<PAGE>
     As Filed with the Securities and Exchange Commission on March 31, 1998
===============================================================================


                        SECURITIES AND EXCHANGE COMMISSION

                              Washington, D.C. 20549


                                     FORM 10-K


                       Annual Report Pursuant to Section 13
                      of the Securities Exchange Act of 1934

                    For the Fiscal Year Ended December 31, 1997

                                  SLH CORPORATION
                  (name of registrant as specified in its charter)
                             Commission File No. 0-21911

                 Kansas                                   43-1764632
(State of incorporation or organization)      (IRS  Employer Identification No.)

                               5000 West 95th Street
                             Suite 260, P.O. Box 7568
                          Shawnee Mission, Kansas 66207
         (Address, including zip code, of principal executive offices)

                                   913-652-1000
              (Registrant's telephone number, including area code)

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

         Securities  registered  pursuant to Section  12(g) of the Act:

       Common Stock, $0.01 par value and Preferred Share Purchase Rights

   Number of shares outstanding of only class of Registrant's common stock
                              as of March 12, 1998:

                   Common Stock,  $0.01 par value - 10,074,721

         The  aggregate  market value of the Common Stock of the Company held by
non-affiliates,  based  upon the last  sales  price of such  stock at $35.25 per
share on February 24, 1998 was $282,466,005.

         Indicate by check mark whether the Registrant (1) has filed all reports
required 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. [X]

<PAGE>























                               SLH CORPORATION


                                  FORM 10-K



                      For the Year Ended December 31,  1997




























<PAGE>


                                    CONTENTS

                                                                          PAGE
-------------------------------------------------------------------------------
PART I
  Item 1.     Business..................................................    4
              Overview..................................................    4
              Syntroleum................................................    6
              Management and Disposition of Real Estate and
                 Miscellaneous Assets...................................   13
              Miscellaneous Contingent Interests and Liabilities........   14
                 Company Employees......................................   15
              Regulation--Potential
 Application of the Investment
                 Company Act of 1940....................................   15
  Item 2.     Properties................................................   16
  Item 3.     Legal Proceedings.........................................   16
  Item 4.     Submission of Matters to a Vote of Security Holders.......   17

PART II
  Item 5.     Market for the Registrant's Common Equity and Related
                 Stockholder Matters....................................   18
  Item 6.     Selected Financial Data...................................   19
  Item 7.     Management's Discussion and Analysis of Financial
                 Condition and Results of Operations....................   19
  Item 8.     Financial Statements and Supplementary Data...............   25
  Item 9.     Changes in and Disagreements with Accountants
                 on Accounting and Financial Disclosure.................   46

PART III
  Item 10.    Directors and Executive Officers of the Registrant........   47
  Item 11.    Executive Compensation....................................   48
  Item 12.    Security Ownership of Certain Beneficial
                 Owners and Management..................................   54
  Item 13.    Certain Relationships and Related Transactions............   55

PART IV
  Item 14.    Exhibits, Financial Statement Schedules and Reports on
                 Form 8-K...............................................   56


SIGNATURES..............................................................   58


FINANCIAL STATEMENT SCHEDULE...........................................   S-1
 Schedule III.  Real Estate and Accumulated Depreciation...............   S-2



         The  calculation  of the aggregate  market value of the Common Stock of
the  Company  held  by   non-affiliates   is  based  on  the   assumption   that
non-affiliates do not include directors.  Such assumption does not constitute an
admission  by the Company or any  director  that any director is an affiliate of
the Company.

                                        3
<PAGE>

                                     PART I

     This  report  contains  forward-looking  statements  as well as  historical
information. Forward-looking statements are identified by or are associated with
such  words  as  "intend,"  "believe,"   "estimate,"   "expect,"   "anticipate,"
"hopeful," "should" and similar  expressions.  They reflect management's current
beliefs and estimates of future  economic  circumstances,  industry  conditions,
Company  performance  and  financial  results and are not  guarantees  of future
performance.  In  particular,  all  statements  relating to GTL plants using the
Syntroleum  Process are based on Syntroleum's  experience in operating the pilot
plant,  laboratory  data and  numerous  engineering  feasibility  studies and no
assurance  can be given that  commercial-scale  GTL plants using the  Syntroleum
Process will achieve  similar  results.  Although the Company  believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give  no  assurance  that  such  expectations  will  be  met.  These  and  other
forward-looking  statements are based on many  assumptions  and factors,  all of
which may not be detailed in this  report.  Any  changes in the  assumptions  or
factors  could produce  materially  different  results than those  predicted and
could impact stock values.

Item 1.  Business.

Overview.

         SLH Corporation  (the "Company") was incorporated in Kansas on December
5, 1996.  The Company is  primarily  engaged in  promoting  the  development  of
Syntroleum Corporation, an Oklahoma corporation ("Syntroleum") that is 31% owned
by the Company.  Syntroleum is the developer and owner of a proprietary  process
(the "Syntroleum  Process").  The Syntroleum  Process is designed for use in the
conversion  of  natural  gas into  synthetic  liquid  hydrocarbons  which can be
further  processed  into fuels such as diesel,  kerosene and naphtha and related
nonfuel  chemical feed stocks and  lubricants  ("gas to liquids" or "GTL").  The
Company is also in the business of managing,  developing  and  disposing of real
estate and certain miscellaneous assets.

         These assets, together with the stock of Syntroleum, were acquired from
Lab Holdings,  Inc. ( formerly  Seafield Capital  Corporation).  Concurrent with
that acquisition Lab Holdings  distributed to its stockholders on March 3, 1998,
all of the  outstanding  shares  of  the  Company's  Common  Stock  and  certain
Preferred  Share  Purchase  Rights in a  transaction  commonly  referred to as a
"spin-off" or "distribution" (the "Distribution"). The Distribution was effected
pursuant to a Distribution Agreement (the "Distribution  Agreement"),  a Blanket
Bill  of  Sale  and  Assumption  Agreement  ("  the  Assignment  Agreement"),  a
Facilities   Management  and  Interim  Services  Agreement   ("Interim  Services
Agreement")  and a Tax Sharing  Agreement ("Tax Sharing  Agreement"),  copies of
which  are  exhibits  to this  report.  The  Distribution  is more  particularly
described in the Information Statement that was furnished to all stockholders on
February  13, 1997 (the  "Information  Statement"),  and the  Company's  related
Registration Statement on Form 10 ("Form 10").

          The  Syntroleum   Process  is  a  simplification  of  traditional  GTL
technologies  aimed at  substantially  reducing  both the  capital  cost and the
minimum  economical  size of a GTL  plant,  as well as  plant  operating  costs.
Syntroleum  believes that the  Syntroleum  Process can be cost  effective at GTL
plants with throughput  levels as low as 2,000 barrels per day ("Bbls/d") (based
on energy prices  experienced  during recent years), and can be competitive with
other GTL  processes  at any plant  size.  GTL plants can be designed to further

<PAGE>

refine the synthetic liquid  hydrocarbons (or "synthetic crude oil") produced by
the Syntroleum  Process into liquid fuels such as diesel,  kerosene and naphtha,
or specialty products such as liquid normal paraffins, synthetic drilling fluid,
synthetic  lubricants,  waxes  and  certain  chemical  feedstocks.  Due to their
relatively  small  footprint,  Syntroleum  believes  that GTL  plants  using the
Syntroleum  Process  can be built  stand  alone or placed on skids,  barges  and
ocean-going vessels ("mobile GTL plants"), allowing these plants to be used at a
variety of  locations,  including  isolated  and  offshore  areas.  Although  no
commercial-scale  GTL plant  using the  Syntroleum  Process  has yet been built,
Syntroleum owns and operates a 2 Bbls/d pilot plant in Tulsa,  Oklahoma where it
has  successfully  demonstrated  certain  elements  critical  to the  Syntroleum
Process.

          Syntroleum is currently  focusing on  commercializing  the  Syntroleum
Process by (i) entering into agreements  with oil and gas industry  participants
to license the Syntroleum Process for use in GTL plants designed to produce

                                        4

synthetic  crude oil and liquid fuels,  (ii)  establishing  joint  ventures with
Texaco,  Inc.  ("Texaco"),  Enron Capital & Trade Resources Corp.  ("Enron") and
other  oil and gas  industry  partners  and/or  financial  partners  to  design,
construct  and  operate  GTL  plants  designed  to produce  fuels and  specialty
products and (iii) providing  mobile GTL plants to customers on a contract basis
through  efforts with Brown & Root, Inc.  ("Brown & Root") and others.  To date,
Syntroleum has entered into license  agreements with Texaco,  Atlantic Richfield
Company ("ARCO"), Marathon Oil Company ("Marathon"), an affiliate of Yacimientos
Petroliferos   Fiscales,   S.A.  ("YPF"),   Enron  and  Kerr-McGee   Corporation
("Kerr-McGee"),  and is currently in discussions  with several other oil and gas
companies  with respect to additional  license  agreements and joint ventures to
develop specialty product GTL plants. In summary, Syntroleum's strategy is to be
a  leading  GTL  technology  provider  to the oil and gas  industry  by  broadly
licensing  the  Syntroleum  Process,  to  participate  as an equity  partner  in
specialty  product GTL plants,  to provide  mobile GTL plants to  customers on a
contract  basis and to  continue  to improve  Syntroleum's  technology  with the
participation of licensees and joint development partners.

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

          Because Syntroleum has not constructed and operated a commercial scale
GTL  plant,  no  assurances  can be  given  that  the  Syntroleum  Process  will
ultimately be commercially viable.


<PAGE>

     The  Company's  real estate 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, 1997,  consist of (i) the remaining  inventory
from a  condominium  development  located in Santa Fe, New Mexico  (comprising 9
completed  homes that have been priced for sale between  $375,000 and  $600,000;
"Quail  Run");  (ii) a seven  story  parking  garage in Reno,  Nevada (the "Reno
Parking  Garage");  (iii) a 49.9%  interest  in a community  shopping  center in
Gillette, Wyoming (the "Shopping Center Interest"); and (iv) undeveloped land in
Houston,  Texas (370 acres comprising the "Houston Project"),  Corinth, Texas (9
acres comprising the "Corinth Tract") and the Kansas City  metropolitan area (16
acres at the intersection of I-35 and 119th Streets, comprising the "Kansas City
Tracts").  The total real estate  inventory had an aggregate  carrying  value at
December 31, 1997, of approximately $10.8 million. All of the real estate assets
are held for sale except for the Houston Project that is being developed.

