining regulatory approvals and permits,
obtaining preliminary and final design and engineering for the plant, obtaining
a sufficient dedicated supply of natural gas, obtaining adequate commitments for
the purchase of the plant's products, and obtaining the financing for
construction of the plant.  The amount and timing of resources devoted to these
activities will be controlled by the licensee.  Whether licensees are willing to
expend the resources necessary to construct GTL plants will depend on a variety
of factors outside our control, including the prevailing view of prices for oil
and natural gas.  If we do not receive payments under our license agreements, we
may not have sufficient resources to implement our business strategy.  Our
licensees are not restricted from pursuing alternative GTL technologies on their
own or in collaboration with others, including our competitors.

  INDUSTRY REJECTION OF THE SYNTROLEUM PROCESS WOULD MAKE OUR CONSTRUCTION OF
SPECIALTY PRODUCT GTL PLANTS MORE DIFFICULT OR IMPOSSIBLE AND ADVERSELY AFFECT
OUR ABILITY TO RECEIVE FUTURE LICENSE FEES.

     As is typical in the case of a new and rapidly evolving technology, demand
and industry acceptance for our GTL technology is subject to a high level of
uncertainty. Failure by the industry to accept our technology would make our
construction of specialty product GTL plants more difficult or impossible and
adversely affect our ability to receive future license fees.  Should a high
profile industry participant adopt the Syntroleum Process and fail to achieve
success or should any commercial GTL plant based on the Syntroleum Process fail
to achieve success, other industry participants' perception of the Syntroleum
Process could be adversely affected. Likewise, if a major oil company were to
either successfully develop or adopt a GTL technology competing with the
Syntroleum Process or should industry participants adopt a strategy of
disparaging the Syntroleum Process, our reputation could be adversely affected.
In addition, some oil companies may be motivated to seek to prevent industry
acceptance of GTL technology based on their belief that widespread adoption of
GTL technology might negatively impact the competitive position of such
companies without access to GTL technology.

  WE DEPEND ON STRATEGIC RELATIONSHIPS WITH MANUFACTURING AND ENGINEERING
COMPANIES, AND FAILURE BY THESE COMPANIES TO PROVIDE NECESSARY COMPONENTS OR
SERVICES COULD RESULT IN THE DELAY OR CANCELLATION OF PLANS FOR THE CONSTRUCTION
OF GTL PLANTS BASED ON THE SYNTROLEUM PROCESS.

     We intend to, and believe our licensees will, utilize third party component
manufacturers in the design and construction of GTL plants based on the
Syntroleum Process.  If any third party manufacturer is unable to provide
components of GTL plants based on the Syntroleum Process in commercial
quantities, in a timely manner and within specifications, we or our licensees
could experience material delays, or construction plans could be canceled, while
alternative manufacturers are identified and prepare for production.  We have no
experience in manufacturing and do not have any manufacturing facilities.
Consequently, we will depend on third parties to manufacture components of GTL
plants based on the Syntroleum Process.  We have conducted development
activities with third parties relating to our proprietary catalysts and turbines
that may be used in the Syntroleum Process, and other manufacturing companies
may not have the same expertise as these companies.  In addition, we have
entered into an agreement with Criterion which provides that we will purchase
any catalysts for our own use from Criterion.

     We also intend to utilize third parties to provide engineering services in
connection with our efforts to commercialize the Syntroleum Process.  If these
engineering firms are unable to provide requisite services or performance
guarantees, we or our licensees could experience material delays, or
construction plans could be canceled, while alternative engineering firms are
identified and become familiar with the Syntroleum Process.  We have no
experience in providing engineering services and have a limited engineering
staff.  Consequently, we will  depend on third parties to provide necessary
engineering services, and these firms may be asked by licensees or financial
participants in plants to provide performance guarantees in connection with the
design and construction of GTL plants based on the Syntroleum Process.  In
addition, we have entered into an agreement with Bateman which provides that we
will utilize Bateman to assist in the development of our own GTL plants in North
and South America producing specialty products.

                                       20
<PAGE>

     IF GTL PLANTS BASED ON THE SYNTROLEUM PROCESS DO NOT OPERATE AS CURRENTLY
ANTICIPATED, WE WOULD HAVE POTENTIAL INDEMNIFICATION LIABILITIES TO LICENSEES.

     Our license agreements require us to indemnify the licensee against
specified losses relating to, among other things

     . the use of patent rights and technical information relating to the
       Syntroleum Process,
     . acts or omissions by us in connection with process design packages for
       plants, and
     . performance guarantees that may be provided by us.

Our indemnification obligations could result in substantial expenses and
liabilities to us in the event that intellectual property right claims are made
against us or our licensees or GTL plants based on the Syntroleum Process do not
operate as we currently anticipate.

INTELLECTUAL PROPERTY

     Our success depends on our ability to obtain, protect, and enforce our
intellectual property rights, to successfully avoid infringing the valid and
enforceable intellectual property rights of others and, if necessary, to defend
against any alleged infringements.  We regard the protection of our proprietary
technologies as critical to our future success and we rely on a combination of
patent, copyright trademark, trade secret laws and contractual restrictions to
protect our proprietary rights in our GTL technologies.  We pursue protection of
the Syntroleum Process primarily through patents and trade secrets.  It is our
policy to seek, when appropriate, protection for our proprietary products and
processes by filing patent applications in the United States and selected
foreign countries and to encourage or further the efforts of others who have
licensed technology to us to file patent applications. Our ability to protect
and enforce these rights involves complex legal, scientific and factual
questions and uncertainties.

     We currently own, or have licensed, rights to more than 80 patents or
patent applications pending at the United States and various foreign countries
that relate in general to one or more embodiments of the Syntroleum Process.  We
can give no assurance that additional patents will be granted with respect to
any patent applications filed by us or our licensors.  Further, any patents
issued or licensed to us might not provide us with commercial benefit or might
be infringed, invalidated or circumvented by others. The approval or rejection
of our patent applications by the U.S. Patent Office may take several years.

     The availability of patents in foreign markets, and the nature of any
protection against competition that may be afforded by such patents, is often
difficult to predict and varies significantly from country to country.
Moreover, we or our licensors may choose not to seek, or may, for a variety of
reasons, be unable to obtain, patent protection in a country that might become
an important market for our GTL technology.

     In addition to patent protection, we also rely significantly on trade
secrets, know-how and technological advances, which we seek to protect, in part,
through confidentiality agreements with our collaborators, licensees, employees
and consultants. If these agreements are breached, we might not have adequate
remedies for the breach.  In addition, our trade secrets and proprietary know-
how might otherwise become known or be independently discovered by others.

     It is our policy to honor the valid, enforceable intellectual property
rights of others.  Our success depends on our ability to avoid infringing the
valid, enforceable intellectual property rights of others and, if need be,
defending ourselves against any claims of infringement.  While we have made
efforts to avoid any such infringement, commercialization of our GTL
technologies may give rise to claims that the technologies infringe upon the
patents or other proprietary rights of others.

     Although it is our policy to regularly review patents that may have
applicability in the GTL industry, we may not become aware of these patents or
rights until after we have made a substantial investment in the development and
commercialization of those technologies.  Legal actions could be brought against
us, our partners or licensees, claiming damages and seeking an injunction that
would prevent us, our partners or licensees, from testing, marketing or
commercializing the affected technologies. Major oil and gas companies seeking
to gain a competitive advantage may have an interest in bringing one of these
actions. If such an action was successful, in addition to potential liability
for damages, we, our partners or licensees could be required to obtain a license
in order

                                       21
<PAGE>

to continue to test, market or commercialize the affected technologies. Any
required license might not be made available or, if available, might not be
available on acceptable terms, and we could be prevented entirely from testing,
marketing or commercializing the affected technology. We may have to expend
substantial resources in litigation, either in enforcing our patents, defending
against the infringement claims of others, or both. Many possible claimants,
like the major oil and gas companies that have or may be developing proprietary
GTL technologies competitive with the Syntroleum Process, have significantly
more resources to spend on litigation. We have conducted a review of more than
600 existing patents applicable to the GTL field and believe that we are not
infringing on the patents of others. To date, we have not been notified of any
claim that our GTL technology infringes the proprietary rights of any third
party, but we can give no assurance that third parties will not claim
infringement by us with respect to past, present or future GTL technologies.

     In any potential intellectual property dispute involving us, our licensees
could also become the target of litigation.  Our  license agreements require us
to indemnify the licensees against specified losses, including the losses
resulting from patent and trade secret infringement claims, subject to a cap of
50% of the license fees received.  Our indemnification and support obligations
could result in substantial expenses and liabilities to us. These expenses or
liabilities could have a material adverse effect on our business, operating
results and financial condition.

EMPLOYEES

     We have 74 employees at  March 1, 2000, including 36 employees involved in
research and development and pilot plant operations, seven employees in business
development and marketing, 11 employees in engineering, and 20 employees in
finance, legal, information technology and administration. None of our employees
are represented by a labor union.  We have experienced no work stoppages and
believe that our relations with our employees are excellent.

COMPETITION

     The development of GTL technology is highly competitive.  The Syntroleum
Process is based on chemistry that has been used by several companies in
synthetic fuel projects during the past 60 years.  Historic experience has
indicated that these projects were not economic alternatives for conversion of
natural gas to liquids.  Given the volumes of stranded natural gas reserves
around the world, a significant opportunity exists for anyone who can develop
economic GTL technology.  Our competitors include major integrated oil
companies, several of which have developed or are developing competing GTL
technology, including Exxon, Shell, Sasol, BP Amoco and Conoco.  Each of these
companies has significantly more financial and other resources than we do to
spend on research and development of their respective GTL technologies and on
funding construction and operation of commercial GTL plants.  These competitors
also have a greater ability to bear the economic risks inherent in the
development of GTL technology.  In addition, several small companies have
developed, and are continuing to develop, competing GTL technologies.  The
Department of Energy has also sponsored a number of research programs relating
to GTL technology, including a recent program relating to the development of a
ceramic membrane technology that could potentially lower the cost of producing
oxygen that is used to produce synthesis gas in competitive processes.  These
companies, the Department of Energy or others could develop technologies that
will have greater commercial success or acceptance than our technology or that
will render the Syntroleum Process obsolete.

     The market for natural gas is highly competitive in many areas of the world
and may affect our business, operating results and financial condition.  The
cryogenic conversion of natural gas to liquefied natural gas (LNG) may compete
with GTL plants for use of natural gas as feedstocks in many locations.  Local
markets, power generation, ammonia, methanol and petrochemicals are also
alternative markets for natural gas.  Unlike us, many of our competitors also
produce or have access to large volumes of natural gas, which may be used in
connection with their GTL operations.  The availability of natural gas at
economic prices for use as feedstocks for GTL plants may also depend on whether
natural gas pipelines are located in the areas where these plants are located.
New pipelines may need to be built in, or existing pipelines may need to be
expanded into, areas where GTL plants are built, and this may affect the
operating margins of these plants.  The United States and Western Europe have
well-developed natural gas markets.  In these markets, the relationship between
natural gas prices and liquid hydrocarbon prices would likely make investments
in GTL plants that produce fuels uneconomic in most circumstances.  Other areas
around the world that have developed local markets for gas may also have higher
valued uses than GTL technology.  In addition, the commercialization of GTL
technologies may have an adverse effect on the availability to GTL plants

                                       22
<PAGE>

of natural gas at economic prices. The oil and gas industry also competes with
other industries that supply the energy and fuel requirements of industrial,
commercial, individual and other consumers.

GOVERNMENT REGULATION

     We will be subject to extensive federal, state and local laws and
regulations relating to the protection of the environment, including laws and
regulations relating to the release, emission, use, storage, handling, cleanup,
transportation and disposal of hazardous materials and employee health and
safety.  In addition, our GTL plants will be subject to the environmental and
health and safety laws and regulations of any foreign countries in which these
plants are to be located.  Violators of these laws and regulations may be
subject to substantial fines, criminal sanctions or third party lawsuits and may
be required to install costly pollution control equipment or, in some extreme
cases, curtail operations.  Further, these laws and regulations may limit or
prohibit activities on lands lying within wilderness areas, wetlands or other
protected areas.  Our operations in the United States are also subject to the
federal "Superfund" law, and similar state laws, which can impose joint and
several liability for site cleanup, regardless of fault, upon statutory
categories of parties, including our company, that sent wastes offsite for
disposal and current owners and operators of property.  Environmental laws and
regulations often require the acquisition of a permit or other authorization
before activities may be conducted and compliance with laws and regulations, and
any requisite permits, can increase the costs of designing, installing and
operating our GTL plants.

     GTL plants will generally be required to obtain permits under applicable
state and federal clean air and water laws and various permits for industrial
siting and construction.  Emissions from a GTL plant, primarily from the gas
turbine, will contain nitrous oxides and may require abatement equipment to be
installed in order to meet state and federal permit requirements.  Additionally,
GTL plants will be required to adhere to state and federal laws applicable to
the disposal of byproducts produced, including waste water and spent catalyst.

     Although we do not believe that compliance with environmental and health
and safety laws in connection with our current operations will have a material
adverse effect on us, the future costs of complying with environmental laws and
regulations and containing or remediating contamination cannot be predicted with
certainty.  In the future, we could incur material liabilities or costs related
to environmental matters, and these environmental liabilities or costs
(including fines or other sanctions) could  have a material adverse effect on
our business, operating results and financial condition. We do not currently
carry environmental impairment liability insurance to protect us against these
contingencies but may, in the future, seek to obtain insurance in connection
with our participation in the construction and operation of GTL plants if
coverage is available at reasonable cost and without unreasonably broad
exclusions.

OPERATING HAZARDS

     Operations at our GTL plants will involve a high risk of incidents
involving personal injury and property damage due to the operation of machinery
in close proximity to individuals and the highly flammable nature of natural gas
and the materials produced at these plants.  The frequency and severity of
personal injury and property damage incidents will affect our operating costs,
insurability and relationships with customers, employees and regulators.  Any
significant frequency or severity of these incidents, or the general level of
compensation awards, could affect our ability to obtain insurance and could have
a material adverse effect on our business, operating results and financial
condition.

MANAGEMENT AND DISPOSITION OF REAL ESTATE AND MISCELLANEOUS ASSETS

     Our real estate assets were acquired by our predecessor, SLH Corporation,
from Lab Holdings, Inc., concurrent with the distribution by Lab Holdings to its
stockholders of all of SLH's outstanding common stock.  These assets reflect the
remaining assets of a real estate development business that was conducted by Lab
Holdings in association with a previously owned life insurance company that was
sold in 1990.  Real estate assets, as of December 31, 1999, consisted of (1) a
seven story parking garage in Reno, Nevada which was subsequently sold in early
2000; (2) a 49.9% interest in a community retail shopping center in Gillette,
Wyoming; (3) land under development in Houston, Texas (300 acres of undeveloped
land and 125 lots available for sale), (4) undeveloped land in Corinth, Texas (9
acres comprising the "Corinth Tract"), and (5) an equity investment in a
recently renovated hotel in Tulsa, Oklahoma. The Kansas City tracts were sold
during 1999. The total real estate inventory had an aggregate carrying value at
December 31, 1999 of approximately $6.1 million.  All of the real estate assets
are held

                                       23
<PAGE>

for sale except for the investment in the hotel project located in Tulsa,
Oklahoma and the Houston Project that is being developed for commercial and
residential use. Our real estate assets are owned by our subsidiary, Scout
Development Corporation.

     Our other assets at December 31, 1999 included (1) an investment in Norian
Corporation, a privately owned developer of proprietary bone substitute
technology, which had a carrying value of approximately $565,000, (2) $25
million of cash, government securities and current receivables and (3) an
investment in a privately held venture capital limited partnership, which had a
carrying value of $476,000. We plan to liquidate all of these investments other
than the cash, government securities and current receivables in an orderly
manner to maximize their value to stockholders.

     The following table shows the carrying value of the inventory of our real
estate assets as of December 31, 1999:

                             REAL ESTATE INVENTORY

                                                                  CARRYING VALUE
                                                                       AS OF
                                                                   DECEMBER 31,
             ASSET                                LOCATION             1999
------------------------------------              --------         ------------
The Reno parking garage                         Reno, Nevada        $2,642,054
The Houston project                            Houston, Texas        3,349,211
The Corinth tract                             Ft. Worth, Texas          22,656
The Tulsa hotel interest                      Tulsa, Oklahoma          100,000
The Wyoming shopping center interest         Gillette, Wyoming         (36,108)
                                                                    ----------
                                                   TOTAL            $6,077,813
                                                                    ==========

  The Reno parking garage is a seven story 850-space parking garage located in
downtown Reno, Nevada.  Scout owns the building unencumbered except for a ground
lease that expires on February 28, 2023 and which calls for annual lease
payments in the amount of $331,000.  The Reno parking garage contains a total of
144,500 square feet of leasable parking space.  Parking revenue totaled
approximately $496,000 or $584 per space or $3.44 per square foot in 1999.  In
addition, 8,258 square feet located on the ground floor of the garage is leased
to a retail tenant under a 15-year lease.  Revenue from the retail lease during
1999 was $152,000 or $18.41 per square foot.  In addition to basic rent, the
retail tenant is responsible for its pro rata share of real estate taxes and
insurance.