     The Company's miscellaneous assets at December 31, 1997, consisted of (i) a
convertible  preferred stock interest in Norian  Corporation,  a privately owned
developer of proprietary  bone substitute  technology which had a carrying value
of approximately $1 million, (ii) $39 million of cash, government securities and
current receivables, and (iii) an investment in a privately held venture capital
limited  partnership  which had a  carrying  value of  $515,000  ("Miscellaneous
Assets").

          The Company's majority owned significant  subsidiaries  consist of BMA
Resources,  Inc., a wholly owned Missouri  corporation ("BMA Resources"),  Scout
Development   Corporation  ("Scout   Development"),   a  wholly  owned  Missouri
corporation,  Scout  Development  Corporation  of New  Mexico  ("Scout  New
Mexico"),  a Missouri  corporation wholly owned by Scout Development (with Scout
Development and Scout New Mexico  referred to collectively as "Scout"),  and 529
Partners,  Ltd.  ("529  Partners"),  a Texas limited  partnership in which Scout
Development  owns a 75% equity  interest.  The  Company  owns a 31%  interest in
Syntroleum.  The  interest  is held by BMA  Resources.  See Item 7 and  Notes to
Consolidated Financial Statements for additional information.

           The Company's  principal  executive  offices are located at 5000 West
95th Street, Suite 260, Shawnee Mission,  Kansas 66207, and its telephone number
is (913) 652-1000.
                                        5

Syntroleum

           The Company owns 5,950,000  shares of the common stock of Syntroleum,
which constitutes  approximately  31% of Syntroleum's  outstanding  shares.  The
shares were  acquired by the Company  over a number of years for an aggregate of
approximately $2.1 million. Syntroleum is a privately owned corporation that was
founded in 1984 by Kenneth  Agee.  Mr.  Agee is a chemical  engineer  who is the
inventor of most of Syntroleum's proprietary technology.  He is the Chairman and
Chief Executive Officer and a principal stockholder of Syntroleum.
<PAGE>
          The Syntroleum Process essentially involves two catalytic  reactions--
the  first  reaction  converts natural gas into synthesis gas ("syngas"). In the
syngas reaction, natural gas consisting  primarily  of  methane, is  combined at
high temperature with air and a small amount of steam, consisting  primarily  of
oxygen and nitrogen, in a proprietary reactor utilizing a commercially available
catalyst  to  form  syngas.  The  resulting syngas consists  primarily of carbon
monoxide  and  hydrogen  that  is "diluted"  with  nitrogen. The second reaction
converts  the  syngas  into  hydrocarbons  through a catalytic reaction commonly
referred to as the Fischer-Tropsch reaction.  In the  Fischer-Tropsch  reaction,
the syngas  flows into a reactor containing a proprietary catalyst  developed by
Syntroleum.   As  the  syngas  passes  over  the  catalyst, it is converted into
hydrocarbons  of  various  molecular  weights,  with by-product water and carbon
dioxide also being produced.  The  hydrocarbons and water drain from the reactor
vessel  and are  subsequently  separated.  Both reactions generate  considerable
amounts of heat. The nitrogen helps to remove a portion  of the  heat  from  the
reactor and is ultimately vented  into  the atmosphere.  The Syntroleum  Process
utilizes a portion of the excess  heat energy to drive the compression necessary
for  the  syngas  and  Fischer-Tropsch  reactions,  with  any remaining  surplus
heat  energy  being dissipated or converted to electricity for  commercial  sale
if circumstances  permit.  Energy integration is a key  component of the capital
efficiency  of  the  Syntroleum  Process  and  is  the subject of several patent
applications that Syntroleum has in process.

          The Syntroleum Process involves  certain  unique  characteristics that
differentiate it from competing processes developed or  under  development  by a
number  of  other  companies.  The Syntroleum Process utilizes air directly from
the  atmosphere  for  the  syngas  reaction  while others utilize pure oxygen to
create a syngas that is free of nitrogen. This difference  significantly reduces
costs and equipment to produce syngas in the Syntroleum Process.  The Syntroleum
Process also utilizes a proprietary catalyst developed by Syntroleum for  use in
the Fischer-Tropsch  conversion  reaction.  In addition, the Syntroleum  process
incorporates other proprietary methods, a number of which  are  the  subject  of
pending Syntroleum patent applications.


          Syntroleum's goal in developing this process has been to substantially
reduce both the capital cost and the minimum  economical size of a GTL plant, as
well  as  plant  operating  costs.  Syntroleum  believes  that by  reducing  the
complexity  of the process it has achieved  this goal and that plants  utilizing
the  Syntroleum  Process will be economic at relatively low levels of throughput
(2,000 Bb1/day and higher) based on energy prices of between ($15 to $20 per Bbl
for oil and $.50 per MMBtu for stranded natural gas in remote locations.  Due to
their relatively small footprint,  Syntroleum believes that GTL plants using the
Syntroleum  Process  can be built  stand  alone or placed on skids,  barges  and
ocean-going vessels, allowing these plants to be used at a variety of locations,
including isolated and offshore areas.

         Syntroleum completed construction of its first pilot plant in 1990, and
the plant  was  successfully  operated  in 1990 and 1991.  The  proceeds  of the
Company's  first  significant  investment in 1988 were used by Syntroleum in the
construction of this pilot plant. Between 1991 and 1995,  Syntroleum focused the
majority of its research and development efforts on catalyst development for the
Fischer-Tropsch  reaction.  The pilot plant was extensively  modified in 1995 to
test new catalysts and again in 1997 to test new reactor designs. Syntroleum's 2
Bb1/d pilot plant has successfully demonstrated certain elements critical to the
Syntroleum  Process.  However,  no  commercial-scale  GTL  plant  that  uses the
Syntroleum Process has yet been constructed.

                                        6
<PAGE>
         Syntroleum  is currently  focusing on  commercializing  the  Syntroleum
Process by (i) entering into agreements  with oil and gas industry  participants
to license  the  Syntroleum  Process  for use in GTL plants  designed to produce
synthetic  crude oil and liquid fuels,  (ii)  establishing  joint  ventures with
Texaco and other oil and gas  industry  partners  and/or  financial  partners to
design, construct and operate GTL plants designed to produce fuels and specialty
products and (iii) providing  mobile GTL plants to customers on a contract basis
through  efforts  with Brown & Root.  However,  there can be no  assurance  that
licensees  will  construct  any plants  under  their  license  agreements,  that
financing  for mobile and  specialty  product  GTL plants  will be  obtained  by
Syntroleum,  that  construction  of any of  these  plants  will be  successfully
completed, that any of these plants will be commercially successful,  that these
plants will be constructed or utilized on a  cost-effective  basis or that these
plants  will yield the same  economics  and results as those  demonstrated  on a
pilot plant basis.  Adverse  energy prices and other  operating  conditions  may
negatively  impact the economic  application  of GTL plants using the Syntroleum
Process. In addition,  certain  improvements to the Syntroleum Process are under
development and may not prove to be commercially applicable.

         Licensing  Agreements.  Syntroleum  currently  markets  four  types  of
license  agreements:  (i)  master  license  agreements,  (ii)  regional  license
agreements,  (iii) volume license  agreements and (iv) site license  agreements.
Syntroleum's first license agreement was a master license agreement entered into
with Texaco in September 1996. To date,  Syntroleum has also entered into master
license  agreements with ARCO and Marathon,  and has entered into volume license
agreements with YPF, Enron and Kerr-McGee.  Syntroleum has received an aggregate
of $11 million as initial payments and rights to certain  technologies under its
existing  agreements.  Syntroleum  intends to continue to market the  Syntroleum
Process for license  primarily to major oil and gas companies  with  significant
stranded  natural gas reserves and is  currently  in  negotiations  with several
companies.

     Specialty  Product GTL  Plants.  All  current  licenses  of the  Syntroleum
Process  limit the licensee to the  production of fuel products and prohibit the
licensee from producing  specialty  products.  Syntroleum  intends to design and
construct  GTL  plants  that  produce  specialty  products,  such  as  synthetic
lubricants,  synthetic  drilling  fluid,  waxes,  solvents and certain  chemical
feedstocks.  Syntroleum  intends to own these plants  through joint ventures and
may 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.

     In May  1997,  Syntroleum  formed  Syntroleum/Sweetwater  Company,  L.L.C.,
("Sweetwater  LLC") through which Syntroleum  intends to design and construct an
8,000 Bbl/d specialty product plant in Sweetwater County, Wyoming. In June 1997,
the Company  contributed  $1.5 million in exchange for an interest in Sweetwater
LLC (which is expected to be  approximately  1%  following  expected  additional
equity contributions). Syntroleum has contributed a site license and $500,000 to
Sweetwater LLC and plans,  subject to the necessary capital being available,  to
make additional  contributions  that would result in the retention by Syntroleum
of a majority  interest in Sweetwater LLC. In January 1998, Enron contributed $1
million  in  exchange  for a 4%  interest  in  Sweetwater  LLC,  and  agreed  to
contribute an additional approximately $14 million in exchange for an additional
7% interest  in  Sweetwater  LLC upon the  satisfaction  of certain  conditions,
including the execution of agreements which provide for the remaining equity and
debt  financing for the plant and the execution of fixed price  engineering  and
construction contracts.  If financing is obtained,  construction of the plant is
scheduled to commence in 1999,  and the plant is scheduled to be  operational in

<PAGE>
2001.  Syntroleum  is  the  managing  member  of  Sweetwater  LLC,  but  it  may
subcontract  with a third party that would manage the  operations  of the plant.
Syntroleum  currently  anticipates that this plant will produce lube oil, normal
paraffins,   drilling  fluid  and  naphtha.  Syntroleum  also  anticipates  that
Sweetwater  LLC would enter into supply and offtake  agreements  with respect to
this plant.