  In February 2000 we closed the sale of the Reno parking garage to Fitzgeralds
Reno, Inc.  The sale price was $3 million payable $750,000 in cash at closing
and the balance in the form of Fitzgeralds' promissory note in the principal
amount of $2,250,000.  The note bears interest at the rate of 10% and is payable
in monthly installments of principal and interest based on a 20 year
amortization, with the entire unpaid balance due in 10 years.  The note is
secured by the ground lease on which the garage is located as well as the
parking garage itself.

     The shopping center interest consists of a 49.9% joint venture interest in
a retail shopping center containing approximately 163,454 square feet of net
leasable area and 7.5 acres of partially undeveloped land in Gillette, Wyoming.
At the end of 1999, the center was 72% occupied.  Rental revenue totaled
$830,000 for 1999.  The average annual gross rental per occupied square foot was
$7.04.  In addition to rental revenue, tenants are responsible for their share
of common area maintenance.  During 1999, common area maintenance collections
from tenants totaled $114,000.  The property is subject to industrial revenue
refunding bonds in the amount of $6 million that are secured by a bank letter of
credit and guaranteed by Scout.  The letter of credit is secured by a $3.2
million Treasury Note that is pledged by us to the issuer of the letter of
credit.

                                       24
<PAGE>

     Undeveloped land consists of an aggregate of approximately 309 acres, with
300 acres and 125 lots in Houston, Texas comprising the Houston Project, and
approximately nine acres in Corinth, Texas comprising the Corinth Tract.  We
have conveyed the Houston Project to 529 Partners, Ltd., in exchange for a $2.1
million note and a 75% interest in the partnership.  529 Partners, Ltd., is a
Texas limited partnership in which we hold a majority interest.  529 Partners is
developing the property for residential and light commercial purposes.  During
1999, 529 Partners sold 38 lots of the Houston Project for residential use for
approximately $688,000.  It is expected that the balance of the tract will be
developed by 529 Partners for residential use.  The Corinth Tract is zoned for
commercial use and is being actively marketed.

     During 1999, the remaining two acres in the Kansas City Tract were sold for
approximately $520,000.

     We believe that the real estate properties are adequately covered by
insurance with coverages for real and personal property, commercial general
liability, commercial crime, garage keepers legal liability, earthquake, flood,
windstorm and hail.

     Our subsidiary, Scout, is subject to contingent obligations under leases
and other instruments incurred in connection with real estate activities and
other operations.  We believe that adequate accruals have been made for the
contingent liabilities on our financial statements and that none of these are
deemed to be material, individually or in the aggregate.

     Scout is subject to several United States environmental laws, including:
the Clean Air Act, the Comprehensive Environmental Response, Compensation, and
Liability Act, the Emergency Planning and Community Right-to-Know Act, the
Federal Water Pollution Control Act, the Oil Pollution Act of 1990, the Resource
Conservation and Recovery Act, the Safe Drinking Water Act and the Toxic
Substances Control Act.  Scout is also subject to the United States
environmental regulations promulgated under these acts, as well as state and
local environmental regulations which have their foundation in the foregoing
United States environmental laws.

     As is the case with many companies, Scout may face exposure to actual or
potential claims and lawsuits involving environmental matters with respect to
its current inventory of real estate as well as previously owned real estate.
However, no such claims are presently pending and Scout has not suffered, and
does not anticipate that it will suffer, a material adverse effect as a result
of any past action by any governmental agency or other party, or as a result of
noncompliance with such environmental laws and regulations.

ITEM 2.  PROPERTIES

     We own and operate a nominal two barrel-per-day pilot plant located on two
leased acres in Tulsa, Oklahoma. We also lease 4,500 square feet of laboratory
and office space and approximately 37,000 square feet of executive office space
in Tulsa, Oklahoma.  In addition, we own a 16,500 square foot laboratory
facility located on  approximately 100 acres of property.

     Our real estate assets are described under "Item 1.  Business--Management
and Disposition of Real Estate and Miscellaneous Assets."

ITEM 3.  LEGAL PROCEEDINGS

     We are not a party to, nor are any of our properties the subject of, any
pending legal proceedings that, in the opinion of management, are expected to
have a material adverse effect on our consolidated results of operations or
financial position.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                       25
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Stock Prices.  Our common stock is traded on the National Market System of
the Nasdaq Stock Market under the symbol "SYNM."  The table below reflects the
high and low bid prices for the common stock for each quarter during 1998 and
1999. The information has been adjusted for a two-for-one stock split on
February 9, 1998.

                                               BID PRICE
                                       -------------------------
                                         HIGH             LOW
                                       --------        ---------
 Year Ended December 31, 1998:
        First Quarter                     35.50            25.50
        Second Quarter                    32.69            16.25
        Third Quarter                     25.13             6.00
        Fourth Quarter                    12.38             5.25

 Year Ended December 31, 1999:
        First Quarter                     11.50             5.50
        Second Quarter                     9.13             5.75
        Third Quarter                     10.00             6.75
        Fourth Quarter                    10.19             5.88


     Record Holders.  As of March 1, 2000, we had approximately 1,583 record
holders of our common stock  (including brokerage firms and other nominees).

     Dividends.  Cash dividends have not been paid since inception. We currently
intend to retain any earnings for the future operation and development of our
business and do not currently anticipate paying any dividends in the foreseeable
future.  Any future determination as to dividend policy will be made, subject to
Delaware law, in the discretion of our board of directors and will depend on a
number of factors, including our future earnings, capital requirements,
financial condition and business prospects and other factors that our board of
directors may deem relevant.  Although we are not currently a party to any
agreement that restricts dividend payments, future dividends may be restricted
by our then-existing financing arrangements.  See "Item 7.  Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

     Volatility of Stock Price.  Historically, the market prices for securities
of companies without a significant commercial operating history have been very
volatile.  The trading price of our common stock is expected to continue to be
subject to substantial volatility in response to numerous factors, including,
but not limited to, publicity regarding actual or potential results with respect
to development of the Syntroleum Process and design, construction and commercial
operation of plants using this process, announcements of technological
innovations by others with competing GTL processes, developments concerning
intellectual property rights, annual and quarterly variances in operating
results, changes in energy prices, competition, changes in financial estimates
by securities analysts, any differences in actual results and results expected
by investors and analysts, investor perception of our favorable or unfavorable
prospects and other events or factors. In addition, the stock market has
experienced and continues to experience significant price and volume volatility
that has affected the market price of equity securities of many companies.  This
volatility has often been unrelated to the operating performance of those
companies.  These broad market fluctuations may adversely affect the market
price of our common stock.  There is no guarantee that an active public market
for our common stock will be sustained.

                                       26
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected financial information should be read in conjunction
with "Item . Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the related
notes thereto included elsewhere in this Annual Report on Form 10-K.  The
results of operations of SLH Corporation have been included in our consolidated
statement of operations following the August 7, 1998 effective date of the
merger of Syntroleum Corporation and SLH Corporation.

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                             -------------------------------------------------------------------------
                                                   1999            1998           1997           1996           1995
                                             -------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:                                  (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S>                                             <C>             <C>             <C>            <C>            <C>
 JOINT DEVELOPMENT REVENUE...................    $  1,986        $  1,779        $ 2,006        $   616        $    45
 REAL ESTATE SALES REVENUE...................       1,219           2,416              -              -              -
 OTHER REVENUE...............................         650             284              1              -              -
 COSTS AND EXPENSES:
   COST OF REAL ESTATE SOLD..................         824           2,387              -              -              -
   REAL ESTATE OPERATING EXPENSES............         781             267              -              -              -
   PILOT PLANT, ENGINEERING
          AND RESEARCH AND DEVELOPMENT.......      10,863           5,693          3,554          1,120            671
   CATALYST SERVICES.........................           -               -          4,800              -              -
   GENERAL AND ADMINISTRATIVE................      10,409           9,151          3,618          1,421            580
                                                 --------        --------         ------        -------        -------
           TOTAL OPERATING EXPENSES..........      22,877          17,498         11,972          2,541          1,251
                                                 --------        --------         ------        -------        -------
 OPERATING INCOME (LOSS).....................     (19,022)        (13,019)        (9,965)        (1,925)        (1,206)
 INVESTMENT, INTEREST AND OTHER
           INCOME (EXPENSE)..................       1,864           1,308            353            (12)            60
                                                 --------        --------         ------        -------        -------
 NET INCOME  (LOSS)..........................    $(17,158)       $(11,711)       $(9,612)       $(1,937)       $(1,146)
                                                 ========        ========         ======        =======        =======
 NET INCOME (LOSS) PER SHARE-
           BASIC AND DILUTED (1).............      $(0.64)         $(0.46)        $(0.40)        $(0.08)        $(0.06)
                                                 ========        ========         ======        =======        =======
</TABLE>
-------------------
(1) Adjusted to reflect the exchange ratio for the merger of Syntroleum
  Corporation and SLH Corporation of 1.2899 shares of our common stock for each
  share of our predecessor company's common stock.  See "Item 7. Management's
  Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                                         AS OF DECEMBER 31,
                                            -----------------------------------------------------------------------
                                             1999             1998             1997            1996           1995
                                            ------           ------           ------          ------         ------
BALANCE SHEET DATA:                                                        (IN THOUSANDS)
<S>                                        <C>              <C>               <C>             <C>            <C>
WORKING CAPITAL........................        $22,798        $37,476          $ 9,846           $  601        $(410)
PROPERTY AND EQUIPMENT, NET............          6,442          3,210            1,245              521          507
TOTAL ASSETS...........................         39,591         50,400           12,091            1,552          873
DEFERRED REVENUE.......................         11,000         11,000           11,000                -            -
STOCKHOLDER'S EQUITY...................         24,832         35,962           (1,242)             266          203
</TABLE>

                                       27
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

     We are the developer and owner of the Syntroleum Process, a proprietary
process designed to catalytically convert natural gas into synthetic liquid
hydrocarbons.  The Syntroleum Process is a simplification of traditional gas to
liquids, or "GTL", technologies aimed at substantially reducing the capital and
operating costs and the minimum economical size of a GTL plant.  A primary
advantage of the Syntroleum Process over competing processes is its use of air,
rather than pure oxygen, in the conversion process.  Although no commercial-
scale GTL plant based on the Syntroleum Process has been built yet, we have
successfully demonstrated many elements and variations of the Syntroleum Process
in laboratory tests and pilot plant operations.  We believe that a significant
opportunity exists for cost-effective GTL plants due to the large volumes of
natural gas reserves worldwide that are currently not marketable because
distance to market makes their utilization uneconomical.

     Our strategy for commercializing the Syntroleum Process involves the
following key elements:

     . Licensing the Syntroleum Process to oil and gas industry participants for
       use in GTL plants designed to produce synthetic crude oil and liquid
       fuels,

     . Establishing joint ventures with oil and gas industry partners and/or
       financial partners to design, construct and operate GTL plants designed
       to produce specialty products, and

     . Continuing to reduce costs and develop process improvements through
       research and development activities and acquisitions.

  To date, we have entered into master license agreements with Texaco, ARCO and
Marathon, and have entered into volume license agreements with Repsol YPF, Enron
and Kerr-McGee. We have received an aggregate of $11 million and rights to
technologies in connection with these license agreements. We are currently in
discussions with several other oil and gas companies and others with respect to
joint ventures to develop specialty product GTL plants.  We are developing  a
specialty products plant to be located in Western Australia which we expect to
be owned by a joint venture between us, Enron and Methanex, although the
financing for construction of this proposed plant has not yet been finally
arranged. We have entered into joint development arrangements with Texaco, ARCO,
Marathon, Bateman, GE Power Systems, DaimlerChrysler, Catalytica Combustion
Systems and AMEC.

     Because we are incurring costs with respect to developing and
commercializing the Syntroleum Process and do not anticipate recognizing any
revenues from licensing our technology or from production from a specialty plant
in the near future, we expect to continue to operate at a loss unless and until
sufficient revenues are recognized from licensing activities, specialty product
GTL plants or real estate sales.

     In June 1999, we completed a reincorporation as a Delaware corporation.  In
the reincorporation, our predecessor, Syntroleum Corporation, a Kansas
corporation, merged into a wholly owned Delaware subsidiary, and each share of
our predecessor's common stock was converted into one share of the Delaware
corporation's common stock.  The Delaware corporation was the surviving
corporation in the merger.  The reincorporation merger has been accounted for as
a combination of entities under common control using the historical cost basis
of the combining companies as if it were a pooling of interests.

     In August 1998, Syntroleum Corporation, an Oklahoma corporation, merged
into SLH Corporation, a Kansas corporation.  SLH Corporation was the surviving
corporation and changed its name to Syntroleum Corporation in connection with
the merger.  This merger was accounted for as a reverse acquisition, with
Syntroleum Corporation, an Oklahoma Corporation, being treated as the accounting
acquirer.  The results of operations of SLH Corporation have been included in
our financial results since completion of the merger.

                                       28
<PAGE>

     OPERATING REVENUES

     General.  During the periods discussed below, our revenues were generated
from (1) sales of real estate holdings owned by SLH Corporation prior to the
merger of Syntroleum Corporation and SLH Corporation, (2) reimbursement for
research and development activities associated with the Syntroleum Process and
(3) other sources, including rent generated by real estate holdings owned by SLH
prior to the merger.  Because our real estate portfolio has been substantially
sold, we expect to receive lower levels of revenues from these sources in
following periods.  In the future, we expect to receive revenue relating to the
Syntroleum Process from four principal sources: licensing; catalyst sales; sales
of products from specialty product GTL plants in which we own an equity
interest; and revenues from research and development activities carried out with
industry partners.  Until the commencement of commercial operation of GTL plants
in which we own an interest, we expect that cash flow relating to the Syntroleum
Process will consist primarily of license fee deposits, site license fees, and
revenues associated with joint development activities. We will not receive any
cash flow from GTL plants in which we own an equity interest until the first of
these plants is constructed.  Our future operating revenues will depend on the
successful commercial construction and operation of GTL plants based on the
Syntroleum Process, the success of competing GTL technologies and other
competing uses for natural gas.  Our results of operations and cash flows are
expected to be affected by changing crude oil, fuel and specialty product
prices.  If the price of these products increases (decreases), there could be a
corresponding increase (decrease) in operating revenues.

     License Revenues.  The revenue earned from licensing the Syntroleum Process
is expected to be generated through four types of contracts: master license
agreements, volume license agreements, regional license agreements and site
license agreements.  Master, volume and regional license agreements provide the
licensee with the right to enter into site license agreements for individual GTL
plants.  A master license agreement grants broad geographic and volume rights,
while volume license agreements limit the total production capacity of all GTL
plants constructed under the agreement to specified amounts, and regional
license agreements limit the geographical rights of the licensee.  Master,
volume and regional license agreements require an up-front cash deposit that may
offset or partially offset license fees for future plants payable under site
licenses.  We have acquired technology, commitment of funds for joint
development activities, services or other consideration in lieu of the initial
cash deposit in cases where we believed the technologies or commitments had a
greater value.

     Our site license agreements require fees to be paid in increments when
milestones during the plant design and construction process are achieved.  The
amount of the license fee under our existing master and volume license
agreements is determined pursuant to a formula based on the present value of the
product of (1) the yearly maximum design capacity of the plant, (2) an assumed
life of the plant and (3) our per barrel rate, which currently is approximately
$.50 per barrel of daily capacity, regardless of plant capacity.  Our licensee
fees may change from time to time based on the size of the plant, improvements
that reduce plant capital cost and competitive market conditions.  Our existing
master and volume license agreements allow for the adjustment of fees for new
site licenses under certain circumstances.  Our accounting policy is to defer
all up-front deposits under master, volume and regional license agreements and
license fees under site license agreements and recognize 50% of the deposits and
fees as revenue in the period in which the engineering process design package
for a plant licensed under the agreement is delivered and recognize 50% of the
deposits and fees when the plant has passed the performance tests.  The amount
of license revenue we earn will be dependent on the construction of plants by
licensees, as well as the number of licenses we sell in the future.

     Catalyst Revenues. We expect to earn revenue from the sale of our
proprietary catalysts to our licensees.  Our license agreements require our
catalyst to be used in the initial fill for the licensee to receive our process
guarantee.  After the initial fill, the licensee may use other catalyst vendors
if appropriate catalysts are available.  The price for catalysts purchased from
us pursuant to license agreements is equal to our cost plus a specified margin.
We will receive revenue from catalyst sales if and when our licensees purchase
catalysts. We expect that catalysts will need to be replaced every three to five
years.

     GTL Plant Revenues.  We intend to develop several GTL plants and to retain
significant equity interests in these plants.  These plants will enable us to
gain experience with the commercial operation of the Syntroleum Process and, if
successful, are expected to provide ongoing revenues.  The anticipated products
of these plants (i.e., fuels, synthetic lube base oils, process oils, waxes,
synthetic drilling fluid and liquid normal paraffins) have historically been
sold at premium prices and are expected to result in relatively high margins for
these plants. We anticipate forming several joint ventures with oil and gas
industry and financial partners in order to finance and

                                       29
<PAGE>


operate these plants. We anticipate that our GTL plants will include partners
who have low-cost gas reserves in strategic locations and/or have distribution
networks in place for the specialty products to be made in each plant.

     Joint Development Revenue. We continually conduct research and development
activities in order to reduce the capital and operating costs of GTL plants
based on the Syntroleum Process. We conduct our research and development
activities primarily through two initiatives: (1) independent development
utilizing our own resources and (2) formal joint development arrangements with
our licensee partners and others.  Through these joint development agreements,
we may receive revenue as reimbursement for specified portions of our research
and development expenses.  Under some of these agreements, the joint development
partner may receive credits against future license fees for monies expended on
joint research and development.

     Real Estate Sales Revenues.  As of December 31, 1999, our real estate
inventory consisted of (1) a seven-story parking garage in Reno, Nevada, which
has subsequently been sold, (2) a 49.9% interest in a community shopping center
in Gillette, Wyoming, (3) undeveloped land in Houston, Texas (300 acres of
undeveloped land and 125 lots comprising the "Houston Project"), and in Corinth,
Texas (nine acres), and (4) an equity investment in a recently renovated hotel
located in Tulsa, Oklahoma.  This real estate inventory was owned by SLH
Corporation prior to the merger of Syntroleum Corporation and SLH Corporation
and reflects the remaining assets of a real estate development business that was
conducted by SLH. Our total real estate inventory had an aggregate carrying
value at December 31, 1999 of approximately $6.1 million.  All of our real
estate inventory is held for sale except for the investment in the hotel located
in Tulsa, Oklahoma and the Houston Project, which is being developed for
commercial and residential use and ultimate sale.  The timing of real estate
sales will create variances in period-to-period earnings recognition. We do not
intend to acquire additional real estate holdings for development and/or sale
outside our core business interests, and real estate sales revenues should
decrease as the current real estate inventory is liquidated.

  In February 2000 we closed the sale of the Reno parking garage to Fitzgeralds
Reno, Inc.  The sale price was $3 million payable $750,000 in cash at closing
and the balance in the form of Fitzgeralds' promissory note in the principal
amount of $2,250,000.  The note bears interest at the rate of 10% and is payable
in monthly installments of principal and interest based on a 20 year
amortization, with the entire unpaid balance due in 10 years.  The note is
secured by the ground lease on which the garage is located as well as the
parking garage itself.

     OPERATING EXPENSES

     Our operating expenses historically have consisted primarily of pilot
plant, engineering and research and development expenses and general and
administrative expenses, which include costs associated with general corporate
overhead, compensation expense, legal and accounting expense and expenses
associated with other related administrative functions.  Our policy is to
expense pilot plant, engineering and research and development costs as incurred.
All of these research and development expenses are associated with our
development of the Syntroleum Process.  We have also recognized depreciation and
amortization expense primarily related to office and computer equipment.
Following the merger of Syntroleum Corporation and SLH Corporation in 1998, our
operating expenses have also included costs of real estate sold and real estate
operating expense.  Our general and administrative expenses have increased
substantially and we have expanded our research and development, engineering and
commercial staffing levels, and these expenses are expected to continue to
increase. We also expect to continue to incur pilot plant, engineering and
research and development expenses as we continue to develop and improve our GTL
technology.  In May 1998, we acquired a 16,500-square-foot laboratory located on
approximately 100 acres at which we are increasing our laboratory space and
where we plan to consolidate our pilot plant operations.

     We expect to incur significant expenses in connection with the start-up of
our GTL plants.  For example, we expect that our expenses will increase at the
time of commencement of construction of plants in which we own an interest.
Upon the commencement of commercial operation of GTL plants in which we own an
equity interest, we will incur cost-of-sales expense relating primarily to the
cost of natural gas feedstocks for our specialty plants and will incur operating
expenses relating to these plants, including labor, supplies and maintenance.
Due to the substantial capital expenditures associated with the construction of
GTL plants, we expect to incur significant depreciation and amortization expense
in the future.

                                       30
<PAGE>

RESULTS OF OPERATIONS

     OVERVIEW

     During 1999, we continued our efforts to commercialize our GTL technology
on several fronts.  Construction of our pilot plant facility jointly developed
by us with ARCO at ARCO's refinery located in Cherry Point, Washington was
completed and the plant completed a successful start up in July.  The plant is
currently being operated and the results of its operation have successfully
demonstrated a number of key aspects of the autothermal reformer and moving bed
reactor designs and related catalyst performance.  We continue to gather data
and experience from plant operations which will be useful in our efforts to
apply this version of our GTL technology on a commercial basis.

     We continued our activities to confirm catalyst performance and reactor
designs for our proposed Sweetwater project.  These activities included the
construction and operation of new pilot scale Fischer-Tropsch reactors at our
pilot plant in Tulsa, Oklahoma.  Operation of these reactors will allow us to
complete a battery of confirmation tests and begin detailed engineering of our
proposed Sweetwater plant during 2000.

     We also continued our efforts to advance numerous other aspects of the
Sweetwater project.  We have selected Western Australia as the site for the
Sweetwater plant.  In October 1999 we signed a Project Development Agreement
with Tessag Industrie-Anlagen GmbH (formerly Klockner Industrie-Anlagen GmbH) to
provide us a fixed price for the design and construction of the Sweetwater
plant.  We expect to receive this fixed price in late 2000.  In addition, we
have entered into a letter of intent with the Commonwealth of Australia which
provides, subject to satisfaction of various conditions and execution of
definitive agreements, for the Commonwealth to acquire a license to our GTL
technology for AUD$30 million (approximately US$19 million) and to provide us an
additional AUD$40 million (approximately US$25 million) for further development
and commercialization of our GTL technology in Australia.  Finally, in February
2000, we entered into a Gas Sale Agreement with venture partners of North West
Shelf Gas Pty Ltd. for the purchase of a 20-year gas supply to the Sweetwater
plant.

     In January 2000, we entered into a letter of intent with Methanex
Corporation under which Methanex has paid us $2 million to fund a portion of the
costs of engineering work being performed by Tessag Industrie-Anlagen GmbH to
provide us a fixed price for design and construction of the Sweetwater plant.
Under the letter of intent, subject to satisfaction of various conditions and
execution of definitive agreements, Methanex would also invest an additional
US$43 million for a minority interest in the Sweetwater plant.  Methanex is
engaged in the worldwide production and marketing of methanol.

     1999 COMPARED TO 1998

     Joint Development Revenue.  Revenues from our joint research and
development and pilot plant operations were $1,986,000 in 1999, up $207,000 from
1998 when they were $1,779,000.  The increase was primarily due to the funding
received under the joint development agreement with ARCO relating to our pilot
plant at their Cherry Point refinery in Washington.  This increase was partially
offset by decreased revenues under our joint development agreement with Texaco
as a result of the completion in 1998 of construction of the hybrid, multiphase
(HMX) reactor at our pilot plant.

     Real Estate Sales Revenue.  Revenues from the sale of real estate were
$1,219,000 in 1999, down $1,197,000 from $2,416,000 in 1998.  This decrease  was
the result of the sale of 38 lots in the Houston Project and the sale of the
remaining land in Kansas City, Missouri during 1999 compared to the sale of the
final three condominium units at our Quail Run development in Santa Fe, New
Mexico, the sale of undeveloped land in Kansas City, Missouri and the sale of a
boat slip in Florida during 1998.  These revenues should continue to decrease as
the remaining real estate inventory is sold.

     Other Revenue.  Other revenues were $650,000 in 1999, up $366,000 from 1998
when they were $284,000.  The increase resulted primarily from parking and
retail rentals at our parking garage in Reno, Nevada.  We sold this parking
garage during the first quarter of 2000 and we will no longer receive revenues
from parking and retail rentals at this garage.

                                       31
<PAGE>

     Cost of Real Estate Sold and Real Estate Operating Expense.  The cost of
real estate sold was $824,000 in 1999, down $1,563,000 from $2,387,000 in 1998.
The decrease resulted from the sale of 38 lots in the Houston Project and the
sale of the remaining land in Kansas City, Missouri.  Our 1998 cost of sales
included the sale of our remaining condominium units in New Mexico, the
undeveloped land in Kansas City and the boat slip in Florida during 1998.  Real
estate operating expenses were $781,000 during 1999, up $514,000 from 1998 when
they were $267,000.  This increase was primarily attributed to inclusion of a
full year of expenses in 1999 as the merger with SLH occurred in August of 1998.

     Pilot Plant, Engineering and R&D.  Expenses from pilot plant, engineering
and research and development activities were $10,863,000 in 1999, up $5,170,000
from 1998 when these expenses were $5,693,000.  The increase occurred primarily
as a result of the expansion of our Tulsa, Oklahoma pilot plant facility, the
purchase of equipment for our recently acquired technology center in Tulsa,
Oklahoma, higher research and development spending and higher outside
engineering expense associated with our joint efforts with ARCO to design and
construct the pilot plant at ARCO's Cherry Point Refinery and our efforts to
accelerate the preliminary design and operating parameters of the Sweetwater
plant.

     General and Administrative Expense.  General and administrative expenses
were $10,409,000 in 1999, up $1,258,000 from 1998 when these expenses were
$9,151,000.  The increase is attributable primarily to higher wages and salaries
resulting from our higher staffing levels, higher rent expense and higher
expense for outside consultants.

     Investment, Interest and Other Income (Expense).  Investment, interest and
other income increased to $1,864,000 in 1999, up $556,000 from 1998 when this
income was $1,308,000.  The increase was primarily attributable to interest
income from higher cash balances following the merger of Syntroleum Corporation
and SLH Corporation.

     Provision for Income Taxes. We incurred a loss in both 1999 and 1998 and
did not recognize an income tax benefit for such loss.

     Net Income.  In 1999, we experienced a loss of $17,158,000.  The loss was
$5,447,000 higher than in 1998 when we experienced a loss of $11,711,000.  The
increase in the loss is a result of the factors described above.

     1998 COMPARED TO 1997

     Joint Development Revenue.  Revenues from our joint research and
development and pilot plant operations were $1,779,000 in 1998, down $227,000
from 1997 when they were $2,006,000.  The decrease was primarily due to the
completion in 1998 of construction of the hybrid, multiphase (HMX) reactor at
our pilot plant that was funded by Texaco under our joint development agreement.

     Real Estate Sales Revenue.  Revenues from the sale of real estate were
$2,416,000 in 1998, up from zero in 1997 when we had no real estate operations.
This increase was the result of the sale of the final three condominium units at
SLH's Quail Run development in Santa Fe, New Mexico, the sale of undeveloped
land in Kansas City, Missouri and the sale of a boat slip in Florida.

     Other Revenue.  Other revenues were $284,000 in 1998, up $283,000 from 1997
when they were $1,000.  The increase resulted primarily from parking and retail
rentals at our parking garage in Reno, Nevada.

     Cost of Real Estate Sold and Real Estate Operating Expense.  The cost of
real estate sold was $2,387,000 in 1998, up from zero in 1997 when we had no
real estate operations.  The increase resulted from the sale of the condominium
units in New Mexico, the undeveloped land in Kansas City and the boat slip in
Florida.  Real estate operating expenses were $267,000 in 1998 compared to zero
in 1997 when we had no real estate operations.

     Pilot Plant, Engineering and R&D.  Expenses from pilot plant, engineering
and research and development activities were $5,693,000 in 1998, up $2,139,000
from 1997 when these expenses were $3,554,000.  The increase occurred as a
result of our higher research and development spending and higher outside
engineering expense, partially offset by lower operating costs associated with
our development of the hybrid multiphase reactor (HMX).

                                       32
<PAGE>

     General and Administrative and Catalyst Services Expense.  General and
administrative expenses were $9,151,000 in 1998, up $5,533,000 from 1997 when
these expenses were $3,618,000.  The increase is attributable primarily to
higher wages and salaries resulting from our higher staffing levels, higher rent
expense and higher expense for outside consultants. During 1997 Syntroleum
incurred a $4,800,000 catalyst services expense in connection with a transaction
whereby (1) Criterion exercised a portion of an option and purchased 167,000
shares (on a pre-merger basis) of Syntroleum's common stock for $2,004,000, (2)
Syntroleum and Criterion modified an agreement regarding future purchases of
catalyst by Syntroleum, and (3) Syntroleum and Criterion entered into an
agreement pursuant to which Syntroleum issued 400,000 shares (on a pre-merger
basis) of Syntroleum's common stock (valued at $12.00 per share) to Criterion in
consideration for all prior services rendered to and catalyst received by
Syntroleum from Criterion and other consideration.  Accordingly, this $4,800,000
was expensed.

     Investment, Interest and Other Income (Expense).  Investment, interest and
other income increased to $1,308,000 in 1998, up $955,000 from 1997 when this
income was $353,000.  The increase was primarily attributable to interest income
from higher cash balances following the merger of Syntroleum Corporation with
SLH Corporation.

     Provision for Income Taxes. We incurred a loss in both 1998 and 1997 and
did not recognize an income tax benefit for such loss.

     Net Income.  In 1998, we experienced a loss of $11,711,000.  The loss was
$2,099,000 higher than 1997 when we experienced a loss of $9,612,000.  The
increase in the loss is as a result of the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

     GENERAL

     As of December 31, 1999, we had $23,881,000 in cash and short-term
investments and $2,641,000 in current liabilities. We do not currently have any
material outstanding debt or lines of credit.  Prior to the merger of Syntroleum
Corporation and SLH Corporation in 1998, the primary sources of liquidity for
Syntroleum Corporation were equity capital contributions and prepaid license
fees and its principal liquidity needs were to fund expenditures relating to
research and development and pilot plant activities and to fund working capital.
At December 31, 1999, we had $748,000 in accounts receivable outstanding with
our joint development partners relating to joint development activities.

     Cash flows (used in) provided by operations were ($16,599,000),
($12,132,000), and $6,736,000 in 1999, 1998 and 1997, respectively.  The
decrease in cash flows provided by operations in 1999 as compared to 1998 was
primarily the result of the absence during 1999 of prepaid license and option
fees, which we recognize as deferred revenue, the sale of 38 lots in Houston,
Texas, offset by additional spending on the Houston development, higher salaries
and wages related to higher staffing levels, and increased spending on research
and development and engineering activities.  Additionally, during 1998, we sold
the final three condominium units in Santa Fe, New Mexico, which were acquired
from SLH as a result of our merger.

     Cash flows (used in) provided by investment activities were ($4,094,000),
$35,242,000, and ($1,114,000) in 1999, 1998 and 1997, respectively.  The
decrease in cash flows provided by investment activities in 1999 as compared to
1998 resulted from the maturity of investments held that were acquired in the
merger of Syntroleum Corporation and SLH Corporation, and by higher spending on
property and equipment. Cash flows provided by financing activities were
$6,028,000, $1,713,000, and $3,654,000 in 1999, 1998 and 1997, respectively.
The increase in cash flows provided by financing activities in 1999 as compared
to 1998 is primarily related to the settlement of a merger contingency in early
1999 for $6 million. Cash flows in 1998 primarily reflected the investment by
Enron in our Sweetwater project and cash received in the merger of Syntroleum
Corporation and SLH Corporation.

     The construction of our GTL plants will require significant capital
expenditures.  Our other efforts to commercialize the Syntroleum Process will
also involve significant expenditures.  We intend to obtain additional funding
through joint ventures, partnerships, license agreements and other strategic
alliances, as well as various other financing arrangements. We may also seek
debt or equity financing in the capital markets.  In the event such capital

                                       33
<PAGE>

resources are not available to us, our GTL plant development and other
activities may be curtailed. We estimate that construction and disposal costs to
complete real estate projects in development will be approximately $1.5 million.

     We have sought to temporarily invest our assets, pending their use, so as
to avoid becoming subject to the registration requirements of the Investment
Company Act of 1940.  These investments are likely to result in lower yields on
the funds invested than might be available in the securities market generally.
If we were required to register as an investment company under the Investment
Company Act, we would become subject to substantial regulation that would
materially adversely affect us.

     If five or fewer individuals own, directly or under constructive ownership
rules, more than 50% in value of our outstanding stock at any time during the
last half of a taxable year and at least 60% of our adjusted ordinary gross
income consists of personal holding company income, we would be subject to not
only the regular federal income tax, but would also be subject to an additional
tax of 39.6% of our undistributed personal holding company income.  Based on
current levels of stock ownership, we believe that slightly less than 50% in
value of our common stock is owned by five or fewer individuals.  We also
believe that payments we receive under our license agreements do not constitute
items of personal holding company income, although the Internal Revenue Service
may contest that position.

     INITIAL SPECIALTY PRODUCT GTL PLANT

     We are developing a 10,000 barrel per day specialty product plant.  We
currently anticipate that this plant will produce synthetic lube oil, normal
paraffins, drilling fluid, and synthetic light paraffins.  The plant was
initially planned to be constructed in Sweetwater County, Wyoming.  However,
after being approached by gas producers at alternative sites at which lower cost
natural gas could be obtained, we decided to evaluate international sites as
well.  In February 2000, we selected a site on the Burrup Peninsula of Western
Australia as the site for what we now call the "Sweetwater" plant.  The site is
about 4 kilometers from the North West Shelf LNG facility and near the towns of
Karatha and Dampier.  The site is approximately 1,000 miles north of Perth,
Australia.

     In November 1999, we signed a project development agreement with Tessag
Industrie-Anlagen GmbH (formerly Klockner Industrie-Anlagen GmbH) to provide us
with a fixed price for the design and construction of the Sweetwater plant.
Tessag also agreed to pay liquidated damages in the event certain process and
product specifications are not achieved.  This commitment is important in order
to obtain the necessary debt financing for the project. We currently expect that
Tessag will design and construct the plant.