     In  November  1997,  Syntroleum,  Texaco  and Brown & Root  entered  into a
project development agreement that provides for the development of a 2,500 Bbl/d
GTL plant using the Syntroleum  Process.  The parties currently  anticipate that
the  plant  would  use a  hybrid,  multi-phase  (HMX)  reactor  currently  under
development by Syntroleum and Texaco. It is anticipated that Syntroleum,  Texaco
and Brown & Root would each initially own a 33-1/3%  interest in a joint venture
to be formed to own the plant and that Texaco would be the  designated  operator
of the plant.  However,  the parties contemplate that additional interests would
likely be sold to third  parties,  including  existing  or future  licensees  of
Syntroleum,  which would dilute such  interests.  Under the project  development
agreement,  decisions with respect

                                        7

to the development of the plant,  including  expenses and additional equity
participants,  require unanimous approval of the parties. Although the agreement
terminates on July 15, 1998,  Syntroleum  anticipates  that the parties will, if
necessary,  extend  the  term of the  project  development  agreement  to  allow
sufficient time to execute definitive  documents.  However,  no assurance can be
given that this plant will ultimately be constructed.

          Syntroleum is also in  discussions  with several oil and gas companies
and  anticipates  forming several joint ventures in order to finance and operate
additional  specialty product GTL plants.  Syntroleum's  plans for international
plants will focus on  partnering  with  companies who have low-cost gas reserves
and/or  have  distribution  networks in place for the  specialty  products to be
produced in the plant.

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

     Research and Development.  One of Syntroleum's strategies is to continue to
lower  the  cost of its  GTL  technologies  through  research  and  development.
Syntroleum's  research and development.  Syntroleum's  research and development
effort is being conducted in three primary areas: catalyst development; reactor
design;  and heat  integration  and power  recovery.  Currently,  Syntroleum has
ongoing joint development  activities with Texaco,  ARCO,  Marathon,  Catalytica
Combustion  Systems,  Catalytica  Advanced  Technologies and AGC Manufacturing
Services,  Inc. Generally,  Syntroleum acquires ownership or licensing rights to
inventions or improvements to the Syntroleum  Process resulting from these joint
development efforts.
<PAGE>
         Syntroleum Intellectual Property

         Syntroleum  pursues  protection  of the  Syntroleum  Process  primarily
through  trade  secrets  and  patents.  Syntroleum's  policy  is to  seek,  when
appropriate,  protection  for its  proprietary  products and processes by filing
patent  applications in the United States and certain foreign countries,  and to
encourage  or  further  the  efforts  of others  who have licensed technology to
Syntroleum to file such patent applications.  It is also Syntroleum's  policy to
seek,  when  appropriate,  a license under the patents of others, so that it can
sell the products or use the processes  covered  by  those patents in connection
with its own technology.

         The  following  patents  relating to the  Syntroleum  Process have been
issued to Syntroleum: United States Patent No.4,833,170 which was issued May 23,
1989 entitled "Process  Applications for the Production of Heavier  Hydrocarbons
from Gaseous Light Hydrocarbons" and No.4,973,453, which was issued November 27,
1990 and entitled  "Apparatus  for the Production of Heavier  Hydrocarbons  from
Gaseous Light Hydrocarbons." In addition,  Syntroleum has acquired United States
Patent No. 5,593,569 which was issued January 14, 1997 entitled  "Hydro-cracking
Processes Using a Homogenous  Catalysis  System  Comprising a Metal Halide Lewis
Acid, a Bronsted Acid and an Alkane, as well as two pending patent applications.
Subsequent  patents  related  to the  Syntroleum  Process  have been  granted in
Argentina,  Australia,  Canada, China, India, Malaysia, Mexico, Nigeria, Norway,
Pakistan, the United Kingdom and Venezuela and an application in The Netherlands
is currently pending.

         Syntroleum also has seven additional patent  applications  filed in the
United States and  approximately  fifteen foreign  applications  based on one or
more of them.

         In general, the patent position of Syntroleum involves  complex  legal,
scientific and factual questions and is uncertain.  There  can  be  no assurance
that any other  patents  will be granted  with  respect  to  any of Syntroleum's
patent applications filed by Syntroleum or its licensors.  Further, there can be
no  assurance  that  any  patents  issued or licensed to Syntroleum will provide
commercial  benefit  to  Syntroleum  or  will  not  be infringed, invalidated or
circumvented by others.

                                        8

         In addition to patent protection,  Syntroleum also relies significantly
on trade secrets, proprietary know-how and technological advances which it seeks
to protect,  in part,  by  confidentiality  agreements  with its  collaborators,
licensees,  employees  and  consultants.  There can be no  assurance  that these
agreements will not be breached,  that Syntroleum  would have adequate  remedies
for any breach or that Syntroleum's trade secrets and proprietary  know-how will
not otherwise become known or be independently discovered by others.

         Syntroleum   has   received   federal   trademark   and  service   mark
registrations  for the name  "Syntroleum" in the United States.  Syntroleum also
has pending United States trademark  applications  seeking  protection for marks
that will be used as brand names for Syntroleum products.
<PAGE>
         Commercialization  of Syntroleum's  GTL  technologies  may give rise to
claims  that they  infringe  upon the  patents  or other  proprietary  rights of
others.  Many  major  oil  and gas  companies  have an  interest  in  protecting
proprietary  technologies in order to maintain their  competitive  advantage and
may be particularly protective vis-a-vis competitors,  such as Syntroleum,  that
have the ability to broadly  license similar  technologies to their  competitors
and erode their  competitive  advantage.  As a result, no assurance can be given
that one or more of such companies will not attempt to prevent  Syntroleum  from
commercializing the Syntroleum Process by claiming  infringement of new patents.
Syntroleum  may not become  aware of such  patents or rights  until after it has
made a substantial  investment in the development and  commercialization  of the
Syntroleum  Process.  Such other persons,  companies or institutions could bring
legal actions against  Syntroleum,  its partners or licensees,  claiming damages
and  seeking an  injunction  that would  prevent  Syntroleum,  its  partners  or
licensees,   from   testing,   marketing  or   commercializing   the   affecting
technologies. If such action were successful, in addition to potential liability
for damages,  Syntroleum, its partners or licensees, could be required to obtain
from a license  in order to  continue  to test,  market or  commercializing  the
affected technologies.  There can be no assurance that any such required license
would be made  available  or, if  available,  would be available  on  acceptable
terms,  and  syntroleum  may be prevented  entirely from  testing,  marketing or
commercialize the affected  technology by a company that intends to maintain its
competitive  advantage.  Syntroleum may have to expend substantial  resources in
litigation,  either in enforcing its patents, defending against the infringement
claims of others,  or both, and many possible  claimants,  such as major oil and
gas companies,  have  significantly  more resources to spend on such litigation.
Syntroleum  intends to  vigorously  enforce its  patents and defend  against the
infringement  claims of others.  Syntroleum  has  conducted a limited  review of
existing  patents,  and  believes  that it is not  infringing  on the patents of
others. However, Syntroleum has not conducted an exhaustive patent search.

         Syntroleum Employees

     Syntroleum had 42 employees at February 28, 1998,  including 14 engineering
and research  personnel,  five employees in business  development and marketing,
and seven employees in administration,  legal and finance.  None of Syntroleum's
employees is  represented by a labor union.  Syntroleum has  experienced no work
stoppages and believes that its relations with its employees are excellent.

         Syntroleum Property

         Syntroleum owns a two  barrel-per-day  pilot plant located on two acres
in Tulsa,  Oklahoma.  Syntroleum also leases 4,500 square feet of laboratory and
office space and  approximately  37,000 square feet of executive office space in
Tulsa,  Oklahoma.  In  addition,  Syntroleum  has  entered  into an agreement to
acquire approximately  16,500 square feet of laboratory  space and approximately
100  acres  of  property  on which  the  laboratory  is  located. Syntroleum has
also  entered  into a  letter  of  intent  with respect to the acquisition of 35

<PAGE>

acres of land in  Sweetwater  County,  Wyoming  on which the Sweetwater Plant is
planned to be constructed.

         Syntroleum Competition

         The  development  of GTL  technology  is  highly  competitive,  and the
Syntroleum  Process  is  based on  technology  that  has  been  used by  several
companies in synthetic fuel projects  during the past 60 years.  Given expensive
alternatives  and  volumes  of  trapped  natural  gas  reserves,  a  significant
opportunity exists to anyone who can develop economic GTL

                                        9

technology.  Syntroleum  competes  with  several  major  integrated  oil and gas
companies and other  companies  having  materially  greater  financial and other
resources.  These  competitors have a greater ability to bear the economic risks
inherent in the development of GTL technology.  Several companies have developed
GTL  conversion  technology,  including  Exxon,  Shell and Sasol.  Each of these
companies has significantly  more resources to spend on research and development
of its  technology and on funding  construction  and operation of commercial GTL
plants.  In addition,  several  small  companies  are  developing  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  needed  to  produce  synthetic  gas in  competitive
processes.  There can be no assurance that these  companies or the Department of
Energy will not develop  technologies that will be more commercially  successful
or accepted than Syntroleum's  technology or that renders the Syntroleum Process
obsolete.

         The market for natural gas is highly  competitive  in many areas of the
world and may affect  Syntroleum's  business,  operating  results and  financial
condition.  The  conversion  of natural gas to liquefied  natural gas (LNG) will
compete with GTL plants for use of natural gas as feedstocks in many  locations.
Local  markets,  power  generation,  ammonia,  methanol and  petrochemicals  are
alternative  markets for natural gas which will also be competitive uses. Unlike
Syntroleum, many of its 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  such  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 such  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 is such that investments in GTL plants that produce fuels are unlikely to
be  economic  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 the GTL technologies may have
an adverse effect on the  availability  to GTL plants 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.

         Syntroleum Government Regulation

         Syntroleum will be subject to extensive  federal,  state and local laws
and regulations  relating to the protection of the  environment,  including laws
<PAGE>

and  regulations  relating to the release,  emission,  use,  storage,  handling,
cleanup,  transportation and disposal of hazardous materials and employee health
and  safety.  In  addition,  Syntroleum's  GTL  plants  will be  subject  to the
environmental  and  health  and  safety  laws  and  regulations  of any  foreign
countries in which such plants are to be located.

         Although Syntroleum does not believe that compliance with environmental
and health and safety laws in connection  with current  Company  operations will
have a material adverse effect on Syntroleum, the future costs of complying with
environmental  laws and regulations and containing or remediating  contamination
cannot be predicted  with  certainty and there can be no assurance that material
liabilities  or costs related to  environmental  matters will not be incurred in
the  future  or that such  environmental  liabilities  or costs  will not have a
material  adverse  effect  on  Syntroleum's  business,   operating  results  and
financial   condition.   Syntroleum  does  not  currently  carry   environmental
impairment liability insurance to protect it against such contingencies but may,
in  the  future,   seek  to  obtain  such  insurance  in  connection   with  its
participation  in the  construction and execution of GTL plants if such coverage
is available at reasonable cost and without unreasonably broad exclusions.