     We have signed a gas purchase agreement with the North West Shelf venture
partners, whose members include Shell Development (Australia) Pty Ltd., Chevron
Australia Pty Ltd., BP Development Australia Pty Ltd., Woodside Energy Ltd., BHP
Petroleum (North West Shelf) Pty Ltd., and Japan Australia LNG (MIMI), a
partnership between Mitsui and Mitsubishi.  Subject to several conditions, the
venture agreed to supply gas to the plant for 20 years.

     Enron has contributed $1 million toward the development of this project,
and we are currently in discussions with Enron regarding its equity
participation in the Sweetwater project.  We have contributed $2 million toward
the plant's development.  The capital costs of this plant are currently expected
to be funded by a combination of project senior and subordinated debt and
additional equity financing. We plan to construct the Sweetwater plant through a
joint venture, and our ownership percentage in this joint venture will depend on
the terms of subsequent financings.

     In February 2000, we signed a letter of intent with Methanex Corporation
which provides for Methanex to become an equity investor in the Sweetwater
project.  Under the letter of intent, Methanex has contributed $2 million toward
the cost of the Tessag engineering work and would contribute an additional $43
million after certain conditions are met, including finalizing debt and receipt
of satisfactory permits.

     The State of Western Australia has recently announced its intention to
assist our Sweetwater project and other potential projects in the area with a
AUD$19 million (approximately US$12 million) common use infrastructure package,
including a desalinization plant to which our project will supply steam and from
which our project will receive cooling water.

                                       34
<PAGE>


     In February 2000 we entered into a letter of intent with the Commonwealth
of Australia to license the Syntroleum Process to the Commonwealth as part of a
program for unlocking the value of Australia's energy reserves and improving the
quality of the environment.  Under the letter of intent, the Commonwealth would
make a AUD$30 million (approximately US$19 million) license fee deposit, of
which AUD$20 million (approximately US$12.4 million) may be credited against
future license fees.  The letter of intent also provides that the Commonwealth
would make a 25-year, $40 million (approximately US$25 million) interest free
loan to support the further development and commercialization of GTL
technologies in Australia.  The transactions contemplated by the letter of
intent with the Commonwealth are subject to negotiation and execution of
definitive license and loan agreements.

     We are currently exploring sources of debt and equity capital to fund final
design and construction.  However, we can give no assurance that the necessary
capital for this project will be obtained.  The schedule for construction of
this plant has not yet been finally determined.

  WE WILL NEED TO OBTAIN FUNDS FROM ADDITIONAL FINANCINGS OR OTHER SOURCES, AND
IF WE DO NOT RECEIVE THESE FUNDS WE MIGHT NEED TO DELAY OR ELIMINATE OUR
EXPENDITURES, INCLUDING THOSE FOR CAPITAL PROJECTS.

     We have expended and will continue to expend a substantial amount of funds
to continue the research and development of our technologies, to market the
Syntroleum Process and to design and construct GTL plants.  We intend to obtain
additional funds primarily through a combination of equity and debt project
financing, collaborative or other arrangements with strategic partners and
others and debt and equity financing in the capital markets.  Financing may not
be available when needed or on terms acceptable to us.  If adequate funds are
not available, we may be required to delay or to eliminate expenditures for our
capital projects, research and development, and other activities.  We could also
be forced to license to third parties the rights to commercialize additional
products or technologies that we would otherwise seek to develop ourselves.  If
additional funds are raised by issuing equity securities, dilution to
stockholders may occur. In addition, preferred stock could be issued in the
future without stockholder approval and the terms of our preferred stock could
include dividend, liquidation, conversion, voting and other rights that are more
favorable than the rights of the holders of our common stock.

     Assuming the commercial success of the plants based on the Syntroleum
Process, we expect that license fees, catalyst sales and sales of specialty
products will be a source of funds for operations.  However, we may not receive
any of these revenues, and these revenues may not be sufficient for capital
expenditures or operations and may not be received within the expected time
frame.  If we are unable to generate funds from operations, our need to obtain
funds through financing activities will be increased.

  OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY MAY BE CONSTRAINED DUE TO
INSUFFICIENT SCIENTIFIC, TECHNICAL, OPERATIONAL AND ADMINISTRATIVE RESOURCES.

     Our rapid growth to date has placed a significant strain on our scientific,
technical, operational and administrative resources.  As we implement our
strategy to commercially develop our GTL technology, demands on these resources
will continue to increase.  Our ability to implement our business strategy may
be constrained, and the timing of implementation may be impacted, due to
insufficient resources.  At March 1, 2000, we had 74 full-time employees.
Competition for personnel is intense, and we may not be able to retain our
current personnel or attract and assimilate additional personnel.

  BECAUSE OUR BUSINESS STRATEGY IS TO SEEK TO COMMERCIALIZE A NEW TECHNOLOGY,
OUR PROSPECTS CANNOT BE EVALUATED BASED ON OUR HISTORICAL OPERATING RESULTS.

     Our company was founded in 1984 and began efforts to commercialize the
Syntroleum Process in 1993.  Prior to our first receipt of license fees in late
1996, our only significant revenues were from joint development activities.
Accordingly, we do not have an operating history upon which an evaluation of our
prospects can be based.  Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by small companies seeking to
develop new and rapidly evolving technologies.  To address these risks, we must,
among other things, respond to competitive factors, continue to attract, retain
and motivate qualified personnel and commercialize and continue to upgrade our
GTL technologies. We may not be successful in addressing these risks. We have
incurred net losses from inception through 1999.  Although we have received
significant license fees in

                                       35
<PAGE>

1997, these fees may not be sustainable and are not indicative of future
operating results. We can give no assurance that we will achieve or sustain
profitability.

     Our anticipated expense levels are based in part on our expectations as to
future operating activities and are not based on historical financial data. We
plan to increase our capital expenditures to fund the design and construction of
GTL plants, increase our operating expenses to fund greater levels of research
and development and increase our marketing and operational capabilities.  These
expenses may precede or may not subsequently be followed by increased revenues
or cash flows.

  OUR OPERATING RESULTS MAY FLUCTUATE DUE TO A VARIETY OF FACTORS AND ARE NOT A
MEANINGFUL INDICATOR OF FUTURE PERFORMANCE.

     We expect to experience significant fluctuations in future annual and
quarterly operating results because of the unpredictability of many factors that
impact our business.  These factors include timing of any construction by us of
our GTL plants, timing of any construction of GTL plants by licensees, demand
for licenses to the Syntroleum Process and receipt and revenue recognition of
license fees, oil and gas prices, timing and amount of research and development
expenditures, demand for specialty products, introduction or enhancement of GTL
technologies by us and our competitors, market acceptance of new technologies
and general economic conditions.  As a result, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as any indication of future performance.  Due to all of the
foregoing factors, it may be that in some future year or quarter our operating
results will be below the expectations of public market analysts and investors.
In that event, the price of our common stock would likely be materially
adversely affected.

  WE PLAN TO CONSTRUCT GTL PLANTS IN FOREIGN COUNTRIES, WHERE WE WOULD BE
SUBJECT TO RISKS OF A POLITICAL NATURE AND OTHER RISKS INHERENT IN FOREIGN
OPERATIONS.

     We plan to construct GTL plants in foreign countries, where we would be
subject to risks of a political nature and other risks inherent in foreign
operations.  These risks include changes in domestic and foreign taxation, labor
disputes, civil disturbances and uncertain political and economic environments
as well as risks of war and civil disturbances or other risks that may limit or
disrupt production and markets or result in the deprivation of contract rights
or the taking of property by nationalization or appropriation without fair
compensation. International operations and investments may also be adversely
affected by laws and policies of the United States affecting foreign trade,
investment and taxation, which could affect the conduct or profitability of
these operations.

CURRENCY RISK

     We expect to conduct a portion of our business in currencies other than the
United States dollar. We may attempt to minimize our currency exchange risk by
seeking international contracts payable in local currency in amounts equal to
our estimated operating costs payable in local currency and in United States
dollars for the balance of the contract.  In addition, we expect to seek
contractual purchase price adjustments based on an exchange rate formula related
to United States dollars.  In the future, we may also have significant
investments in countries other than the United States.  The functional currency
of these foreign operations may be the local currency, and accordingly,
financial statement assets and liabilities may be translated at current exchange
rates.

THE YEAR 2000 ISSUE

     Historically, some computerized systems have used two digits rather than
four digits to define the applicable year, causing them to not properly
recognize a year that does not begin with "19." There was widespread concern
prior to January 1, 2000 that this could result in major failures or
miscalculations and has been generally referred to as the "Year 2000 issue." We
recognize that the impact of the Year 2000 issue extended beyond traditional
computer hardware and software to automated systems and instrumentation, as well
as to third parties such as vendors, suppliers, customers, banks and securities
markets.

     Our computer hardware and software and automated systems and
instrumentation were acquired during the past two years.  Based on the recent
date of purchase and assertions made by the vendors of these systems, we
believed these systems were Year 2000 compliant and there have been no
disruptions or failures of these systems on or after January 1, 2000.

                                       36
<PAGE>

     With respect to external parties, we conducted an assessment of the level
of risk to us of non-compliance by the external parties and, to the extent we
thought necessary, we contacted those external parties deemed to be significant
to our operations.  Based on assertions made by these external parties, we did
not believe that there was a material uncertainty of noncompliance by an
external party which would significantly affect our operations.  There have been
no disruptions or failures by external parties that significantly affected our
operations on or after January 1, 2000.

     The total cost of our Year 2000 activities to date have not been, and
future costs are not expected to be, material to our operations, liquidity or
capital resources.  We will continue to monitor our computer systems and those
of third parties for potential Year 2000 problems.

NEW ACCOUNTING PRONOUNCEMENTS

  In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."  SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value.  SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.  Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement.  Companies must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting.  SFAS
No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000.  However, companies may elect to adopt SFAS No. 133 prior
to that date.  SFAS No. 133 cannot be applied retroactively and must be applied
to (a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997.  We are currently in the process of determining timing and
the effect of adopting SFAS No. 133.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We had short-term investments in the form of U.S. Treasury securities as of
December 31, 1999. The majority of these securities mature in less than 90 days.
Our policy is to hold short-term securities to maturity which minimizes interest
rate risk.  The average interest rate on these investments at December 31, 1999
was approximately 5.7%.

     We do not currently conduct any material operations in foreign markets.
Accordingly, we do not have any material market risk related to foreign exchange
rates.  The letter of intent we have signed with the Commonwealth of Australia
is payable in Australian dollars which creates a contingent forward Australian
dollar exposure.  We intend to quantify our Australian forward exposure and
convert the balance into U.S. dollars at the then applicable exchange rate.

     We do not purchase futures contracts nor do we purchase or hold any
derivative financial instruments.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements, together with the report thereon of
Arthur Andersen LLP dated January 18, 2000, are set forth on pages F-1 through
F-15 hereof.  See Item 14 for an index to the consolidated financial statements.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                       37
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information concerning our directors
and executive officers as of March 1, 2000.  Unless otherwise indicated, each of
our directors and executive officers has served in the indicated positions since
the closing of the merger of Syntroleum Corporation and SLH Corporation on
August 7, 1998 and served in the same position with Syntroleum Corporation
before the merger.  References to positions held with our company before the
date of the merger refer to positions held with our predecessor company,
Syntroleum Corporation, an Oklahoma corporation.

<TABLE>
<CAPTION>
                                                                                                 DIRECTOR'S
         NAME                 AGE                           POSITION                             TERM ENDING
         ----                 ---                           --------                             -----------
<S>                          <C>        <C>                                                      <C>
Kenneth L. Agee               43        Chief Executive Officer and Chairman of the Board             2001
Mark A. Agee                  47        President, Chief Operating Officer and Director               2000
Charles A. Bayens             61        Vice President of Engineering
Carla S. Covey                27        Controller
Eric Grimshaw                 47        Vice President, General Counsel and Secretary
Paul F. Schubert              44        Vice President of Research and Development
Peter V. Snyder, Jr.          54        Vice President of Product Sales
Michael P. Stewart            45        Vice President of Information Technology
Randall M. Thompson           42        Vice President and Chief Financial Officer
Larry J. Weick                51        Vice President of Licensing and Business Development
Alvin R. Albe, Jr.            45        Director                                                      2002
Frank M. Bumstead             58        Director                                                      2000
P. Anthony Jacobs             58        Director                                                      2001
Robert Rosene, Jr.            46        Director                                                      2000
James R. Seward               47        Director                                                      2001
J. Edward Sheridan            65        Director                                                      2002
</TABLE>

  Kenneth L. Agee is our Chief Executive Officer and Chairman of the Board.  Mr.
Kenneth L. Agee founded  our company in 1984 and initially served as President
and a director.  He became Chief Executive Officer in February 1996 and Chairman
of the Board in November 1995.  He is a graduate of Oklahoma State University
with a degree in Chemical Engineering and is a licensed Professional Engineer in
the State of Oklahoma. In addition, he has over 15 years of experience in the
oil and gas industry and is listed as Inventor on several United States and
foreign patents and several pending patent applications, all of which have been
assigned to us by Mr. Agee.

     Mark A. Agee is our President, Chief Operating Officer and a director.  Mr.
Mark A. Agee became President and Chief Operating Officer in February 1996 and
has served as a director since March 1985.  From 1989 to May 1993, he served as
President, Chief Executive Officer and Director of Convergent Communications, a
company which he founded in 1989 and sold in 1993.  From 1981 to 1989, he served
as President, Chief Executive Officer and a Director of XETA Corp., a computer
company which he founded in 1981 and which became public in 1987.  He holds a
Bachelor's degree in Chemical Engineering from the University of Tulsa and is a
licensed Professional Engineer in the State of Oklahoma.

     Charles A. Bayens is our Vice President of Engineering.  Mr. Bayens joined
our company in July 1997 as Business Development Manager and became Vice
President of Engineering in December 1997.  Prior to joining our company, Mr.
Bayens was with Shell Oil Company from 1967 to 1997 in various technical and
business assignments.  From 1991 to 1997, he was President of Shell Synthetic
Fuels, Inc., where he managed the commercialization of  Shell's suite of
synfuels technologies.  Concurrently, from 1991 to 1994, he was also Manager,
Technology Licensing for Shell.  Mr. Bayens holds a Ph.D. in Chemical
Engineering from Johns Hopkins University.

                                       38
<PAGE>

     Carla S. Covey is our Controller.  Ms. Covey became our Director of
Accounting in June 1997.  Prior to joining our company, Ms. Covey served as
Accounting Manager/Human Resource Manager and Manager, Facility Operations for
AGC Manufacturing Services, Inc., in Tulsa, Oklahoma from 1995 to 1997.  Ms.
Covey also served as Assistant Director of Human Resources for the Adam's Mark
Hotel in Tulsa, Oklahoma from 1994 to 1995.  Ms. Covey received her B.A. degree
in Business Administration from Drury College and her M.S. degree in Management
from Southern Nazarene University.  Ms. Covey is a certified public accountant.

     Eric Grimshaw is our Vice President, General Counsel and Secretary. Prior
to joining our company in June 1997, Mr. Grimshaw was a partner with the law
firm of Pray, Walker, Jackman, Williamson & Marlar.  Mr. Grimshaw received a
B.A. degree from the University of Colorado and received his law degree from the
University of Tulsa.

     Paul F. Schubert is our Vice President of Research and Development.  Dr.
Schubert joined us as Research Project Manager in May 1998.  From 1996 to 1998,
Dr. Schubert was Vice President of Monitor Labs, Denver, Colorado, where he was
responsible for research, development and marketing of catalytic and laser based
air emissions monitoring devices.  From 1990 until 1996, Dr. Schubert served in
a variety of roles with Catalytica, Inc. (Mountain View, California), a company
engaged in research and development of catalytic processes.  In his last few
years at Catalytica, he served as Vice President of their Advanced Sensor
Devices Division, which was sold to Monitor Labs in 1996.  Prior to joining
Catalytica, Dr. Schubert worked with Phillips Petroleum and Englehard
Corporation in research, development and manufacturing of catalysts for the
petrochemical industry.  Dr. Schubert received a B.S. with High Honors from the
University of Arkansas, and a Ph.D. in Inorganic Chemistry from the University
of Illinois at Urbana-Champaign.  He is an inventor or co-inventor of 13 U.S.
patents, and has authored over two dozen technical publications.

     Peter V. Snyder, Jr., was our Vice President of Product Sales until his
retirement in early March 2000.  He joined our company in January 1996.  From
1979 to 1984, he served as Product Manager of Synthetic Waxes for Moore and
Munger, Sasol's North American distribution company.  From 1984 until 1989, he
served as Director of Specialty Products for Moore and Munger and became Vice
President and Director of Marketing in 1989.  He joined C&C Petroleum and
Chemicals Group in January 1991 as President and Chief Executive Officer.  Mr.
Snyder has over 18 years of experience in the lubes, chemicals and wax business
and has been a member of the board of the Adhesive and Sealants Council, one of
the largest wax-consuming industries in the world, since 1996.  He is a graduate
of the Taft School and the University of North Carolina.

     Michael L. Stewart is our Vice President of Information Systems and has
served in that position since November 1998.  Mr. Stewart joined our company in
May 1997 as information technology manager, bringing over 23 years of computer
and information systems related experience.  From 1993 until joining us, he was
a management consultant involved in data processing, systems operation, planning
and organization.  Earlier, he held the positions of Vice President - Management
Information Services for Convergent Communications, Inc., and database design
specialist for Continental Savings and Loan.

     Randall M. Thompson is our Vice President and Chief Financial Officer.  Mr.
Thompson joined our company in January 1997.  From January 1994 through December
1996, he held various financial and marketing positions with Tenneco Energy
Corporation, as vice president of strategic planning, marketing and business
development.  From 1983 through 1994, Mr. Thompson was employed by Atlantic
Richfield Company and held financial management positions.  Mr. Thompson holds a
B.A. in Economics from the University of Colorado and an M.B.A. from The Wharton
School at the University of Pennsylvania.

     Larry J. Weick is our Vice President of Licensing and Business Development.
Mr. Weick joined our company in 1996.  From 1971 to 1982, he held positions in
engineering, planning and project development in the natural gas and electric
utility industry.  From 1982 to 1994, he held several finance, planning and
business development positions with Atlantic Richfield Company.  From 1994 to
1996, Mr. Weick served as a consultant to us.  He holds a B.S. in Electrical
Engineering from the University of Nebraska at Lincoln and an M.S. in
Engineering-Economics from Stanford University.  Mr. Weick is also a Licensed
Professional Engineer in both Nebraska and Texas.

                                       39
<PAGE>

     Alvin R. Albe, Jr., became a director in December 1988.  Mr. Albe is
currently Executive Vice President of the TCW Group, Inc., a capital management
firm.  Prior to joining TCW in 1991, Mr. Albe was President of Oakmont
Corporation, a privately held corporation which administers and manages assets
for several families and individuals.  Mr. Albe was associated with Oakmont
Corporation from 1982 to 1991.  Before that time, he was Manager of Accounting
at McMoRan Oil and Gas Co., and a Certified Public Accountant with Arthur
Andersen & Co. in New Orleans.  Mr. Albe graduated from the University of New
Orleans with a B.S. in Accounting.

     Frank M. Bumstead became a director in May 1993.  He has served as the
President of Flood, Bumstead, McCready & McCarthy, Inc., a financial and
business management firm, since 1990.  Mr. Bumstead has served as Vice Chairman
of the Board of Response Oncology, Inc., a health care services firm, since
1986.  He has served as a director of First Union National Bank of Tennessee
since 1996.  Mr. Bumstead has also served as a director of American Retirement
Corp., and as a director of Imprint Records, Inc., since 1995 and as a director
of TBA Entertainment, Inc., since 1994.

     P. Anthony Jacobs has served as a director since December 1996.  Mr. Jacobs
also served as the Chairman of the Board of SLH Corporation from December 1996
through the closing date of the merger of Syntroleum Corporation and SLH
Corporation. Mr. Jacobs served as President and Chief Executive Officer of Lab
Holdings, Inc., a company principally engaged in the laboratory testing
business, a position he held from September 1997 until August of 1999 when the
company merged with Lab One.  From 1990 to 1993, he served as Executive Vice
President and Chief Operating Officer of Lab Holdings, and from May 1993 to
September 1997, he served as President and Chief Operating Officer of Lab
Holdings.  Mr. Jacobs also serves on the board of directors for Trenwick Group,
Inc. and Response Oncology, Inc.  Mr. Jacobs holds an M.B.A. from the University
of Kansas and also is a Chartered Financial Analyst.

     Robert Rosene, Jr., became a director in March 1985.  Mr. Rosene is
President of Seminole Energy Services, L.L.C., a natural gas consulting and
marketing company.  From 1984 to August 1998, he was Vice President of Boyd
Rosene and Associates, Inc., a natural gas consulting and marketing firm which
he co-founded.  From 1976 to 1984, he was employed with Transok Pipeline
Company, where he served in various positions, including Manager of Rates and
Contract Administration and Director of Gas Acquisitions.  In 1987, Mr. Rosene
co-founded MBR Resources, an oil and gas production company with operations in
Arkansas, New Mexico, Oklahoma and Texas.  Mr. Rosene holds a B.A. in Accounting
from Oklahoma Baptist University.

     James R. Seward has served as a director since December 1996.  Mr. Seward
also served as the President,  Chief Executive Officer and director of SLH
Corporation from February 1997 through the closing date of the merger of
Syntroleum Corporation and SLH Corporation.  From 1990 to September 1997, Mr.
Seward served as Chief Financial Officer and a director of Lab Holdings.  From
1990 to May 1993 he served as Senior Vice President of Lab Holdings and from May
1993 to September 1997 he served as Executive Vice President.  He also serves as
a director of Response Oncology, Inc., LabOne, Inc. and Concorde Career
Colleges.  Mr. Seward holds an M.B.A. in Finance and a M.P.A. from the
University of Kansas and is also a Chartered Financial Analyst.

     J. Edward Sheridan became a director in November 1995.  In 1985, Mr.
Sheridan founded and since that time has served as President of Sheridan
Management Corporation, a company whose purpose is to provide support services
to businesses in industries with global markets for their products and services.
From 1973 to 1975, he was Chief Financial Officer at Fairchild Industries and
from 1975 to 1985, he was Chief Financial Officer at AMT, Inc.  Mr. Sheridan is
also a director of Bitwise Design, Inc.  Mr. Sheridan holds an M.B.A. from
Harvard University with an emphasis on Finance and International Operations and
a B.A. from Dartmouth College.

     There are no family relations, of first cousin or closer, among our
directors or executive officers, by blood, marriage or adoption, except that Mr.
Kenneth L. Agee and Mr. Mark A. Agee are brothers.

  WE DEPEND ON OUR EXECUTIVE OFFICERS TO EXECUTE OUR BUSINESS STRATEGY AND OUR
SCIENTIFIC AND TECHNICAL PERSONNEL TO DEVELOP OUR GTL TECHNOLOGY AND COULD BE
HARMED BY THE LOSS OF THEIR SERVICES.

  Our success substantially depends on the performance of our executive
officers, including Kenneth L. Agee (our founder, Chief Executive Officer and
Chairman of the Board and inventor with respect to many of our  patents and
patent applications), and Mark A. Agee (our President and Chief Operating
Officer).  Given the technological nature of our business, we also depend on our
scientific and technical personnel.  Except for a $500,000 life

                                       40
<PAGE>

insurance policy held by us on the life Kenneth L. Agee, we do not maintain "key
person" life insurance policies on any of our employees.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers and holders of 10% or more of our common stock to file
with the SEC and the Nasdaq Stock Market initial reports of ownership and
reports of changes in ownership of common stock. Based solely on a review of the
copies of reports furnished to us and representations that no other reports were
required, we believe that all of our directors, executive officers and 10%
stockholders during the fiscal year ended December 31, 1999 complied on a timely
basis with all applicable filing requirements under Section 16(a) of the
Securities Exchange Act., except that Robert B. Rosene, Jr.  failed to file a
Form 5 reporting a transaction that was subsequently reported on Form 4.

ITEM 11.   EXECUTIVE COMPENSATION

     The following tables show the compensation for our chief executive officer
and each of our other four most highly compensated executive officers serving as
such on December 31, 1999.   The information shown includes compensation
received while the named executive officers were employees of our predecessor
company prior to the merger of Syntroleum Corporation and SLH Corporation in
1998.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                             LONG TERM
                                             ANNUAL COMPENSATION(1)        COMPENSATION
                                            ------------------------       ------------
                                                                            SECURITIES          ALL OTHER
             NAME AND                                                       UNDERLYING        COMPENSATION
        PRINCIPAL POSITION           YEAR    SALARY($)     BONUS($)         OPTIONS(2)           ($)(3)
        ------------------           ----    ---------     --------        ------------       ------------
<S>                                  <C>     <C>           <C>             <C>                <C>
Kenneth L. Agee                      1999      229,000           __            35,000                --
Chairman of the Board and Chief      1998      225,000           --            32,247             1,258
 Executive Officer                   1997      140,092       50,000                --                --

Mark A. Agee                         1999      203,000           __            30,000                --
Director, President and Chief        1998      200,000           --            25,798             1,506
 Operating Officer                   1997      128,333       50,000                --                --

Randall M. Thompson                  1999      170,000           --           180,000                --
Vice President and Chief             1998      170,008       50,000            32,247               100
 Financial Officer                   1997      114,583           --            98,677                --

Larry J. Weick                       1999      170,200           --            30,000                --
Vice President of Licensing and      1998      170,000           --            25,798               100
 Business Development                1997      123,162       50,000            25,798                --

Peter V. Snyder, Jr. (4)             1999      150,000           --                --                --
Vice President of Product Sales      1998      150,000           --                --                --
                                     1997      117,000           --                --                --
</TABLE>

(1) The named executive officers did not receive any annual compensation not
    properly categorized as salary or bonus, except for certain perquisites and
    other personal benefits which are not shown because the aggregate amount of
    such compensation, if any, for the named executive officers during the
    fiscal year did not exceed the lesser of $50,000 or 10% of total salary and
    bonus reported for such executive officer.

(2) The options reflect adjustments made for the merger of Syntroleum
    Corporation and SLH Corporation in 1998.

                                       41
<PAGE>

(3)  Reflects auto allowances.

(4)  Mr. Snyder retired from our company on March 6, 2000.

     The following table provides information concerning grants of stock options
made to the named executive officers during 1999.

                     OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                   INDIVIDUAL
                                                     GRANTS
                       ----------------------------------------------------------------
                                                                                             POTENTIAL REALIZABLE
                                                                                                VALUE AT ASSUMED
                          NUMBER OF      %  OF TOTAL                                         ANNUAL RATES OF STOCK
                          SECURITIES       OPTIONS                                           PRICE APPRECIATION FOR
                          UNDERLYING      GRANTED TO          EXERCISE                           OPTION TERM(2)
                           OPTIONS       EMPLOYEES IN      OR BASE PRICE     EXPIRATION      -----------------------
NAME                       GRANTED       FISCAL YEAR        ($/SHARE)(1)        DATE            5%($)        10%($)
----                      ----------   --------------      -------------     ----------         -----        ------
<S>                       <C>          <C>                <C>                <C>          <C>                  <C>
Kenneth L. Agee               35,000               4.64               7.57       2/3/04            42,379        122,861
Mark A. Agee                  30,000               3.98               6.88       2/3/09           129,804        328,948
Peter V. Snyder, Jr.              __                 __                 __           __                __             __
Randall M. Thompson           50,000               6.63               6.88       2/3/09           216,340        548,247
                             130,000              17.24               6.88      9/24/09           562,483      1,425,443
Larry J. Weick                30,000               3.98               6.88       2/3/09           129,804        328,948
</TABLE>
_______________
(1) The exercise price of the options granted is equal to the market value of
    the common stock on the date of grant, except in the case of Kenneth L. Agee
    where the exercise price of the options granted to Mr. Agee is equal to 110%
    of the market value of the common stock on the date of the grant.

(2) Potential realizable value of each grant assumes that the market prices of
    the underlying security appreciates at annualized rates of 5% and 10% over
    the term of the award.  These rates are specified by the Securities and
    Exchange Commission.  Actual gains, if any, on stock option exercises are
    dependent on the future performance of the common stock and overall market
    conditions.  There can be no assurance that the amounts reflected on this
    table will be achieved.

                                       42
<PAGE>

     The following table provides information concerning each stock option
exercised during 1999 by each of the named executive officers and the value of
unexercised options held by such officers at the end of 1999.

                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                            and FY-end Option Values
<TABLE>
<CAPTION>
                                                                                               VALUE OF
                                                           NUMBER OF SECURITIES               UNEXERCISED
                                                          UNDERLYING UNEXERCISED             IN-THE-MONEY
                                                                OPTIONS AT                    OPTIONS AT
                            SHARES        VALUE               FISCAL YEAR-END           FISCAL YEAR-END ($)(2)
                          ACQUIRED ON    REALIZED       ---------------------------   ---------------------------
NAME                      EXERCISE(#)      ($)(1)       EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----                      -----------    --------       -----------   -------------   -----------   -------------
<S>                       <C>            <C>            <C>           <C>             <C>           <C>
Kenneth L. Agee                  --          --            10,749          56,498            --          19,600
Mark A. Agee                     --          --             8,600          47,198            --          37,500
Peter V. Snyder, Jr.             --          --                --              --            --              --
Randall M. Thompson              --          --            55,896         227,295       107,450         286,397
Larry J. Weick                   --          --            34,398          47,198        61,399          37,500
</TABLE>
_______________
(1) Value realized is calculated based on the difference between the option
    exercise price and the closing market price of the common stock on the date
    of exercise, multiplied by the number of shares underlying the options.

(2) Based on the closing price of the common stock of $8.13 on December 31,
    1999, the last trading day of 1999.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Our compensation committee consists of Messrs. Albe, Jacobs, Rosene and
Seward, all of whom are our non-employee directors.  Prior to serving on the
compensation committee, James R. Seward was our President and Chief Executive
Officer.  P. Anthony Jacobs, prior to serving on the compensation committee, was
the Chairman of the Board and a director of our company.

EXECUTIVE EMPLOYMENT AGREEMENTS

     We have entered into employment agreements with each of our executive
officers.  The annual base salaries for Messrs. Kenneth L. Agee, Mark A. Agee,
Randall M. Thompson, Larry J. Weick and Peter V. Snyder, Jr., are currently
approximately $225,000, $200,000, $170,000, $180,000 and $150,000, respectively.
Each employment agreement also entitles the employee to participate in employee
benefit plans that we may from time to time offer to our employees.

     Each agreement provides for an initial term of 12 months and is
automatically renewed for successive terms of 12 months unless sooner
terminated.  Under each agreement, employment may be terminated as follows:

     .  by us upon the employee's death, disability or retirement;
     .  by us upon the dissolution and liquidation of our company (unless our
        business is thereafter continued);
     .  by us for just cause;
     .  by the mutual agreement of the employee and us; and
     .  by either us or the employee upon 60 days' written notice.

                                       43
<PAGE>

If employment is terminated by us for any reason other than as noted in the
first three items above, the employee is entitled to receive his monthly salary
for a period of one or two years, as applicable, following the date of
termination.  In addition, if there is a change in control of our company and:

     .  we terminate the employee's employment for any reason other than the
        employee's death, disability, retirement or just cause during the one-
        year period immediately following the change of control;

     .  the employee terminates his employment for good reason; or
     .  during the 60-day period immediately following the lapse of one year
        after any change of control, we or the employee terminate the
        employee's employment for any reason;

then, in lieu of any further payments for periods subsequent to the date of
termination, we or our successor will pay the employee an amount equal to one or
two times, as applicable, such employee's full base salary in effect on the date
of termination payable in equal monthly installments for a period of 12 or 24
months, as applicable.

     Pursuant to each agreement, the employee is prohibited from disclosing to
third parties, directly or indirectly, our trade secrets, either during or after
the employee's employment with us, other than as required in the performance of
the employee's duties.  The agreement also provides that the employee will not
have or claim any right, title or interest in any trademark, service mark or
trade name owned or used by us.  The employee also agrees to irrevocably assign
to us all of the employee's right, title and interest in and to any and all
inventions and works of authorship made, generated or conceived by the employee
during his or her period of employment with us and which related to our business
or which were not developed on the employee's own time.  Each employee further
agrees that during the period of employment with us and for a period of two
years following the termination of employment, the employee will not engage in
certain activities related to our business, including a covenant not to compete.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The following table sets forth the number of shares of our common stock
beneficially owned as of March 1, 2000, by (1) each director and nominee for
director, (2) each of the executive officers named in the Summary Compensation
Table under "Item 11.  Executive Compensation," (3) all directors and executive
officers as a group and (4) all persons known by us to be the beneficial owners
of at least 5% of the outstanding common stock.

                                                              PERCENTAGE OF
NAME (1)(2)                                SHARES                 CLASS
-----------                                ------             -------------
Kenneth L. Agee(3).......................     4,947,604          18.1%
Mark A. Agee(4)..........................     1,466,853           5.4%
Randall M. Thompson......................       169,541             *
Peter V. Snyder, Jr......................       259,780           1.0%
Larry J. Weick(5)........................       320,877           1.2%
Alvin R. Albe, Jr........................        72,460             *
Frank M. Bumstead........................        81,568             *
P. Anthony Jacobs(6).....................       524,345           1.9%
Robert Rosene, Jr.(7)....................       180,541             *
James R. Seward(8).......................       478,517           1.8%
J. Edward Sheridan.......................        34,986             *
All directors and executive officers
 as a group (16 persons).................     8,797,502          32.2%
Robert A. Day(9).........................     3,239,261          11.9%
William D. Grant(10).....................     2,110,924           7.7%
_______________
*  Represents ownership of less than 1%.

                                       44
<PAGE>

(1)  Except as otherwise noted and subject to applicable community property
     laws, each stockholder has sole voting and investment power with respect to
     the shares beneficially owned.  The business address of each director and
     executive officer is c/o Syntroleum Corporation, 1350 South Boulder, Suite
     1100, Tulsa, Oklahoma 74119-3295.

(2)  Shares of common stock subject to options that are exercisable within 60
     days of the date of this Annual report on Form 10-K are deemed outstanding
     for purposes of computing the percentage ownership of such person, but are
     not deemed outstanding for purposes of computing the percentage ownership
     of any other person.  Accordingly, the following shares of common stock
     subject to stock options are included in the table: Kenneth L. Agee -
     33,165; Mark A. Agee - 27,199; Randall M. Thompson - 109,109; Larry Weick -
     52,997; Alvin R. Albe, Jr. - 8,010; Frank J. Bumstead - 8,010; P. Anthony
     Jacobs - 203,010; Robert Rosene, Jr. - 8,010; James R. Seward - 203,010; J.
     Edward Sheridan - 8,010; and all directors and executive officers as a
     group - 800,960.