         Syntroleum Legal Proceedings

         Syntroleum  is not a party to, nor is any of its  property  the subject
of, any pending legal  proceedings,  which,  in the opinion of  management,  are
expected to have a material adverse effect on Syntroleum's  consolidated results
of operations or financial position.

                                        10

         Syntroleum Common Stock.

         Syntroleum's  outstanding  capital stock  consists of a single class of
Common Stock,  18,993,950 shares of which were outstanding at March 30, 1998,
and 747,434  shares of which were subject to  outstanding  employee and director
stock options.  There is no public market for the Syntroleum Common Stock, which
is privately held by approximately  144  stockholders,  a substantial  number of
which have entered into agreements which restrict the transfer of the stock.
 Transfers are not permitted except to certain affiliates and into in connection
with sales to other  third  parties  after the stock has first  been  offered to
Syntroleum and then to the other Syntroleum stockholders.

         Syntroleum Financial Condition and Results of Operations.

         For summary information concerning Syntroleum's financial condition and
results  of  operations  see  Note  4 to the  Notes  to  Consolidated  Financial
Statements under Item 8.

         Syntroleum Management

         Kenneth L. Agee is the Chief  Executive  Officer  and  Chairman  of the
Board of  Syntroleum.  Mr.  Kenneth L. Agee is the founder of Syntroleum and has
served as the Chief  Executive  Officer of  Syntroleum  since  February 1996 and
Chairman of the Board of Syntroleum  since  November  1995.  Prior  thereto,  he
served as  Syntroleum'  s  President  and as a director of  Syntroleum.  He is a
graduate of Oklahoma State University 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 two U.S.  Patents and several
foreign patents, all of which have been assigned to Syntroleum.
<PAGE>

         Mark A. Agee is President,  Chief  Operating  Officer and a director of
Syntroleum. Mr. Mark A. Agee joined Syntroleum in January 1994 and has served as
President and Chief Operating  Officer of Syntroleum since February 1996. He has
also served as a director of Syntroleum 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. 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.

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

         Peter Snider is the Vice President of Sales for  Syntroleum.  He joined
Syntroleum in January 1996.  From 1979 to 1984, he served as Product  Manager of
Synthetic   Waxes  for  Moore  and  Manger   ("M&M"),   Sasol's  North  American
distribution  company.  From 1984 until 1989, he served as Director of Specialty
Products for M&M 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.  Snider 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 also a graduate of the Taft School and the University of North
Carolina.

         Randal M. Thompson is the Chief Financial Officer and Vice President of
Syntroleum. Mr. Thompson joined Syntroleum 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 management/analyst 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.

                                       11

         Larry J Weick is Vice President of Business Development for Syntroleum.
Mr. Weick joined Syntroleum in 1996 and has served as Vice President of Business
Development  since  April  1997.  From  1971  to 1982 he was a consultant in the
natural gas and electric utility industry. From 1982 to 1993,  he  held  several
finance,  planning  and  business  development positions with Atlantic Richfield
Company. 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.

         Charles A.Bayens joined Syntroleum in July 1997 as Business Development
Manager and became  Vice  President  of  Engineering in December 1997.  Prior to
joining  Syntroleum,  Mr.  Bayens  was  with  Shell  Oil Company from 1967-97 in
various technical and business assignments.   From 1991-97  he  was President of
Shell Synthetic Fuels, Inc. where  he  managed commercialization of Shell's $500
million suite of synfuels technologies. Concurrently, from 1991-194, he was also
Manager, Technology Licensing, for Shell.  Mr. Bayens holds a Ph.D. in  Chemical
Engineering from Johns Hopkins University.
<PAGE>

         Alvin  Albe has served as a director of Syntroleum since December 1988.
Mr. Albe is currently the managing director of Trust Company of the West("TCW"),
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 from 1982 to 1991. Before  that,  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.  Mr.  Able  also  serves  as a director of TCW Americas
Development, Inc.

         Frank M.  Bumstead  has served as a director  of  Syntroleum  since May
1993.  He has also  served as the  President  of  Flood,  Bumstead,  McCready  &
McCarthy,  Inc., a financial  and business  management  firm.  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.  He has also  served as a director  of American
Retirement Corp. since 1995 and of TBA Entertainment, Inc. since 1991.

         P. Anthony Jacobs has served as a director of Syntroleum since November
1995. Mr. Jacobs has served as the  Chairman  of  the Board of the Company since
December 1996. Mr. Jacobs also serves as  President  and Chief Executive Officer
of  Lab  Holdings, a  company  principally  engaged  in  the  laboratory testing
business,  a  position  he  has  held since December 1997. From 1990 to 1993, he
served as Executive Vice President and Chief Operating Officer  of Lab Holdings,
and from May 1993 to  December  1997,  he  also  served  as  President and Chief
Operating Officer of Lab  Holdings. He also serves on the board of directors for
Lab Holdings as well as  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.  has  served as a director of Syntroleum since March
1985. In 1984, Mr. Rosene co-founded Boyd Rosene and Associates, Inc., a natural
gas consulting and marketing firm.  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 of Syntroleum  since  November
1988. Mr. Seward has served as the  President  and Chief Executive Officer and a
director  of  the  Company  since  its  inception in December 1996. From 1990 to
September 1997, Mr. Seward served as Chief Financial Officer  and a  director of
Lab Holdings, and from 1990 to May 1993 also served as Senior Vice President and
from  May  1993  to  September  1997  served  as Executive Vice President of Lab
Holdings. He also serves as a Director of Response  Technologies,  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.

                                       12

         J. Edward Sheridan  has  served  as  a  director  of  Syntroleum  since
November  1995.  In  1985  he  founded  and  is President of Sheridan Management
Corporation,  a  company  whose  purpose  is  to  provide  support  services  to
businesses in industries deemed critical to the  globalized  markets of the next
century. Mr. Sheridan  also  holds  an  M.B.A.  from  Harvard University with an
emphasis on Finance and International Operations.
<PAGE>

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

Management and Disposition of Real Estate and Miscellaneous Assets

         Real estate assets are owned and operated by Scout. Scout was initially
formed in 1990 to  acquire,  develop and manage  improved  and  unimproved  real
estate as a means of investing assets of Lab Holdings' insurance business, which
was then Lab Holdings' primary business.  Scout has focused on the completion of
all of its development projects and the disposition of its real estate assets in
an orderly  manner to maximize the value of each asset.  By the end of 1997, the
bulk of the  undeveloped  real estate  assets had been  disposed of and all real
estate development  activities had been concluded other than ongoing development
of the 370 acre Houston Project.

     Real  estate  assets at  December  31,  1997  primarily  consist of (a) the
remaining inventory from the Quail Run condominium  development located in Santa
Fe, New Mexico;  (b) the seven story Reno Parking Garage in Reno,  Nevada; (c) a
49.9%  interest in a community  shopping  center in Gillette,  Wyoming;  and (d)
undeveloped land in the Houston Project (370 acres), the Corinth Tract (9 acres)
and the  Kansas  City  Tracts  (16 acres at the  intersection  of I-35 and 119th
Streets).  The total real estate  inventory had an aggregate  carrying  value at
December 31, 1997 of approximately $10.8 million.  All of the real estate assets
are held for sale other than the 370 acre Houston Project.

         The  following  table shows the carrying  value of the inventory of the
Company's real estate assets as of December 31, 1997:

                             REAL ESTATE INVENTORY

                                                            Carrying value as of
     Asset                              Location              December 31, 1997

Quail Run Residential Condominiums     Santa Fe New Mexico      $  3,177,000
The Reno Parking Garage                Reno, Nevada                2,738,000
The Houston Project                    Houston, Texas              2,424,000
The Corinth Tract                      Ft Worth, Texas                33,000
The Kansas City Tracts                 Olathe, Kansas              2,659,000
                                                                 -----------
                                                                  11,031,000
The Shopping Center Interest           Gillette, Wyoming            (220,000)
                                                                 -----------
         Total                                                  $ 10,811,000
                                                                 ===========

     The Quail Run  residential  condominium  development  consists of inventory
remaining from real estate  development  projects  commenced by Scout.  The nine
homes remaining at December 31, 1997 have been listed for sale at prices ranging
from  $375,000 to $600,000  and two were  subject to  contracts  of sale at that
date.  The Company is actively  involved in marketing  these  properties and had
reduced the inventory to seven homes by March 1, 1998,  with three homes subject
to contracts  of sale.  The Company  anticipates  that the  remaining  inventory
should be liquidated by the end of 1998.

     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
<PAGE>

ground lease which expires on February 28, 2023 and which calls for annual lease
payments in the amount of $294,000.  The Reno Parking Garage contains a total of
144,500 square feet
                                       13

of leasable  parking space.  Parking revenue totaled  approximately  $591,000 or
$695 per space or $4.09 per square foot in 1997. 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 1997 was $149,000 or $18.08
per square foot. In addition to basic rent, the retail tenant is responsible for
its  pro  rata  share  of  real  estate  taxes  and   insurance.   During  1997,
approximately  $5,400  was  collected  from the  retail  tenant  for  taxes  and
insurance. Scout is presently actively marketing the property for sale.

     The Shopping Center Interest  consists of a 49.9% joint venture interest in
a retail shopping  center  containing  approximately  163,000 square feet of net
leasable area and 14 acres of undeveloped land in Gillette,  Wyoming. At the end
of 1997, the center was 86% occupied.  Rental revenue totaled $801,000 for 1997.
The average annual gross rental per occupied  square foot was $5.62. In addition
to rental  revenue,  tenants  are  responsible  for their  share of common  area
maintenance ("CAM"). During 1997, CAM collections from tenants totaled $112,000.
The property is subject to industrial  revenue  refunding bonds in the amount of
$6.1  million  that are  secured by a bank  letter of credit and  guaranteed  by
Scout.  The letter of credit is secured by a $3.1 million  Treasury Note that is
pledged by the Company to the issuer of the letter of credit.