(3)  Includes 58,044 shares of common stock owned by Mr. Kenneth L. Agee's
     children and excludes 16,500 shares of common stock owned by the Kenneth L.
     Agree and Cindy A. Agree Charitable Remainder Unitrust of which Kenneth L.
     Agee, his spouse, his children and a religious organization are
     beneficiaries, as to which Mr. Kenneth L. Agee disclaims beneficial
     ownership.

(4)  Includes 58,144 shares of common stock owned by Mr. Mark A. Agee's
     children, as to which Mr. Mark A. Agee disclaims beneficial ownership.

(5)  Includes 4,200 shares of common stock held by Mr. Weick as custodian for
     his daughters, as to which he disclaims beneficial ownership.

(6)  Includes 1,500 shares of common stock held by Mr. Jacobs' wife, as to which
     he disclaims beneficial ownership.

(7)  Includes 10,800 shares of common stock owned by trusts the beneficiaries
     whom are Mr. Rosene's children, as to which Mr. Rosene disclaims beneficial
     ownership.

(8)  Includes 2,250 shares of common stock held in a family trust for which Mr.
     Seward serves as a co-trustee with his mother (and in that capacity shares
     voting and investment powers).

(9)  Based on the Schedule 13D filed by Mr. Robert A. Day on August 17, 1998.
     The business address of Mr. Day is Trust Company of the West, 865 South
     Figueroa, Suite 1800, Los Angeles, California 90017.

(10) Based on the Amendment No. 2 to Schedule 13G filed by Mr. William D. Grant
     on February 9, 2000.  The business address of Mr. Grant is One Ward
     Parkway, Suite 130, Kansas City, Missouri 64112.  Includes options to
     purchase 97,200 shares exercisable within 60 days of the date of this
     Annual Report on Form 10-K.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     In February 1994, Mr. Mark A. Agee, our President and Chief Operating
Officer, purchased 750,000 shares of  our predecessor company's common stock for
a purchase price of $0.50 per share, which was paid by delivery of a promissory
note in the amount of the aggregate purchase price.  In June 1995, Messrs. Mark
A. Agree, Larry J. Weick, our Vice President of Licensing and Business
Development and Peter V. Snyder, Jr., our Vice President of Product Sales,
purchased 250,000, 200,000, and 200,000 shares of our predecessor company's
common stock, respectively, for a purchase price of $0.50 per share, in each
case paid by delivery of promissory notes in the amount of each of the
respective aggregate purchase prices.  In September 1997, our predecessor
company loaned Messrs. Agee, Weick and Snyder $594,856, $117,174 and $117,174,
respectively, the proceeds of which were used to repay their respective
previously outstanding notes.  The currently outstanding notes bear interest at
the rate of 6.1% per year and mature in May 2004.  The largest aggregate amount
outstanding at any time during 1999 pursuant to each of such notes was $676,204,
$133,198 and $133,198 by Messrs. Agee, Weick and Snyder, respectively. As of
March 1, 2000, each of Messrs. Agee, Weick and Snyder owed pursuant to such
promissory notes approximately $678,854, $133,918 and

                                       45
<PAGE>

$133,918, respectively. To secure their respective notes, Messrs. Agee, Weick
and Snyder have each pledged to us shares of our common stock with a market
value equal to two times the indebtedness under their respective notes.

     In February 2000, we loaned Paul F. Schubert, our Vice President of
Research and Development, $29,335.  In September 1999 we loaned Mr. Schubert
$30,000.  These notes are unsecured, bear interest at the rate of 4.62% and
5.98% respectively, and mature on February 25, 2000 and September 14, 2003
respectively.  At December 31, 1999, the balance of principal and interest under
both of these notes totaled $61,175.

     Following the merger of Syntroleum Corporation and SLH Corporation, we
engaged Seward & Company, L.L.C. as a management consultant.  During 1999, we
paid Seward & Company, L.L.C. approximately $78,000 for consulting services
rendered.  We anticipate that we will pay Seward & Company, L.L.C. approximately
$72,000 during 2000 for consulting services.  James R. Seward, one of our
directors, is the sole member of Seward & Company, L.L.C.

                                       46
<PAGE>

                                    PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (A)(1)  FINANCIAL STATEMENTS

 CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999:

<TABLE>
<S>                                                                                              <C>
Report of Independent Public Accountants                                                         F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998..................................   F-2
Consolidated Statements of Operations for the Three Years Ended December 31, 1999.............   F-3
Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 1999...   F-4
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1999.............   F-5
Notes to Consolidated Financial Statements....................................................   F-6
</TABLE>

     (A)(2) FINANCIAL STATEMENT SCHEDULES

     All schedules and other statements for which provision is made in the
applicable regulations of the Securities and Exchange Commission have been
omitted because they are not required under the relevant instructions or are
inapplicable.

     (A)(3)  EXHIBITS

     Exhibits.  The following exhibits are filed as part of this Annual Report
on Form 10-K:

      EXHIBIT
         NO.  DESCRIPTION OF EXHIBIT
         ---  ----------------------

       *2.1  Distribution Agreement dated December 20, 1996 between Seafield
             Capital Corporation and SLH (incorporated by reference to Exhibit
             2(a) to Form 10/A of the Company dated February 3, 1997).

       *2.2  Agreement and Plan of Merger dated as of March 30, 1998 by and
             between SLH and Syntroleum (incorporated by reference to Appendix A
             to the Joint Proxy Statement/Prospectus filed with the Securities
             and Exchange Commission on July 6, 1998).

       *2.3  Blanket Assignment, Bill of Sale, Deed and Assumption Agreement
             dated February 28, 1997 between Seafield Capital Corporation and
             SLH (incorporated by reference to Exhibit 2(b) to the Company's
             Annual Report on Form 10-K for the year ended December 31, 1996).

       *3.1  Certificate of Incorporation of the Company (incorporated by
             reference to Annex B to the Proxy Statement of the Company filed
             with the Securities and Exchange Commission on May 12, 1999).

       *3.2  Certificate of Designations of Series A Junior Participating
             Preferred Stock of the Company dated June 16, 1999 (incorporated by
             reference to Exhibit 4.5 to the Company's Current Report on Form
             8-K filed with the Securities and Exchange Commission on June 17,
             1999).

       *3.3  Bylaws of the Company (incorporated by reference to Annex C to the
             Proxy Statement of the Company filed with the Securities and
             Exchange Commission on May 12, 1999).

       *4.1  Amended and Restated Rights Agreement dated as of January 31, 1997
             and amended and restated on June 17, 1999 (incorporated by
             reference to Exhibit 4.4 to the Company's Current Report on Form 8-
             K filed with the Securities and Exchange Commission on June 17,
             1999).

                                       47
<PAGE>

              The Company is a party to debt instruments under which the total
              amount of securities authorized does not exceed 10% of the total
              assets of the Company and its subsidiaries on a consolidated
              basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of
              Regulation S-K, the Company agrees to furnish a copy of such
              instruments to the Commission upon request.

       *10.1  Form of Master License Agreement of Syntroleum (incorporated by
              reference to Exhibit 10.9 to the Company's Registration Statement
              on Form S-4 (Registration No. 333-50253)).

       *10.2  Form of Indemnification Agreement between Syntroleum and each of
              its directors (incorporated by reference to Exhibit 10.10 to the
              Company's Registration Statement on Form S-4 (Registration No.
              333-50253)).

       *10.3  1993 Stock Option and Incentive Plan of Syntroleum (incorporated
              by reference to Appendix E to the Joint Proxy Statement/Prospectus
              filed by the Company with the Securities and Exchange Commission
              on July 6, 1998).

       *10.4  Stock Option Plan for Outside Directors of Syntroleum
              (incorporated by reference to Appendix F to the Joint Proxy
              Statement/Prospectus filed by the Company with the Securities and
              Exchange Commission on July 6, 1998).

       *10.5  First Amended and Restated Operating Agreement of
              Syntroleum/Sweetwater Company, L.L.C. dated January 12, 1998 by
              and among Syntroleum, SLH and such other persons who may be
              admitted as members of Syntroleum/Sweetwater Company, L.L.C. as
              provided therein (incorporated by reference to Exhibit 10.13 to
              the Company's Registration Statement on Form S-4 (Registration No.
              333-50253)).

       *10.6  Purchase Agreement dated January 12, 1998 by and between
              Syntroleum and Enron Capital & Trade Resources Corp. (incorporated
              by reference to Exhibit 10.14 to the Company's Registration
              Statement on Form S-4 (Registration No. 333-50253))

       *10.7  Amended and Restated Employment Agreement between Syntroleum and
              Kenneth L. Agee (incorporated by reference to Exhibit 10.15 to the
              Company's Registration Statement on Form S-4 (Registration No.
              333-50253)).

       *10.8  Amended and Restated Employment Agreement between Syntroleum and
              Mark A. Agee (incorporated by reference to Exhibit 10.16 to the
              Company's Registration Statement on Form S-4 (Registration No.
              333-50253)).

       *10.9  Amended and Restated Employment Agreement between Syntroleum and
              Charles A. Bayens (incorporated by reference to Exhibit 10.17 to
              the Company's Registration Statement on Form S-4 (Registration No.
              333-50253))

      *10.10  Amended and Restated Employment Agreement between Syntroleum and
              Eric Grimshaw (incorporated by reference to Exhibit 10.18 to the
              Company's Registration Statement on Form S-4 (Registration No.
              333-50253)).

      *10.11  Amended and Restated Employment Agreement between Syntroleum and
              Peter V. Snyder, Jr. (incorporated by reference to Exhibit 10.19
              to the Company's Registration Statement on Form S-4 (Registration
              No. 333-50253)).

      *10.12  Amended and Restated Employment Agreement between Syntroleum and
              Randall M. Thompson (incorporated by reference to Exhibit 10.20
              to the Company's Registration Statement on Form S-4 (Registration
              No. 333-50253)).

                                       48
<PAGE>

       *10.13  Amended and Restated Employment Agreement between Syntroleum and
               Larry Weick (incorporated by reference to Exhibit 10.21 to the
               Company's Registration Statement on Form S-4 (Registration No.
               333-50253)).

       *10.14  Master Preferred License Agreement dated September 25, 1996
               between Syntroleum and Texaco Natural Gas, Inc. (incorporated by
               reference to Exhibit 10.22 to the Company's Registration
               Statement on Form S-4 (Registration No. 333-50253)).

       *10.15  Master Preferred License Agreement dated March 7, 1997 between
               Syntroleum and Marathon Oil Company (incorporated by reference to
               Exhibit 10.23 to the Company's Registration Statement on Form S-4
               (Registration No. 333-50253)).

       *10.16  Master Preferred License Agreement dated April 10, 1997 between
               Syntroleum and Atlantic Richfield Company (incorporated by
               reference to Exhibit 10.24 to the Company's Registration
               Statement on Form S-4 (Registration No. 333-50253)).

       *10.17  Volume License Agreement dated August 1, 1997 between Syntroleum
               and YPF International, Ltd. (incorporated by reference to Exhibit
               10.25 to the Company's Registration Statement on Form S-4
               (Registration No. 333-50253)).

       *10.18  Volume License Agreement dated February 4, 1998 between
               Syntroleum and Kerr-McGee Corporation (incorporated by reference
               to Exhibit 10.26 to the Company's Registration Statement on Form
               S-4 (Registration No. 333-50253)).

       *10.19  Volume License Agreement dated January 12, 1998 between
               Syntroleum and Enron Capital & Trade Resources Corp.
               (incorporated by reference to Exhibit 10.27 to the Company's
               Registration Statement on Form S-4 (Registration No. 333-50253)).

       *10.20  Site License Agreement dated January 12, 1998 between Syntroleum
               and Syntroleum/Sweetwater Company, L.L.C. (incorporated by
               reference to Exhibit 10.28 to the Company's Registration
               Statement on Form S-4 (Registration No. 333-50253)).

       *10.21  Facilities Sharing and Interim Services Agreement dated February
               28, 1996 between Seafield Capital Corporation and SLH
               (incorporated by reference to Exhibit 10(a) to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1996).

       *10.22  Lab Holdings, Inc. Facilities Sharing and Interim Services
               Agreement dated June 1, 1998 between SLH and Syntroleum
               (incorporated by reference to Exhibit 10.29 to the Company's
               Registration Statement on Form S-4 (Registration No. 333-50253)).

       *10.23  Tax Sharing Agreement dated February 28, 1996 between Seafield
               Capital Corporation and SLH (incorporated by reference to Exhibit
               10(b) to the Company's Annual Report on Form 10-K for the year
               ended December 31, 1996).

       *10.24  SLH Corporation 1997 Stock Incentive Plan (incorporated by
               reference to Exhibit 10(c) to Amendment No. 1 to the Company's
               Annual Report on Form 10/A of the Company for the year ended
               December 31, 1997).

       *10.25  Form of Employment Agreements with certain executive officers of
               SLH (incorporated by reference to Exhibit B to Exhibit 2(a) to
               Form 10/A of the Company dated February 3, 1997).

       *10.26  Form of Option Agreement with certain executive officers under
               the SLH Corporation 1997 Stock Incentive Plan (incorporated by
               reference to Exhibit 10(e) to Amendment No. 1 to the Company's
               Annual Report on Form 10K/A for the year ended December 31,
               1997).

                                       49
<PAGE>

       *10.27  Form of Option Agreement with directors under the SLH Corporation
               1997 Stock Incentive Plan (incorporated by reference to Exhibit
               10(f) to Amendment No. 1 to the Company's Annual Report on Form
               10K/A for the year ended December 31, 1997).

       *10.28  Form of Consent to Adjustment to Option Agreements called for by
               Section 2.1(c) of the Agreement and Plan of Merger dated as of
               March 30, 1998 by and between SLH and Syntroleum (incorporated by
               reference to Exhibit 10.8 to the Company's Registration Statement
               on Form S-4 (Registration No. 333-50253)).

       *10.29  Certified copy of resolutions approving a certain bonus
               arrangement for James R. Seward (incorporated by reference to
               Exhibit 10(g) to Amendment No. 1 to the Company's Annual Report
               on Form 10K/A for the year ended December 31, 1997).

       *10.30  Employment Agreement between Syntroleum and Paul F. Schubert
               dated May 15, 1999 (incorporated by reference to Exhibit 10.30 of
               the Company's Annual Report on Form 10-K for the year ended
               December 31, 1998).

       *10.31  Employment Agreement between Syntroleum and Carla S. Covey dated
               March 22, 1999 (incorporated by reference to Exhibit 10.31 of the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1998).

       *10.32  Employment Agreement between Syntroleum and Michael L. Stewart
               dated March 22, 1999 (incorporated by reference to Exhibit 10.32
               of the Company's Annual Report on Form 10-K for the year ended
               December 31, 1998).

        21     Subsidiaries

               Syntroleum International Corporation (a Delaware corporation)
               Syntroleum/Sweetwater Company, L.L.C. (a Delaware limited
                 liability company)
               Syntroleum Australia Credit Corporation (a Delaware corporation)
               Syntroleum Australia Licensing Corporation (a Delaware
                 corporation)
               Syntroleum International Holdings, Ltd. (a Cayman Islands
                 exempted company)
               Syntroleum Sweetwater Holdings, Ltd. (a Cayman Islands exempted
                 company)
               Syntroleum Sweetwater Operations, Ltd. (a Cayman Islands exempted
                 company)
               Scout Development Corporation (a Missouri Corporation)
               Scout Development Corporation of New Mexico (a Missouri
                 Corporation)
               BMA Resources, Inc. (a Missouri Corporation)
               529 Partners, Ltd. (a Texas limited partnership)
               Lot Development, Inc. (a Texas Corporation)
               Carousel Apartment Homes, Inc. (a Georgia Corporation)

        23.1   Consent of Arthur Andersen LLP.

        23.2   Consent of Petroconsultants, Inc.

       +27     Financial Data Schedule and Restated Financial Data
               Schedules.
____________________
*  Incorporated by reference as indicated.

+  Previously filed.

     (B) REPORTS ON FORM 8-K

     No Current Reports on Form 8-K were filed during the last quarter of the
period covered by this Annual Report on Form 10-K.

                                       50
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                    SYNTROLEUM CORPORATION


Dated:  April 24, 2000              By:  /s/ Eric Grimshaw
                                       -------------------------------
                                       Eric Grimshaw
                                       Vice President, General Counsel
                                        and Secretary



                                       51
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of Syntroleum Corporation:

We have audited the accompanying consolidated balance sheets of Syntroleum
Corporation (a Delaware corporation) as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Syntroleum Corporation as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for the three years then ended, in conformity with accounting principles
generally accepted in the United States.