     Undeveloped land consists of an aggregate of approximately  395 acres, with
370 acres in Houston,  Texas comprising the Houston  Project,  16 acres near the
intersection  of 119th Street and  Interstate 35 in the southern  portion of the
Kansas  City   metropolitan   area   comprising   the  Kansas  City  Tracts  and
approximately  9 acres in Corinth,  Texas,  comprising  the Corinth  Tract.  The
Company has conveyed the Houston Project to 529 Partners, in exchange for a $2.1
million note and a 75%  interest in the  partnership.  529  Partners  intends to
develop the property for residential and light  commercial  purposes.  Recently,
529 Partners entered into a contract to sell 17 acres of the Houston Project for
retail use for  approximately  $2.3 million.  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.

     The Kansas City Tracts consist of tracts aggregating approximately 16 acres
near  the  intersection  of  Interstate  Highway  35  and  119th  Street  in the
southwestern   section  of  the  Kansas  City  metro  area.   In  January  1998,
approximately 3 acres were sold for $800,000.  As of March 1, 1998, 4 acres were
under contract for sale for retail purposes for approximately $1.1 million.  The
remaining 9 acres,  which is also zoned for retail  purposes,  is being actively
marketed.

     The Company believes 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.

     The Company  also owns a  convertible  preferred  stock  interest in Norian
Corporation,   a  privately  owned  developer  of  proprietary  bone  substitute
technology, which had a carrying value of approximately $1.0 million at December
31,  1997  and  an  investment  in a  privately  held  venture  capital  limited
partnership  having a carrying  value at December  31, 1997,  of  $515,000.  The

<PAGE>

Company  plans to liquidate  all of these  investments  in an orderly  manner to
maximize their value to stockholders.

     Miscellaneous  Contingent Interests and Liabilities.  The Company and Scout
are subject to certain  contingent  liabilities  and rights which are  mentioned
below, none of which the Company believes to be materially adverse, individually
or in the aggregate, with respect to its financial condition.

     The Company is the holder of a judgment against Skidmore, Owings & Merrill,
et al in the approximate amount of $5.6 million,  including interest.  An appeal
of the judgement is expected to be heard during the 2nd quarter of 1998.
See "Legal Proceedings" under Item 3.

     Under the Distribution Agreement, the Company assumed from Lab Holdings all
contingent tax liabilities, and received all of Lab Holdings' rights to refunds,
related to the 1986-1990 tax years of Lab  Holdings,  including any  liabilities
and refunds  related to any issues raised by the IRS for the years 1986-1990 and
whose  resolution  may extend to tax years beyond the 1990 tax year. The Company
also assumed all of Lab Holdings' potential tax liabilities arising

                                       14

out of an audit by the state of  California  for the  1987-1989  taxable  years.
Although the Company has settled potential liabilities to the IRS and California
for the tax years in question,  the  settlement  will make it necessary  for the
Company to file amended tax returns in certain  states to reflect the results of
the settlement.  The Company believes that it has established  adequate accruals
for any  additional  liability  that might  arise from the filing of any amended
state returns.

     The Company and Scout are subject to  contingent  obligations  under leases
and other  instruments  incurred in connection  with real estate  activities and
other operations. The Company believes that adequate accruals have been made for
the contingent  liabilities on the Company's financial  statements and that none
of these are deemed to be material, individually or in the aggregate.

      Scout is subject to the following United States  environmental laws: Clean
Air Act, Comprehensive Environmental Response,  Compensation, and Liability Act,
Emergency  Planning and Community  Right-to-Know  Act,  Federal Water  Pollution
Control Act, Oil Pollution Act of 1990, Resource  Conservation and Recovery Act,
Safe Drinking Water Act and Toxic Substances Control Act, all as amended.  Scout
is also subject to the United States environmental regulations promulgated under
these  acts,  and also is subject to 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
compliance with such environmental laws and regulations.

Company Employees

     The Company and Scout,  but not  including  Syntroleum,  employed nine full
time and four  part  time  individuals  as of  March 1,  1998,  none of whom are
covered by collective  bargaining  agreements.  All of the Company's  employees,
<PAGE>

other than three property  maintenance  employees of Scout,  provide management,
financial,  accounting,  tax,  administrative and other services with respect to
its assets. The Company believes that relations with its employees are good.

Regulation--Potential Future Application of the Investment Company Act of 1940

     Generally, and subject to certain exceptions, an issuer of securities is an
"investment  company" under the Investment  Company Act of 1940 (the "1940 Act")
if, among other criteria, it is engaged in or proposes to engage in the business
of investing,  owning,  holding or trading of securities and it owns or proposes
to acquire  investment  securities  having a value exceeding 40% of the value of
such issuer's total assets  (exclusive of government  securities and cash items)
on an  unconsolidated  basis  (the  "40%  Test").  "Investment  securities"  for
purposes of this definition,  includes stock of non-majority owned companies, so
the Company's holding of Syntroleum would be part of its investment  securities.
Although the value of the  Company's  investment  securities  as of December 31,
1997,  appear  to  exceed  40% of the  value of its  total  assets  due to value
attributable  to the  Syntroleum  common stock held by the Company,  the Company
believes  that  it  was  not an  investment  company  at  that  date  due to the
application  of Rule  3a-1  adopted  under  the 1940 Act by the  Securities  and
Exchange Commission (the "SEC").

     Under Rule 3a-1, an issuer generally will not be deemed to be an investment
company  under the 1940 Act if (a) no more than 45% of the value of the issuer's
total assets  (exclusive of government  securities and cash items)  consists of,
and no more than 45% of the  issuer's  net income  after taxes is derived  from,
investment securities (for the last four fiscal quarters combined). For purposes
of this test,  "investment  securities" are securities other than (i) government
securities,  (ii) securities issued by certain employees'  securities companies,
(iii)  securities  issued by majority owned  subsidiaries of the issuer and (iv)
securities  issued  by  companies  other  than  investment  companies  which are
controlled  primarily  by the issuer and through  which the issuer  engages in a
business other than that of investing,  reinvesting,  owning, holding or trading
in securities  (the "45% Test").  Under the 1940 Act an issuer is presumed to be
in control

                                       15

of another company if it holds more than 25% of the voting stock of the company.
The Company  believes that  Syntroleum is "primarily  controlled" by the Company
based on the amount of actual control exercised by the Company over Syntroleum's
business  and the  amount  of its  ownership  of  voting  stock  in  Syntroleum.
Accordingly,  the Company  believes that its only assets as of December 31, 1997
that are  investment  securities  for  purposes  of the 45% test are its limited
partnership  interests and investments in Norian and  miscellaneous  receivables
which had a December 31, 1997 carrying value of approximately $1.7 million,  and
which the Board of Directors has valued on a "fair value" basis at approximately
$1.5 million. Based on these values, the Company's Board believes that the value
of those assets as of December  31, 1997,  would be less than one percent of the
Company's total assets as of that date,  exclusive of government  securities and
cash items, and that the income from such assets and other investment securities
held from March 3, 1997 until  December 31, 1997, was  approximately  26% of the
Company's net income after taxes. Based on current  estimates,  the Company also
believes that it will satisfy the 45% Test through the end of 1998.

     Nevertheless,  if the Company's percentage ownership interest in Syntroleum
should drop below 25% or if the amount of the Company's Miscellaneous Assets and
other  securities  that do not fall within the exclusion  should become  greater
<PAGE>

than 45% of the Company's  total assets (other than  government  securities  and
cash) or if the income derived from such securities exceeds 45% of the Company's
net income after taxes,  and if the Company can not meet the 40% Test,  then the
Company could become  subject to regulation by the SEC under the 1940 Act, which
regulation could  significantly  and adversely affect the Company's  activities.
Syntroleum has been considering a public or private offering of its common stock
as a means  of  raising  capital  for  the  construction  of  plants  and  other
developmental activities.  Such an offering could dilute the Company's ownership
of Syntroleum below the 25% level.  Accordingly,  no assurance can be given that
it will continue to meet the 45% Test.

     If the Company fails to meet the  requirements of the 40% and 45% Tests, it
may  nevertheless   avoid  regulation  under  the  1940  Act  if  it  meets  the
requirements of another SEC rule applicable to "transient" investment companies.
Under  this rule,  a company  will not,  for a period of one year,  be deemed an
investment company,  even though it fails the test under the 45% Rule, if it has
a bona fide intent to be engaged primarily,  and as soon as reasonably  possible
(and  in any  event  by the end of the  one-year  period),  in a  non-investment
company  business or, under an SEC  statement  respecting  the rule, a bona fide
intent to liquidate within such period of time. The transient investment company
rule is  frequently  relied on by companies  which have  received a  substantial
amount of cash  through a sale of  significant  assets or  through a  securities
offering;  they  typically  need time to expand their business or to start up or
acquire a new operating business.

     Under the transient  investment  company rule, a company's intent to engage
primarily in a non-investment  company business must be evidenced by appropriate
resolutions of its board of directors and by its business  activities.  Although
the Company is not currently relying on the transient  investment  company rule,
the Company's Board of Directors has adopted a resolution  evidencing its intent
to engage primarily in a non-investment company business.

Item 2.  Properties.

      The  Company's  headquarters  occupy  approximately  3,400  square feet of
leased space in a building at 5000 West 95th street,  Shawnee  Mission,  Kansas.
The term of this lease expires on April 30, 2000. Owned real estate is described
under "Management and Disposition of Real Estate Assets."

Item 3.   Legal Proceedings.

     Under the Distribution Agreement and Assignment Agreement,  the Company has
assumed the rights and  obligations  of Lab  Holdings  with respect to the legal
matters described below.

     Claim  Against  Skidmore,  Owings & Merrill,  et al. In 1986, a lawsuit was
initiated  in the Circuit  Court of Jackson  County,  Missouri by Lab  Holdings'
former insurance subsidiary (i.e.,  Business Men's Assurance Company of America)
against  Skidmore,  Owings  &  Merrill  ("SOM")  which is an  architectural  and
engineering  firm, and a  construction  firm to recover costs incurred to remove
and replace the facade on the former home office building.

                                       16

Because the removal and replacement costs had been incurred prior to the sale of
the  insurance  subsidiary,  Lab  Holdings  negotiated  with  the  buyer  for an
assignment  of the  cause of action  from the  insurance  subsidiary.  Under the
Distribution  Agreement,  Lab  Holdings  has  assigned to the Company all of its
<PAGE>

rights to any  recoveries  and the Company has assumed all costs relating to the
prosecution  of the  claims.  Thus any  recovery  will be for the benefit of the
Company and all costs incurred in connection with the litigation will be paid by
the Company.  Any ultimate  recovery will be recognized as income when received.
In  September  1993,  the  Missouri  Court of Appeals  reversed  a $5.7  million
judgment  which  was  granted  in 1992 in favor of Lab  Holdings;  the  Court of
Appeals and  remanded  the case to the trial court for a retrial  limited to the
question  of whether or not the  applicable  statute of  limitations  barred the
claim. The Missouri Court of Appeals also set aside $1.7 million of the judgment
originally  granted in 1992. In July 1996,  the case was retried to a judge.  On
January 21, 1997,  the judge entered a judgment in favor of the Lab Holdings for
the benefit of the Company. The amount of that judgment,  together with interest
is  approximately  $5.6 million as of December 31, 1997. In 1997, the defendants
appealed the judgment to the Missouri  Court of Appeals,  Kansas City  Division,
and  posted an appeal  bond to stay  collection  of the  judgement  pending  the
outcome of the  appeal.  The Company  expects the appeal to be heard  during the
second quarter of 1998, with a final decision by the end of 1998.

     Internal Revenue Service Audits.  Prior to the  Distribution,  Lab Holdings
had received notices of proposed  adjustments  (the "Revenue  Agent's  Reports")
from the  Internal  Revenue  Service  (the "IRS") with respect to its 1986- 1990
federal income taxes.  These notices  claimed total federal income taxes due for
the entire five year period in the approximate  net amount of $13,867,000,  plus
interest.  However,  Lab  Holdings  also had claims  against the IRS for refunds
relating  to a $27  million  loss  claimed  for 1990 on a sale of a real  estate
partnership  interest  which  the IRS  claimed  had not  occurred  in  1990.  In
connection with the Distribution,  the Company assumed from Lab Holdings all its
contingent tax  liabilities to the IRS and acquired all of its related rights to
refunds as well as any interest  thereon related to the Lab Holdings'  1986-1990
tax years.  During  1997,  the Company  settled  all of the claims and  disputes
between Lab Holdings and the IRS for the 1986-1990  years  entitling the Company
to a net refund of $5.5  million.  This refund,  which is  primarily  due to the
Company's  real estate  operations,  resulted in a $5.1 million  increase in the
Company's net income for 1997.

     California  Tax Issues.  The Company also assumed Lab Holdings'  rights and
liabilities  with respect to an audit being conducted by the State of California
for Lab Holdings' 1987-1989 taxable years which the Company settled in 1998.

      Although  the  Company has settled  potential  liabilities  to the IRS and
California for the tax years in question,  the settlement will make it necessary
for the Company to file  amended  tax  returns in certain  states to reflect the
results of the settlement. The Company believes that it has established adequate
accruals for any  additional  liability  that might arise from the filing of any
amended state returns.

     Claims Against Scout. On January 30, 1997,  Scout  Development  Corporation
was served with a complaint filed in the District Court of Tarrant County, Texas
by the parents of a 36 week old fetus who did not survive an automobile accident
at an  intersection in Fort Worth,  Texas,  the view of which is alleged to have
been  obstructed by weeds growing on property that is alleged to have been owned
by Scout.  The claim was settled in 1998 with  payment of the  settlement  being
made by the Company's insurance carrier.

     Scout has pending against it warranty claims by the purchasers of a home in
Florida and the  purchasers of a home in the Quail Run  development in Santa Fe,
New Mexico,  neither of which are deemed material to the financial  condition of
the Company. During 1997, the Company entered into a global settlement of claims
<PAGE>

by the homeowners' association of the Company's real estate development in Quail
Run.  Pursuant to that  settlement,  the Company was released from future claims
with  respect  to  the  common  elements  and  limited  common  elements  of the
development.

Item 4.  Submissions of Matters to a Vote of Security Holders.

     No matters have been submitted to a vote of stockholders  during the fourth
quarter of the fiscal year covered by this report.

                                       17


                                    PART II

Item 5.  Market for Registrants Common Equity and Related Stockholders Matters.

     The Common  Stock of the  Company has been  traded on the  National  Market
System of The NASDAQ  Stock  Market  under the symbol SLHO since July 29,  1997.
Prior to that it traded over-the-counter  through the OTC Bulletin Board and NQB
Pink Sheets.

     The table below  reflects  the high and low sales  prices of the  Company's
Common Stock for each quarter during the year ended  December 31, 1997.  Trading
in the first  quarter of 1997 did not commence  until  February  24, 1997.  Cash
dividends have not been paid since inception.  The information has been adjusted
for a three-for-one  stock split on July 21, 1997 and a two-for-one  stock split
on February 9, 1998 (the "1997 and 1998 stock splits").

                                                            Sales Price
                                                   High                    Low
     Year Ended December 31, 1997:
         First Quarter.....................     $  5.16                    2.66*
         Second Quarter....................       13.29                    5.00
         Third Quarter.....................       29.87                   12.08
         Fourth Quarter....................       36.50                   23.87
     ------------------
         *       Reflects  when  issued  trading  prior  to  the  March  3, 1997
                      Distribution Date.

         At March 9, 1998, there were  approximately  1,582 holders of record of
the Company's Common Stock.














                                       18

<PAGE>

Item 6.  Selected Financial Data.

     The following table sets forth a summary of selected  historical  financial
data for the Company.  The historical financial  information  presented reflects
periods during which the Company did not exist but rather reflects the financial
information of Lab Holdings' businesses and assets transferred to the Company on
March  3,  1997,  in  connection  with  the  Distribution  as  well  as  related
liabilities  assumed  by  the  Company.  The  historical  financial  information
presented  may not  necessarily  be  indicative  of the results of operations or
financial  condition  that would have been  obtained  if the  Company had been a
separate,  independent  company  during the periods  shown.  Neither  should the
information be deemed to be indicative of the Company's future performance.  The
financial   information  should  be  read  in  conjunction  with  the  Financial
Statements  and the notes  thereto.  See Item 7,  "MANAGEMENT'S  DISCUSSION  AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".

                                         Years ended December 31,
                                ------------------------------------------
                          1997        1996         1995         1994       1993
                          ----        ----         ----         ----       ----
                                         (in thousands)

Statement of Operations
  Data
Real estate sales..... $ 16,557      15,606      10,485        10,932    16,297
Real estate rentals
  and other............     786         759       1,001         1,059     1,173
                      ----------------------------------------------------------
  Total Revenues...... $ 17,343      16,365      11,486        11,991    17,470
                      ==========================================================
Cumulative effect of
  change in accounting
  principle (1)....... $     --      (1,400)         --            --        --
Net earnings (loss)...    9,093      (5,598)    (11,232)       (6,545)    4,166)

Balance Sheet Data
Current assets........ $ 39,517       5,529       4,432         3,707     6,006
Real estate held for
  sale................    6,791      24,202      35,073        40,998    39,047
Real estate under
  development.........    2,267          --          --            --        --
Investment securities.    1,530       4,718       5,136         6,161     6,624
Investment in oil and gas
  partnerships and
  interests...........       --       3,526       5,255         6,703     8,543
Total assets..........   53,169      38,474      51,638        64,627    70,155
Current liabilities...    2,039       2,165         365           239     2,150
Long-term debt .......       21          --       1,289         2,689     1,153
Stockholders' equity .   51,051          --          --            --        --
Combined equity.......       --      35,813      49,686        61,147    66,438

(1)  Adoption of statement of Financial Accounting Standard No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of"

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations.


<PAGE>
RESULTS OF OPERATIONS

Introductory remarks about results of operations

     On March 3, 1997, Lab Holdings  distributed to its  shareholders all of the
outstanding shares of common stock of the Company,  on the basis of one share of
common  stock of the Company for each four shares of Lab  Holdings  common stock
held.  In connection  with this  distribution  and pursuant to the  Distribution
Agreement,  Lab Holdings  transferred its real estate and energy  businesses and
miscellaneous assets and liabilities,  including two wholly-owned  subsidiaries,
Scout Development  Corporation and BMA Resources,  Inc., to the Company. The net
assets distributed to the Company totaled approximately $48 million.

                                       19

     This  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations covers periods when the Company's assets were owned by Lab
Holdings and operated as part of Lab Holdings.  It should be read in conjunction
with Items 1 and 6 and the Notes to Consolidated Financial Statements.

     Prior to  October  20,  1997,  Lab  Holdings  was  named  Seafield  Capital
Corporation  (Seafield).  Seafield  changed its name to Lab  Holdings for better
identification with its primary asset, an 82% ownership of LabOne, Inc.

1997 Compared to 1996

     Real estate revenues in 1997 were $17.3 million compared with $16.4 million
in  1996.  The  real  estate  sales  revenues  in 1997  include  the  sale of 28
residential  units and lots in  Florida,  New  Mexico and Texas  totaling  $13.5
million, and 752 acres of land in Texas totaling $3.1 million. In 1996, the real
estate sales revenue  included the sale of 40  residential  units in Florida and
New Mexico totaling $14.8 million; 20 acres of land in Oklahoma for $275,000 and
1.5 acres of land in Kansas for $580,000.  Real estate rental and other revenues
increased  slightly  from  $759,000  in  1996 to  $786,000  in  1997,  primarily
reflecting easements and forfeited deposits on real estate property.

     At the  end  of  1997,  real  estate  holdings  include  residential  land,
undeveloped land, single-family housing, and commercial structures (all of which
are  listed for sale,  except  the  Houston  Project  which is being  developed)
located in the following states:  Kansas, Nevada, New Mexico, Texas and Wyoming.
The total acreage consisted of approximately 395 acres and approximately 40 lots
or units for sale.  Real estate  operations  have been influenced from period to
period by several  factors  including  seasonal  sales  cycles for  projects  in
Florida and New Mexico.  The recent  substantial  reduction  in  inventory  will
influence future period to period comparisons.

     Cost of the real estate sales in 1997 totaled $16.6 million,  compared with
a cost of approximately $15.3 million in 1996, reflecting the mix of real estate
sold during each period as discussed above in the revenue analysis.  Real estate
operating  expenses totaled $2.4 million in 1997,  compared with $2.7 million in
1996. The decrease is  attributable  to a reduction in expenses  associated with
the completion of the residential projects and the inventory reductions.