                                          ARTHUR ANDERSEN LLP

Tulsa, Oklahoma
January 18, 2000

                                      F-1
<PAGE>

                    SYNTROLEUM CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                           ---------------------------
                                                                              1999              1998
                                                                           ---------         ---------
                           ASSETS
<S>                                                                        <C>               <C>
CURRENT ASSETS:
     Cash and cash equivalents.........................................     $ 20,316          $ 34,981
     Short-term investments............................................        3,565             3,135
     Accounts and notes receivable.....................................        1,193               860
     Other current assets..............................................          365               498
                                                                           ---------         ---------

          Total current assets.........................................       25,439            39,474

REAL ESTATE HELD FOR SALE..............................................        2,665             3,122
REAL ESTATE UNDER DEVELOPMENT..........................................        3,349             2,722
INVESTMENTS............................................................        1,104             1,180
PROPERTY AND EQUIPMENT, net............................................        6,442             3,210
OTHER ASSETS, net......................................................          592               692
                                                                           ---------         ---------
                                                                            $ 39,591          $ 50,400
                                                                           =========         =========

                  LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable..................................................     $  2,188          $  1,365
     Accrued liabilities...............................................          453               633
                                                                           ---------         ---------
          Total current liabilities....................................        2,641             1,998

OTHER NONCURRENT LIABILITIES...........................................           94               103
MINORITY INTERESTS.....................................................        1,024             1,337
DEFERRED REVENUE.......................................................       11,000            11,000
                                                                           ---------         ---------
          Total liabilities............................................       14,759            14,438
                                                                           ---------         ---------
STOCKHOLDERS' EQUITY:
     Preferred stock, $0.01 par value, 5,000,000 shares authorized,
         no shares issued..............................................            -                 -
     Common stock, $0.01 par value, 150,000,000 shares authorized,
         34,668,748 and 34,574,957 shares issued in 1999 and 1998,
         respectively, including shares in treasury....................          347               346
     Additional paid-in capital........................................       68,935            62,908
     Notes receivable from sale of common stock........................         (699)             (699)
     Accumulated deficit...............................................      (43,674)          (26,516)
                                                                           ---------         ---------
                                                                              24,909            36,039
 Less-treasury stock, 7,674,905 shares in
        1999 and 1998, respectively....................................          (77)              (77)
                                                                           ---------         ---------
          Total stockholders' equity...................................       24,832            35,962
                                                                           ---------         ---------
                                                                            $ 39,591          $ 50,400
                                                                           =========         =========
</TABLE>

  The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      F-2
<PAGE>

                    SYNTROLEUM CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                   FOR THE YEAR ENDED DECEMBER 31,
                                                          ------------------------------------------------
                                                              1999             1998               1997
                                                          ------------      ------------      ------------
<S>                                                       <C>               <C>               <C>
REVENUES:
     Joint development revenue.......................      $     1,986       $     1,779       $     2,006
     Real estate sales...............................            1,219             2,416                 -
     Other...........................................              650               284                 1
                                                           -----------       -----------       -----------
          Total revenues.............................            3,855             4,479             2,007
                                                           -----------       -----------       -----------
COSTS AND EXPENSES:
     Cost of real estate sales.......................              824             2,387                 -
     Real estate operating expense...................              781               267                 -
     Pilot plant, engineering and research and
        development .................................           10,863             5,693             3,554
     Catalyst services...............................                -                 -             4,800
     General and administrative......................           10,409             9,151             3,618
                                                           -----------       -----------       -----------
INCOME (LOSS) FROM OPERATIONS........................          (19,022)          (13,019)           (9,965)

INVESTMENT AND INTEREST INCOME.......................            1,681             1,159               372
INTEREST EXPENSE.....................................                -                 -               (22)
OTHER INCOME.........................................              154               118                 -
                                                           -----------       -----------       -----------
INCOME (LOSS) BEFORE MINORITY INTERESTS..............          (17,187)          (11,742)           (9,615)

MINORITY INTERESTS...................................               29                31                 3
                                                           -----------       -----------       -----------
NET INCOME (LOSS)....................................      $   (17,158)      $   (11,711)      $    (9,612)
                                                           ===========       ===========       ===========
NET INCOME (LOSS) PER SHARE -
    Basic and diluted................................      $     (0.64)      $     (0.46)      $     (0.40)
                                                           ===========       ===========       ===========
WEIGHTED AVERAGE COMMON SHARES
    OUTSTANDING......................................       26,905,853        25,466,737        23,953,347
                                                           ===========       ===========       ===========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-3
<PAGE>

                    SYNTROLEUM CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>

                                             COMMON STOCK                     NOTES
                                       ---------------------  ADDITIONAL    RECEIVABLE                                TOTAL
                                         NUMBER                PAID-IN     FROM SALE OF   ACCUMULATED    TREASURY  STOCKHOLDERS'
                                       OF SHARES      AMOUNT   CAPITAL     COMMON STOCK     DEFICIT        STOCK     EQUITY
                                       --------------------------------------------------------------------------------------
<S>                                     <C>          <C>       <C>        <C>             <C>             <C>       <C>
BALANCE, January 1, 1997...............   23,619       $237    $ 5,921           $(700)     $ (5,193)     $    -      $   265
     CONVERSION OF DEBENTURE...........      120          1      1,116               -             -           -        1,117
     SALE AND ISSUANCE OF STOCK........      759          7      6,957               -             -           -        6,964
     STOCK ISSUED FOR SERVICES.........        4          -         34               -             -           -           34
     PURCHASE OF 1,934 SHARES..........
       OF TREASURY STOCK...............        -          -          -               -             -         (11)         (11)
     PAYMENT ON NOTES RECEIVABLE.......        -          -          -               1             -           -            1
     NET INCOME (LOSS).................        -          -          -               -        (9,612)          -       (9,612)
                                          ------       ----    -------           -----      --------      ------      -------
BALANCE, December 31, 1997.............   24,502        245     14,028            (699)      (14,805)        (11)      (1,242)
     RETIREMENT OF TREASURY STOCK......       (2)         -        (11)              -             -          11            -
     MERGER WITH SLH CORPORATION.......   10,075        101     48,891               -             -         (77)      48,915
     NET INCOME (LOSS).................        -          -          -               -       (11,711)          -      (11,711)
                                          ------       ----    -------           -----      --------      ------      -------
BALANCE, December 31, 1998.............   34,575        346     62,908            (699)      (26,516)        (77)      35,962
     SETTLEMENT OF MERGER CONTINGENCY..        -          -      5,997               -             -           -        5,997
     STOCK OPTIONS EXERCISED...........       94          1         30               -             -           -           31
     NET INCOME (LOSS).................        -          -          -               -       (17,158)          -      (17,158)
                                          ------       ----    -------           -----      --------      ------      -------
BALANCE, December 31, 1999.............   34,669       $347    $68,935           $(699)     $(43,674)     $  (77)     $24,832
                                          ======       ====    =======           =====      ========      ======      =======
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-4
<PAGE>

                    SYNTROLEUM CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                       FOR THE YEAR ENDED DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                     1999              1998           1997
                                                                             -----------------------------------------------
<S>                                                                             <C>                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss).........................................................        $(17,158)       $(11,711)       $(9,612)
   Adjustments to reconcile net income (loss)................................
      to net cash provided by (used in) operations:
      Stock issued for catalyst services.....................................               -               -          4,800
      Minority interest in income (loss) of subsidiary.......................             (29)            (31)            (3)
      Distribution of minority interest......................................            (284)              -              -
      Depreciation and amortization..........................................             676             306             76
      Write-down of property and equipment...................................               -               -            414
      Equity in earnings of affiliates.......................................            (141)             (8)             -
      Changes in real estate held for sale and under development.............            (170)          1,545              -
      Other..................................................................               -               -             56
      Changes in assets and liabilities--
           Accounts and notes receivable.....................................            (333)            466           (429)
           Other assets......................................................             206            (362)          (114)
           Accounts payable..................................................             823             348            485
           Accrued liabilities and other.....................................            (189)         (2,685)            63
           Deferred revenue..................................................               -               -         11,000
                                                                                     --------        --------        -------
              Net cash provided by (used in) operating activities............         (16,599)        (12,132)         6,736
                                                                                     --------        --------        -------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment........................................          (3,881)         (2,173)        (1,114)
   Distribution from venture capital investment funds........................             217               -              -
   Maturity of SLH investments held to maturity..............................               -          37,415              -
   Purchase of short-term investments........................................            (430)              -              -
                                                                                     --------        --------        -------
             Net cash provided by (used in) investing activities.............          (4,094)         35,242         (1,114)
                                                                                     --------        --------        -------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Settlement of merger contingency..........................................           5,997               -              -
   Cash received from merger.................................................               -             713              -
   Minority interest investment in subsidiary................................               -           1,000          1,500
   Proceeds from sale of common stock........................................              31               -          2,164
   Other.....................................................................               -               -            (10)
                                                                                     --------        --------        -------
            Net cash provided by financing activities........................           6,028           1,713          3,654
                                                                                     --------        --------        -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.........................         (14,665)         24,823          9,276
CASH AND CASH EQUIVALENTS, beginning of period...............................          34,981          10,158            882
                                                                                     --------        --------        -------
CASH AND CASH EQUIVALENTS, end of period.....................................        $ 20,316        $ 34,981        $10,158
                                                                                     ========        ========        =======
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-5
<PAGE>

                    SYNTROLEUM CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF REPORTING

     The primary operations of Syntroleum Corporation (together with its
predecessors and subsidiaries, the "Company" or "Syntroleum") to date have
consisted of the research and development of a proprietary process (the
"Syntroleum Process") designed to convert natural gas into synthetic liquid
hydrocarbons.  Synthetic liquid hydrocarbons produced by the Syntroleum Process
can be further processed into high quality liquid fuels such as diesel, kerosene
and naphtha, or high quality specialty products such as synthetic lubricants,
synthetic drilling fluid, waxes, liquid normal paraffins and certain chemical
feedstocks.

     The Company's current focus is to further demonstrate the commercial
viability of its proprietary technology.  The Company has sold license
agreements to six oil companies and, in connection with its joint development
efforts with certain of its licensees, operates a pilot plant in Tulsa, Oklahoma
that has demonstrated certain elements and variations of the Syntroleum Process
and is participating in the operation of a pilot plant located at ARCO's
refinery in Cherry Point, Washington.  The Company is developing a commercial-
scale specialty products plant to be located in  Western Australia.

     Effective June 17, 1999, the Company completed its reincorporation as a
Delaware corporation.  In the reincorporation, the Company merged (the
"Reincorporation Merger") with the Company's predecessor, Syntroleum
Corporation, a Kansas corporation ("Syntroleum-Kansas"), with the Company being
the surviving corporation and the successor to Syntroleum-Kansas.  The
Reincorporation Merger  has been accounted for as a combination of entities
under common control using the historical cost basis of the combining companies
as if it were a pooling of interests.

     On August 7, 1998, the Company's predecessor, Syntroleum Corporation, an
Oklahoma corporation, merged with SLH Corporation, a Kansas corporation ("SLH").
This merger was accounted for as a reverse acquisition.  The results of
operations of SLH have been included in the results of Syntroleum since
completion of the merger with SLH.  Unaudited pro forma results of operations
for the years ended December 31, 1998 and 1997, as though the merger with SLH
had occurred at January 1, 1997, are presented below.  The pro forma results of
operations are not necessarily indicative of the actual operating results had
the transaction been consummated at the beginning of the period presented below
or in future operating results of the combined operations:

                                                    December 31,
                                        ---------------------------------
                                            1998                1997
                                        ------------        -------------
                                     (in thousands, except per share amounts)

Revenues.........................         $12,028              $19,350
Net income (loss)................          (7,771)                (519)
Basic and diluted
  earnings (loss) per share......         $ (0.31)             $ (0.02)

OPERATIONS

     The construction of specialty product GTL plants will require significant
capital expenditures.  The Company's other efforts to commercialize the
Syntroleum Process will also involve significant expenditures.  The Company
intends to obtain additional funding through joint ventures, partnerships,
license agreements and other strategic alliances, as well as various other
financing arrangements.  The Company may also seek debt or equity financing in
the capital markets.  In the event such capital resources are not available, the
Company's GTL plant development and other activities may be curtailed.
Management estimates that construction and disposal costs to complete real
estate projects in development will be approximately $1.5 million.

                                      F-6
<PAGE>

CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries.  These subsidiaries include BMA Resources,
Inc., Scout Development Corporation, Scout Development Corporation of New
Mexico, Lot Development, Inc., Carousel Apartment Homes, Inc., 529 Partners,
Ltd.  Syntroleum/Sweetwater Company, LLC, Syntroleum International Corporation,
Syntroleum International Holdings Ltd., Syntroleum Sweetwater Holdings Ltd., and
Syntroleum Sweetwater Operations Ltd.  All subsidiaries except
Syntroleum/Sweetwater Company, LLC, Syntroleum International Corporation,
Syntroleum International Holdings Ltd., Syntroleum Sweetwater Holdings Ltd., and
Syntroleum Sweetwater Operations Ltd. were acquired through the merger with SLH.
All significant inter-company accounts and transactions have been eliminated.
Investments in affiliated companies of 20% to 50% in which Syntroleum does not
have a controlling interest are accounted for by the equity method.  Investments
in affiliated companies of 1% to 20% are accounted for by the cost method.

REVENUE RECOGNITION

     The Company recognizes revenues from joint development activities as the
related expenses are incurred because the contracts provide that revenue is
earned as the expenses under the contract are incurred. Substantially all of the
joint development revenues for the years ended December 31, 1999, 1998 and 1997
have been from joint development activities with two major oil companies (see
Note 12).  All joint development activities during the years ended December 31,
1999, 1998 and 1997 were pursuant to joint research and development agreements
where the Company expenses its research and development costs as incurred.

     The Company recognizes revenue on the sale of license agreements by
recording 50% of the license fee deposit as revenue when:  (1) the license
agreement has been formally executed, (2) the license fee deposit has been paid
in cash and (3) the Company has delivered to the licensee the process design
package for the licensee's initial licensed plant.  Since 50% of the license fee
deposit is subject to the Company's indemnity obligation with respect to the
performance guarantee on the related plant, the remaining license fee deposit is
recorded as deferred revenue in the consolidated balance sheets and will be
recognized as revenue in the consolidated statements of operations after the
related plant has passed certain performance tests.  Option fees, which provide
licensees the right to include additional geographic areas in its license
agreement territory, are deferred until the earlier of the option being
exercised or lapsing.  As of December 31, 1999, the Company has deferred all
amounts received related to license and option agreements.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist of cash and highly liquid investments
with an original maturity of three months or less.

REAL ESTATE

    Real estate sales are recognized when consummated.  Profit is recognized
using the full accrual method when the down payment, continuing investment, and
transfer of risk criteria have been satisfied.  Payments received from buyers
prior to recording of a sale are recorded as deposits.  Real estate rentals and
other revenues are accrued in the period when earned.

  Real estate is valued at lower of cost, including development costs, or
market.  Development costs that are incurred during the period of development or
construction are capitalized.  Capitalized costs are charged to expenses as
properties are sold.

  During 1999, the Company sold its remaining Kansas City Tracts and an easement
in the Corinth Tract  for a total of  $531,000.  The Company also sold 38 lots
in Houston for $688,000.  These assets were acquired in the merger with SLH.

SHORT-TERM INVESTMENTS

  Short-term investments consist of U.S. Treasury securities and debt
obligations of U.S. Government agencies with original maturities between three
and twelve months.  Management determines the appropriate classification of
these securities at the time of purchase and re-evaluates such designation as of
each subsequent balance sheet date.  At December 31, 1999 and 1998, the
Company's investment portfolio consisted of debt

                                      F-7
<PAGE>

securities classified as held-to-maturity and trading securities and are
presented at amortized cost and fair value, respectively.

RESEARCH AND DEVELOPMENT

  The Company incurs significant costs for research, development and engineering
programs.  Such costs are charged to expense when incurred.

INCOME TAXES

  Income taxes are accounted for using the asset and liability method of
accounting for income taxes.  Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and of net operating loss carry-forwards.
Deferred tax assets and liabilities are measured using the enacted tax rates and
laws in effect or that will be in effect when the differences are expected to
reverse.  The Company records a valuation allowance if it is more likely than
not that some portion or all of the deferred tax asset will not be realized.

IMPAIRMENT OF LONG-LIVED ASSETS

  The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Company makes assessments of impairment on a project-by-project basis.  The
impairment provision is based on the excess of carrying value over fair value.
Fair value is defined as the present value of the estimated future net revenues
of a project.  No impairment provisions were required in 1999, 1998 or 1997.

SEGMENTS

  The Company has certain real estate assets that it acquired in the merger with
SLH.  Management's intent is to liquidate these assets and it does not intend to
acquire additional real estate holdings.  The Company's primary operation is to
further demonstrate the commercial viability of its proprietary technology.
Accordingly, management views the Company as having only one segment.

EARNINGS PER SHARE

     The Company applies the provisions of  SFAS No. 128, "Earnings Per Share."
Basic and diluted earnings (losses) per common share were computed by dividing
net income (loss) by the weighted average number of shares of common stock
outstanding during the reporting period. Options to purchase 2,721,925 shares of
common stock at an average exercise price of $7.44 were not included in the
computation of diluted earnings per share as inclusion of such options would be
anti-dilutive.

RECLASSIFICATIONS

     Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform with the 1999 presentation.  Such reclassifications did
not impact net income (loss).

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."  SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value.  SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.  Special

                                      F-8
<PAGE>

accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement. Companies
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. However, companies may
elect to adopt SFAS No. 133 prior to that date. SFAS No. 133 cannot be applied
retroactively and must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1997. The company is currently in
the process of determining timing and the effect of adopting SFAS No. 133.

2.  INVESTMENTS:

     At December 31, 1999, the Company has a 4.34% interest in a hotel
partnership in Tulsa, Oklahoma having a carrying value of $100,000.  The Company
also owns a 3.61% investment in a privately held venture capital limited
partnership having a carrying value of  $476,000 and an investment in Norian
Corporation, a developer of a proprietary bone substitute technology, which has
a carrying value of $565,000 at December 31, 1999.

     The Company has a 49.9% interest in a partnership that owns a shopping
center having a carrying value of ($37,000).  The Company has guaranteed debt
(with an unpaid balance of  $5,830,000 at December 31, 1999) of the shopping
center partnership. Because the Company has guaranteed this debt, the investment
is carried below zero to reflect the Company's pro rata share of the
partnership's deficit.  The Company's obligation is secured by a  $3.2 million
U.S. Agency note.  Summary financial information of the shopping center
partnership is shown below:

                                               DECEMBER 31,
                                      -----------------------------
                                          1999              1998
                                      -----------       -----------
                                              (in thousands)
Results of Operations
     Revenue.....................          $  830          $  798
     Gross profit................             466             446
     Net earnings (loss).........             283              71

                                                  DECEMBER 31,
                                       ------------------------------
                                          1999                1998
                                       ----------          -----------
                                               (in thousands)
Financial Position
    Current assets...............          $1,303          $1,193
    Real estate..................           4,357           4,343
    Other assets.................             210             189
                                           ------          ------
                                           $5,870          $5,725
                                           ======          ======

    Short-term borrowings........          $  195          $  175
    Current liabilities                       114              77
    Long-term borrowings.........           5,635           5,830
                                           ------          ------
                                            5,944           6,082
    Partnership deficit..........             (74)           (357)
                                           ------          ------
                                           $5,870          $5,725
                                           ======          ======

3.  PROPERTY AND EQUIPMENT:

     Property and equipment is stated at cost.  When assets are sold or retired,
the cost and accumulated depreciation related to those assets are removed from
the accounts and any gain or loss is credited or charged to income.
Depreciation of property and equipment is computed on the straight-line method
over estimated useful lives

                                      F-9
<PAGE>

of three to seven years. Property and equipment consists of the following:

                                                    DECEMBER 31,
                                        ------------------------------------
                                             1999                  1998
                                        --------------     -----------------
                                                   (in thousands)

Furniture and office equipment...           $2,549                $1,919
Property.........................              840                   807
Land.............................              118                   118
Leasehold improvements...........              341                   288
Construction in progress.........            3,688                   523
                                            ------                ------
                                             7,536                 3,655
Less accumulated depreciation.....           1,094                   445
                                            ------                ------
                                            $6,442                $3,210
                                            ======                ======

4.  NOTES RECEIVABLE FROM SALE OF COMMON STOCK:

     Notes receivable from the sale of common stock consists of notes receivable
from officers for the purchase of common stock in the Company.  The notes bear
interest at the rate of 6.10%, mature in May 2004 and are secured by stock
pledge agreements.

5.  ACCRUED LIABILITIES:
    The components of accrued liabilities are as follows:

                                                      DECEMBER 31,
                                               --------------------------
                                                 1999              1998
                                               -------            ------
                                                     (in thousands)
    Accrued warranty.....................        $ 135            $ 135
    Accrued vacation.....................          167              161
    Accrued rent.........................           95              120
    Other................................           56              217
                                               -------           ------
                                                 $ 453            $ 633
                                               =======           ======

6.  INCOME TAXES:

     The Company has federal income tax net operating loss (NOL) carry-forwards
of approximately $58 million at December 31, 1999. In connection with the merger
with SLH, the Company obtained NOLs of approximately $17.6 million and capital
loss carry-forwards of approximately $4.6 million. These carry-forwards
generally begin to expire in 2004.

     The Company recognizes the tax benefit of NOL carry-forwards as assets to
the extent that management concludes that the realization of the NOL carry-
forwards is "more likely than not." Realization of the future tax benefits is
dependent on the Company's ability to generate taxable income within the carry-
forward period.  The Company's management has concluded that, based solely on
the criteria of SFAS No. 109 "Accounting for Income Taxes" and the historical
results of the Company, a valuation allowance should be provided for the entire
balance of the net deferred asset.

                                     F-10
<PAGE>

     The Company has not recorded an income tax provision or benefit for the
years ended December 31, 1999, 1998 or 1997, respectively.  This differs from
the amount of income tax benefit that would result from applying the 34%
statutory federal income tax rate to the pretax loss due to the increase in the
valuation allowance in each period.  The valuation allowance increased by
approximately $9,690,000, $13,177,000 and $3,609,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.  Deferred taxes arise primarily
from NOL carry-forwards and the recognition of revenues and expenses in
different periods for financial and tax purposes.  Deferred taxes consist of the
following:

                                                    DECEMBER 31,
                                              ----------------------
                                               1999            1998
                                              ------          ------
                                                 (in thousands)
Deferred tax assets:
    NOL carry-forwards...................     $ 19,304      $ 14,895
    Capital loss carry-forwards..........        1,614         1,759
    Research and development credit......          973             -
    Deferred revenue.....................        1,710         1,710
    Other................................        3,463           682
                                              --------      --------
                                                27,064        19,046
Deferred tax liabilities:
    Depreciation.........................         (288)         (268)
    Other................................         (330)          (17)
                                              --------      --------
    Net deferred tax asset before
     valuation allowance.................       26,446        18,761
    Valuation allowance..................      (26,446)      (18,761)
                                              --------      --------
                Net deferred tax.........     $      -      $      -
                                              ========      ========

7.  SUPPLEMENTAL CASH FLOW INFORMATION:

     During 1997, a convertible debenture was converted into 120,036 shares of
the Company's common stock  which was accounted for as a non-cash financing
activity.  Also during 1997, the Company issued 515,960 shares of its common
stock to a catalyst manufacturer which was accounted for as a non-cash operating
activity except for the extent of cash received.

     During 1998, the merger with SLH was accounted for as a non-cash investing
activity.   In conjunction with the merger with SLH, the following assets were
acquired and liabilities assumed:

Cash.............................................        $   713
Short-term investments...........................         40,550
Real estate held for sale
  and under development..........................          7,387
Other assets.....................................          2,719
Liabilities assumed..............................         (2,454)
                                                         -------
 Equity issued...................................        $48,915
                                                         =======

                                     F-11
<PAGE>

8.  COMMITMENTS:

  The Company has entered into various, non-cancelable leases for office space,
equipment, land and buildings that expire over the next several years.  Rental
expense was $1,246,000 in 1999, $614,000 in 1998 and $168,000 in 1997.  Total
future minimum lease payments under these agreements as of December 31, 1999 are
as follows:

 YEAR                                  AMOUNT
------                                 ------
                                    (in thousands)
2000                                    $1,033
2001                                       901
2002                                       855
2003                                       361
2004                                       331
Thereafter                               6,169

     The Company has entered into employment agreements which provide severance
benefits to several key employees. Commitments under these agreements totaled
approximately $3,132,000 at December 31, 1999.

9.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The estimated fair values of the Company's financial instruments at
December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                          1999                              1998
                                             -------------------------------    ----------------------------
                                                CARRYING         ESTIMATED        CARRYING       ESTIMATED
                                                 AMOUNT         FAIR VALUE         AMOUNT        AIR VALUE
                                             -------------------------------     ----------------------------
<S>                                           <C>               <C>              <C>            <C>
                                                                     (in thousands)
Cash and cash equivalents................         $20,316          $20,316          $34,981        $34,981
Short-term investments...................           3,565            3,565            3,135          3,135
Accounts and notes receivable............           1,193            1,193              860            860
Investments..............................           1,104            1,104            1,180          1,180
Notes receivable from sale of
     common stock........................             699              699              699            699
</TABLE>

     The fair value of the short-term investments and accounts receivable
approximates cost because of the short-term maturity of these financial
instruments.  The estimated fair value of the notes receivable were calculated
by discounting scheduled cash flows using estimated market discount rates. The
investments were acquired in the merger and, at the time of the merger, were
valued at market.  No significant changes in the estimated fair value have
occurred since the merger.

10.  CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

     At December 31, 1999 and 1998, all marketable debt securities were
classified as held-to-maturity and trading securities.  Held-to-maturity
investments were carried at amortized cost and trading securities were carried
at fair value.  During 1999, 1998 and 1997, no securities classified as held-to-
maturity or trading securities were transferred out of held-to-maturity or
trading securities.    Investments consisted of the following at December 31:

                                     F-12
<PAGE>

<TABLE>
<CAPTION>
                                   AMORTIZED     MARKET       AMOUNT ON       UNREALIZED        UNREALIZED
                                     COST         VALUE     BALANCE SHEET    HOLDING GAINS     HOLDING LOSSES
                                   ----------    ------     -------------    -------------     --------------
<S>                                <C>           <C>        <C>              <C>                <C>
1999
TRADING SECURITIES
Equity Securities............       $   663       $   415     $   415            $     -              $248

HELD-TO-MATURITY
U.S. Government Securities...       $16,243       $16,243     $16,243            $     -              $  -

1998
HELD-TO-MATURITY
U.S. Government Securities...       $31,454       $31,454     $31,454            $     -              $  -
</TABLE>

11.  STOCK OPTIONS:

    The Company maintains stock option and incentive plans for employees and
directors and has reserved  4,623,184 shares of common stock for issuance under
the employee plans including one percent of the outstanding shares of common
stock of the Company as of January 1 of each year (269,000 as of December 31,
1999) for the director plan.  Under the terms of the plans, incentive stock
options may be issued with an exercise price of not less than 100% of fair
market value at the date of grant.  All other options may be issued at an
exercise price of not less than 75% of the fair market value at the date of
grant.  Options granted vest at a rate determined by the Compensation Committee
of the Company's Board of Directors and are exercisable for varying periods, not
to exceed ten years.  At December 31, 1999,  1,186,232 shares were available for
granting future options.

    The number and exercise price of stock options granted are as follows:

<TABLE>
<CAPTION>
                                                                        SHARES        WEIGHTED
                                                                         UNDER     AVERAGE PRICE
                                                                        OPTION        PER SHARE
                                                                       --------    -------------
<S>                                                                   <C>          <C>
OUTSTANDING AT JANUARY 1, 1997.................................          467,589       $ 0.50
     Granted at market price...................................          535,954         9.13
     Exercised.................................................          (27,733)        5.75
     Expired...................................................         (274,104)        0.33
                                                                       ---------       ------
OUTSTANDING AT DECEMBER 31, 1997...............................          701,706         6.95
    SLH options from merger....................................          974,400         3.19
    Fractional share payout....................................              (19)        6.94
    Granted at market price....................................          445,430        16.70
    Granted at price exceeding market..........................           32,247        20.28
    Expired....................................................          (21,925)       10.42
                                                                       ---------       ------
OUTSTANDING AT DECEMBER 31, 1998...............................        2,131,839         7.44
    Granted at market price....................................          736,351         6.89
    Granted at price exceeding market..........................           35,000         7.57
    Exercised..................................................         (101,694)        1.06
    Expired....................................................          (79,571)       10.48
                                                                       ---------       ------
OUTSTANDING AT DECEMBER 31, 1999...............................        2,721,925       $ 7.44
                                                                       =========       ======
</TABLE>

                                     F-13
<PAGE>

The following is a summary of stock options outstanding as of December 31, 1999:

<TABLE>
<CAPTION>
                             OPTIONS OUTSTANDING                                     OPTIONS EXERCISABLE
-----------------------------------------------------------------------------   -------------------------------
                                                              WEIGHTED                            WEIGHTED
                                          WEIGHTED             AVERAGE                             AVERAGE
     RANGE OF             OPTIONS          AVERAGE            REMAINING           OPTIONS       EXERCISE PRICE
  EXERCISE PRICE        OUTSTANDING     EXERCISE PRICE      CONTRACTUAL LIFE     EXERCISABLE      PER SHARE
-----------------  -----------------------------------     ------------------   -------------------------------
<S>                   <C>              <C>                   <C>                  <C>            <C>
$ 0.39  -  $ 0.39          103,192         $   0.39                  0.45          103,192         $   0.39
$ 3.19  -  $ 3.19          950,100             3.19                  3.60          560,100             3.19
$ 5.75  -  $ 6.88          771,575             6.66                  8.85          101,043             5.75
$ 7.25  -  $ 9.38          420,957             8.91                  7.48          225,518             9.30
$15.44  -  $20.88          476,101            17.39                  7.93          179,729            17.47
                        ----------         --------                             ----------         --------
                         2,721,925         $   7.44                              1,169,582         $   6.54
                        ==========         ========                             ==========         ========
</TABLE>

     The Company applies the disclosure-only provisions of SFAS No. 123,
"Accounting from Stock-Based Compensation."  Accordingly, no compensation cost
has been recognized for the stock option plans.  However, pursuant to the
requirements of SFAS No. 123, the following disclosures are presented to reflect
the Company's pro forma net income (loss) for the three years ended December 31,
1999 as if the fair value method of accounting prescribed by SFAS No. 123 had
been used.  Had compensation cost for the Company's stock option plan been
determined consistent with the provisions of SFAS No. 123, the Company's net
income (loss) and income (loss) per share would have increased to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                -----------------------------------------------
                                                  1999               1998                1997
                                                 ------             -------             ------
<S>                                              <C>               <C>                <C>
                                                      (in thousands, except per share data)
NET INCOME (LOSS):
     As reported.............................    $(17,158)         $(11,711)          $ (9,612)
     Pro forma...............................    $(19,632)         $(14,175)          $(10,261)
BASIC AND DILUTED INCOME
     (LOSS) PER SHARE:
           As reported.......................    $  (0.64)         $  (0.46)          $  (0.40)
           Pro forma.........................    $  (0.73)         $  (0.56)          $  (0.43)
</TABLE>

     Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

     The weighted average per share fair value at date of grant for options
granted during 1999, 1998 and 1997 was $5.82, $10.60 and $4.71 per share,
respectively.  Prior to the merger with SLH on August 7, 1998, the Company was a
privately held corporation and used the minimum value method with the following
assumptions during 1997:  dividend yield of 0%, risk-free interest rate of 5.60%
to 6.83%, and expected lives of 5 to 10 years. During 1997 and prior to the
merger in 1998, volatility was assumed to be 0%.  The fair values of options
granted since the merger have been estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:

                                       1999              1998
                                       ----              ----
Expected dividend yield                  0%                 0%
Expected volatility                     83%               124%
Risk-free interest rate               5.07%              5.47%
Expected life                       9.77 yrs.         9.66 yrs.

                                     F-14
<PAGE>

     Subsequent to December 31, 1999, the Company granted 47,090 options to
purchase shares of common stock to employees at an average exercise price of
$10.28.

12.  SIGNIFICANT CUSTOMERS:

     Substantially all of the Company's joint development revenue for the three
years ended December 31, 1999 were from two major oil companies for joint
development work conducted in the Company's research and development facilities
and at the pilot plant located at ARCO's Cherry Point Refinery in Cherry Point,
Washington.  The testing in the laboratories under these agreements was
completed in September of 1999.   In addition, the Company has signed master
license agreements with three oil companies since 1996.  The Company has also
signed volume license agreements with three other oil companies. The license
agreements allow the oil companies to use the Syntroleum Process in their
production of synthetic crude oil and fuels primarily outside of North America.
Syntroleum received an aggregate of $9 million and rights to certain
technologies in connection with these license agreements.  The Company also
received from a licensee a separate nonrefundable payment of $2 million for
options to add certain geographic areas not covered by the applicable license
agreement.  The amounts received under license agreements and the amounts
received for options have been recorded as deferred revenue at December 31, 1999
and 1998.

     Under these license agreements, a licensee obtains the right to use the
Syntroleum Process and to acquire catalysts from the Company, secures pricing
terms for future site licenses and obtains rights to future improvements to the
Syntroleum Process.  Generally, the amount of the license fee for site licenses
under the Company's master and volume license agreements is determined pursuant
to a formula based on the discounted present value of the product of (i) the
annual maximum design capacity of the plant,  (ii) an assumed life of the plant,
and (iii) the Company's per barrel rate.  Initial cash deposits under the
Company's license agreement are credited against future site license fees.  (See
Note 1.)

     The Company is pursuing development of a commercial specialty products
plant to be located in Western Australia using the Syntroleum Process.  In
addition, the Company conducts a portion of its research and development
activities through joint development agreements with licensees and other
industry partners.  The terms of these agreements vary, but generally provide
cost sharing arrangements.


13.  STOCKHOLDER RIGHTS PLAN:

     Each outstanding share of the Company's common stock carries a stock
purchase right issued pursuant to a dividend distribution declared by the
Company's Board of Directors in March 1997.  The rights entitle the holder to
buy one-sixth of one one-hundredth of a share of junior preferred stock at a
price of $125 per one one-hundredth of a share.  Generally, the rights become
exercisable ten days after a public announcement that a person or group has
acquired, or a tender offer is made for 25% or more of the common stock of the
Company.  If either of these events occur, each right will entitle the holder
(other than a holder owning more than 25% of the outstanding stock) to buy the
number of shares of the Company's common stock having a market value two times
the exercise price.  The exercise price is $125.  The rights may be redeemed by
the Company for $.01 per right until a person or group has acquired 25% of the
Company's stock.  The rights expire January 2007.

14.  EVENTS SUBSEQUENT TO DECEMBER 31, 1999:

  Subsequent to December 31, 1999, the Company received $2 million dollars
towards the cost of the engineering work being performed by a third party for
the gas-to-liquids specialty product plant under development by the Company to
be located in Western Australia.  These monies were received from a partner who,
upon satisfaction of certain conditions, will become an equity investor in the
project.

                                     F-15