     SFAS No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-Lived Assets to be Disposed Of," was implemented effective January 1, 1996.
Adoption of SFAS No. 121 resulted in an impairment  loss on real estate held for
sale  of $1.4  million  which  is  included  in the  accompanying  statement  of
operations  for  1996  as  the  cumulative  effect  of a  change  in  accounting
principle.  This impairment loss resulted  primarily from  discounting  expected
<PAGE>
future cash flows in  estimating  fair values less cost to sell of certain  real
estate properties.

     Net  impairment  losses of $706,000  in 1997 and $1.1  million in 1996 were
recorded on real estate  held for sale.  The  impairment  losses  resulted  from
changes in  estimated  expected  future  cash flows and sales  prices on certain
properties based on appraisals and other current market conditions.

     General  and  administrative  expenses  totaled  $1.9  million  in  1997 as
compared to $1.6 million in 1996.  General and  administrative  expenses in 1997
include an estimate  of $250,000  for  overhead  operating  costs in January and
February of 1997, expenses of an executive stock performance based bonus program
and other expenses associated with the move of the Company's office in 1997. The
1996  general  and  administrative  expenses  in the  statements  of  operations
included a $1.5 million estimate of Lab Holdings' actual costs.

     The above factors  produced a loss from  operations of $4.3 million in both
1997 and 1996.

     Investment  income  totaled $6.6 million in 1997, as compared with $401,000
in  1996.   Investment   income  for  1997  consists  of  the  sales  of  Watson
Pharmaceuticals,  Inc.  ("Watson")  common  stock  by Lab  Holdings  before  the
Distribution and by the Company following the Distribution and the sale of other
marketable common stocks and interest earned on invested cash. The Watson shares
were received as a result of a venture investment in Oclassen Pharmaceuticals,

                                       20

Inc. which was acquired by Watson.  The Watson  sales  resulted  in  a  gain  of
approximately $4.4 million during 1997.  Investment  income  for 1996  primarily
reflects cash received in excess of basis from two venture capital funds.

     Interest expense increased  to  $570,000  in  1997  from  $107,000  in 1996
primarily due to  interest costs associated with tax issues.

     Equity in  affiliates'  operations  produced  a loss of  $350,000  in 1997,
compared  with a loss of $1.2  million  in 1996.  During  1997,  the oil and gas
partnership interests were sold. The Company's share of these partnerships' 1997
losses  prior to the sale  totaled  $143,000  while the  Company's  share of the
partnerships' losses for 1996 were $291,000.  Equity in Syntroleum's  operations
resulted in a loss of $251,000 in 1997 and a loss of $811,000 in 1996.  The 1997
loss was limited as the Company's  investment in Syntroleum was reduced to zero.
Syntroleum  is expected to incur losses  until it  demonstrates  the  commercial
viability  of its  proprietary  technology.  The real estate  joint  venture had
earnings of $43,000 in 1997  compared to a loss of $115,000 in 1996.  See Item 1
and Notes to Consolidated Financial Statements for additional information.

     Equity in earnings of venture capital  investment funds totaled $207,000 in
1997 and $890,000 in 1996.  These funds invested in development  stage companies
which caused earnings to be subject to significant variations.

     The $1.8 million gain on sale of  affiliates in 1997 reflects the Company's
sale of its oil and gas partnership  interests.  The $632,000 of other income in
1997 consists of receipts on  receivables  from the formerly  owned  Tenenbaum &
Associates,  Inc.  ("Tenenbaum") net of costs associated with the Company's move
to a new  location in 1997.  The  $159,000 of other  income in 1996  consists of
receipts on Tenenbaum  receivables.  All future Tenenbaum receipts, if any, will
be recognized as earnings since all costs have been recovered on this asset that
<PAGE>

has been accounted for on the cost recovery method.

     Net tax benefits of $5 million were recorded in 1997 as compared with a tax
expense of $56,000 in 1996.  The 1997 results  reflect the resolution of certain
tax refund issues and the Company's  negotiated tax settlement with the Internal
Revenue  Service  relating to tax years of 1986 through  1990,  which refund has
been approved by Congress' Joint  Committee on Taxation.  The Company expects to
receive a federal refund in 1998 of approximately $5.5 million,  net of interest
costs.  The  agreement  with the IRS will  require  the filing of amended  state
income tax returns  during 1998 for the tax years 1986 through 1990. A liability
of $750,000 was established in the financial  statements for state payments that
may result from the filing of the amended state  returns.  The federal and state
valuation  allowances  decreased by  approximately  $2.7 million during 1997 and
increased by approximately  $2.6 million during 1996. See Note 8 to Consolidated
Financial Statements for additional information.

     The net  earnings in 1997 of $9.1 million and a net loss of $5.6 million in
1996 reflect the above results of operations.

1996 Compared to 1995

     Real estate revenues in 1996 were $16.4 million compared with $11.5 million
in  1995.  The  real  estate  sales  revenues  in 1996  include  the  sale of 40
residential units in Florida and New Mexico totaling $14.8 million;  20 acres of
land in Oklahoma for $275,000 and 1.5 acres of land in Kansas for  $580,000.  In
1995, the real estate sales revenue included the sale of 29 residential units or
lots in Florida,  Missouri,  New Mexico and Texas  totaling $7.9 million and 302
acres of land in Kansas and Texas totaling $2.6 million.  Real estate rental and
other revenues decreased from $1 million in 1995 to $759,000 in 1996, reflecting
sales of rental  property and an approximate 15% decrease in rentals at the Reno
Parking Garage.

     At the  end  of  1996,  real  estate  holdings  include  residential  land,
undeveloped land,  single-family housing and commercial structures (all of which
are listed for sale) located in the following states:  Florida,  Kansas, Nevada,
New Mexico,  Texas and Wyoming.  The total  acreage  consisted of  approximately
1,160 acres and approximately 68 lots or

                                       21

units for sale.  Real estate  operations are influenced from period to period by
several factors including  seasonal sales cycles for projects in Florida and New
Mexico.

     Cost of the real estate sales in 1996 totaled $15.3 million,  compared with
a cost of approximately $10.9 million in 1995, reflecting the mix of real estate
sold during each period as discussed above in the revenue analysis.  Real estate
operating  expenses totaled $2.7 million in 1996,  compared with $3.2 million in
1995. The decrease is  attributable  to a reduction in expenses  associated with
the  substantial  completion  of the  residential  projects  and a reduction  of
depreciation in 1996 as real estate available for sale is not depreciated  under
SFAS No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
Long-Lived Assets to be Disposed Of," which was implemented effective January 1,
1996.

     Adoption of SFAS No. 121 resulted in an impairment loss on real estate held
for sale of $1.4  million  which is included in the  accompanying  statement  of
operations  for  1996  as  the  cumulative  effect  of a  change  in  accounting
<PAGE>

principle.  This impairment loss resulted  primarily from  discounting  expected
future cash flows in  estimating  fair values  less costs to sell  certain  real
estate properties.

     An additional $1.1 million net impairment loss on real estate held for sale
was recorded in 1996.  This  impairment  loss resulted from changes in estimated
expected  future cash flows based  primarily on lower than expected sales prices
on certain properties based on appraisals and other current market conditions.

     General and administrative expenses in the statements of operations include
a $1.5 million  estimate in both 1996 and 1995 of Lab  Holdings'  actual  costs.
Management  estimated that the Company would incur approximately $1.5 million of
expenses annually when the Company operated on a stand alone basis.

     The above factors  produced a loss from operations of $4.3 million in 1996,
compared with $12.2 million in 1995.

     Investment  income in 1996 increased to $401,000 from $278,000 in 1995. The
1996 income primarily reflects cash received in excess of basis from two venture
capital funds while 1995 income  consists of interest on notes  receivable  from
the sale of real estate.

     Interest  expense  decreased  to  $107,000  in 1996 from  $189,000  in 1995
reflecting retirement of a real estate note payable in 1995.

     Equity in affiliates'  operations  produced a loss of $1.2 million in 1996,
compared  with a loss  of  $267,000  in  1995.  During  1996,  the  oil  and gas
operations  produced a loss of $291,000,  as compared to a $70,000 loss in 1995,
reflecting  variances in operating  results.  Equity in Syntroleum's  operations
resulted in a loss of  $811,000  in 1996 and a loss of $139,000 in 1995.  A real
estate  joint  venture  had a loss of  $115,000  in 1996  compared  to a loss of
$58,000 in 1995.

     Equity in earnings of venture capital  investment funds totaled $890,000 in
1996 while 1995 produced a loss of $249,000. These funds invested in development
stage companies which cause earnings to be subject to significant variations.

     The $159,000 of other income in 1996 consists of cash  received  during the
fourth  quarter in excess of the $800,000 of Tenenbaum  assets at September  30,
1996.  The 1995 gain on sale of  affiliates  reflects the  Company's net gain of
$111,000  on the sale of a  partnership  interest  in a  commercial  property in
Colorado.

     Tax expense of $56,000 was recorded in 1996  compared  with tax benefits of
$1.3 million in 1995.  Because the Company is a party to a tax sharing agreement
with other Lab Holdings  entities,  some tax benefits  were recorded in 1995 for
utilization  of the Company's  losses by Lab Holdings.  Valuation  allowances of
$2.6 million in 1996 and $3.7 million in 1995 were provided for the tax benefits
because utilization within the Lab Holdings group was not expected.
See Note 8 to Consolidated Financial Statements for additional information.






                                       22

<PAGE>

     The net loss in 1996 of $5.6 million and $11.2  million in 1995 reflect the
above results of operations.

Liquidity and Capital Resources

     Prior to September 30, 1996,  the  Company's  liquidity was provided by Lab
Holdings.  However,  as provided in the  Distribution  Agreement,  Lab  Holdings
transferred  to the  Company  on  March  3,  1997,  cash  of  $6.9  million  and
approximately  $3.1  million of  short-term  investments  (consisting  of a U.S.
Treasury  Note which is pledged to a bank for a real  estate  letter of credit).
Additionally,  cash  generated  from  operations  and the sale of the  Company's
assets  from  October  1,  1996 to March 3,  1997  totaling  $9.6  million,  was
transferred to the Company as provided in the Distribution  Agreement.  The $3.9
million of cash and cash  equivalents  in the December  31, 1996  balance  sheet
represents  the net cash  generated by the Company  during the fourth quarter of
1996 and was included in the transferred cash.

     At December 31, 1997, the Company had available  approximately  $32 million
in cash and  short-term  investments.  The Company  expects to receive a federal
income tax net refund of  approximately  $5.5  million  in early  1998.  Current
assets totaled  approximately $39.5 million while current liabilities totaled $2
million.  Changes  in assets  and  liabilities  on the  balance  sheet  resulted
primarily from reductions in the real estate portfolio,  sale of the oil and gas
interests,  the IRS settlement  agreement and the initial  capitalization of the
Company during 1997.

     Cash  provided by  operations  in 1997 totaled $11 million,  as compared to
$8.9 million in 1996. The increase in funds provided primarily reflects earnings
reported in 1997 of $9.1 million,  a loss of $5.6 million in 1996 and changes in
tax assets  resulting from the IRS settlement  agreement.  Cash provided by real
estate   operations   (sales  less  notes   received,   net  of  additions)  was
approximately $12 million in 1997, as compared with $11.1 million in 1996.

     Cash  used by  investing  activities  was $1.4  million  in 1997  primarily
reflecting a $1.5 million equity investment in Syntroleum's proposed plant to be
located in Sweetwater  County,  Wyoming (the "Sweetwater  Plant"),  purchases of
investments  available for sale  exceeding  sales of investments by $5.9 million
and $5.1 million from the sales of the oil and gas  partnership  interests.  The
$3.4 million of cash provided by investing activities in 1996 primarily reflects
distributions from venture capital investment funds and from affiliates.

     Cash provided by financing  activities  was $6.3 million in 1997  primarily
representing the Company's capitalization by Lab Holdings,  payment of long-term
debt  and the  net  issuance  of the  Company's  common  stock  pursuant  to the
Company's  stock option plan. In 1996,  the Company's net cash used by financing
activities of $8.4 million primarily represented the net cash transferred to Lab
Holdings from the Company's sale of real estate assets.

     Debt associated with real estate totaled $21,000 at December 31, 1997, down
from $1.2 million at December 31, 1996. A $1.2 million note payable was paid off
at maturity in December 1997. The Company is obligated under recourse debt (with
an unpaid balance of $6.2 million) of an affiliate which is accounted for on the
equity  method.  The Company's  obligation on this recourse debt is secured by a
$3.1 million U.S.  Treasury Note  transferred to the Company at the Distribution
Date. See Notes to Consolidated Financial Statements for additional information.

     The 1997 results  reflect  Congress'  Joint  Committee  on Taxation  recent
approval  of  tax  refund  issues  included  in  the  Company's  negotiated  tax
<PAGE>

settlement  with the  Internal  Revenue  Service  relating  to tax years of 1986
through 1990. The Company  expects to receive a federal refund of  approximately
$5.5 million net of an interest  expense amount which will be finalized in early
1998. The settlement will require the filing of amended state income tax returns
during 1998 for the tax years 1986  through  1990.  A  liability  of $750,000 is
reflected  in the  Company's  1997  financial  statements  for  potential  state
payments that may result from the filing of the amended state returns.

     Management  anticipates  that  future  additions  to  property,  plant  and
equipment will be minimal.  The Company estimates that construction and disposal
costs to complete real estate projects in development  will be  approximately $2
million. The Company is actively addressing Year 2000 computer concerns and will
upgrade one  computer  system.  Management  expects that the total cost for Year
2000 compliance should be approximately $15,000.

                                       23

Subsequent Events

     The  Company's  $1.5 million  equity  investment  in the  Sweetwater  Plant
allowed for the  commencement of certain  engineering and permitting  efforts on
the plant.  In February  1998,  Syntroleum  announced  the signing of definitive
agreements with a capital investor to fund an additional $1 million for detailed
engineering,  land  purchase  and other  development  costs.  Subject to certain
conditions,  the capital  investor  committed an additional  $14.5 million for a
minority ownership interest in the plant.

     The  Company's  Board  of  Directors  declared  a two for one  split of the
Company's  common stock  effective  February 9, 1998.  As a result of the split,
which was effected as a stock dividend,  each  stockholder of record on February
2, 1998 received one  additional  share of common stock for each share of common
stock held of record on that date.

     On  February  17,  1998,  the  Company   announced  that   Syntroleum  will
participate in funding  Catalytica  Advanced  Technologies'  research project to
develop an advanced  process  for  directly  converting  natural gas into liquid
fuels, such as methanol and gasoline.

     A  contract  has been  signed  for the sale of the  commercial  part of the
Houston project for approximately $2.3 million.

Recently Issued Accounting Standards

     Effective  December 31, 1997,  the Company  adopted  Statement of Financial
Accounting  Standards  No.  128,  "Earnings  per  Share".  The  adoption of this
standard did not have any significant  impact on the Company's reported earnings
per share.

     Statement  of  Financial   Accounting  Standards  No.  129  "Disclosure  of
Information  about Capital  Structure" has been  implemented  for the year ended
December 31, 1997.  The adoption of this  standard did not have any  significant
impact on the Company's financial position or results of operations.

     Statement   of  Financial   Accounting   Standards   No.  130,   "Reporting
Comprehensive  Income," is effective for fiscal years  beginning  after December
15,  1997.  This  standard  requires   companies  to  classify  items  of  other
comprehensive  income by their nature in a financial  statement  and display the
accumulated  balance of other  comprehensive  income  separately  from  retained
<PAGE>

earnings and additional  paid-in capital in the equity section of a statement of
financial position.

     Statement of Financial  Accounting  Standards No. 131,  "Disclosures  about
Segments of an  Enterprise  and Related  Information,"  is effective  for fiscal
years  beginning  after  December  15,  1997.  Retroactive  application  will be
required.  The adoption of this standard is not expected to have any significant
impact on the Company's financial position or results of operations.

     No other recently issued  accounting  standards  presently exist which will
require adoption in future periods.












































                                       24


<PAGE>

Item 8.  Financial Statements and Supplementary Data.

                        Index to Financial Statements


                                                                           Page

     Report of Independent Auditors with Respect to SLH Corporation.......  26

     SLH Corporation Consolidated Balance Sheets as of December 31, 1997
        and 1996..........................................................  27

     SLH Corporation Consolidated Statements of Operations for the years
        ended December 31, 1997,  1996 and 1995...........................  29

     SLH Corporation Statement of Consolidated Equity.....................  30

     SLH Corporation  Consolidated Statements of Cash Flows for the years
         ended December 31, 1997,  1996 and 1995..........................  31

     Notes to SLH Corporation Consolidated Financial Statements...........  32


































                                       25


<PAGE>



                           Independent Auditors' Report


The Board of Directors and Stockholders
SLH Corporation:

We  have  audited  the  accompanying  consolidated  balance  sheets  of SLH  and
subsidiaries  as of  December  31, 1997 and 1996,  and the related  consolidated
statements  of  operations,  retained  earnings,  and cash flows for each of the
years in the three-year  period ended December 31, 1997.  In connection with our
audits  of the  consolidated  financial  statements,  we have also  audited  the
financial  statement  schedule.  These  consolidated  financial  statements  and
financial statement schedule are the responsibility of the Company's management,
Our  responsibility  is to express an  opinion on these  consolidated  financial
statements and financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of SLH Corporation and
subsidiaries  as of  December  31,  1997  and  1996,  and the  results  of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.  Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.



                                                 S/KPMG PEAT MARWICK LLP

                                                 KPMG PEAT MARWICK LLP


Kansas City, Missouri
February 20, 1998









                                       26


<PAGE>



                         SLH CORPORATION AND SUBSIDIARIES
                            Consolidated Balance Sheets


                                                                December 31,
                                                           1997            1996
                                                           --------------------
                                                               (In thousands)
ASSETS
Current assets:
     Cash and cash equivalents........................ $  20,054          3,925
     Short-term investments...........................    11,992             --
     Accounts and notes receivable....................       146             33
     Real estate under contract.......................     1,973          1,223
     Current income taxes.............................     5,109             --
     Other current assets.............................       243            348
                                                       -------------------------
        Total current assets .........................    39,517          5,529

Real estate held for sale.............................     6,791         24,202
Real estate under development.........................     2,267             --
Investment securities ................................     1,530          4,718
Investment in affiliates:
     Oil and gas partnerships.........................        --          3,526
     Other   .........................................     1,280           (116)
Property, plant and equipment.........................        83            425
Notes receivable .....................................     1,680             --
Intangible assets.....................................        --            113
Deferred income taxes.................................        --             73
Other assets..........................................        21              4
                                                       -------------------------
     Total Assets..................................... $  53,169         38,474
                                                       =========================





















                                       27

<PAGE>



                       SLH CORPORATION AND SUBSIDIARIES
                          Consolidated Balance Sheets

                                                                December 31,
                                                           1997            1996
                                                           ---------------------
                                                               (In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable................................ $     150             289
     Interest payable ...............................     1,479              --
     Notes payable ..................................        --           1,194
     Other current liabilities ......................       410             682
                                                       -------------------------
        Total current liabilities....................     2,039           2,165
Notes payable........................................        21              --
Deferred income taxes ...............................        --             183
Other liabilities ...................................        12             313
                                                       -------------------------
     Total liabilities...............................     2,072           2,661
                                                       -------------------------
Minority interests ..................................        46              --
                                                       -------------------------

Stockholders' equity:
     Preferred stock of $.01 par value with $100
        liquidation preference.  Authorized
        1,000,000 shares; none issued ...............        --
Common stock of $.01 par value.  Authorized
     30,000,000 shares; issued 9,902,588 shares .....        99
Paid-in capital....................................      45,438
Net unrealized gains on marketable equity securities.        81
Retained earnings....................................     5,433
                                                       -------------------------
     Total stockholders' equity .....................    51,051
                                                       -------------------------
Combined equity.....................................                     35,813
                                                       -------------------------
Commitments and contingencies.......................   -------------------------
Total Liabilities and Stockholders' Equity.......... $   53,169          38,474
                                                       =========================

See accompanying notes to consolidated financial statements.










                                       28


<PAGE>


                       SLH CORPORATION AND SUBSIDIARIES
                    Consolidated Statements of Operations

                                                    Year Ended December 31,
                                               1997          1996         1995
                                               --------------------------------
                                                        (in thousands)
REVENUES
    Real estate sales....................  $  16,557        15,606       10,485
    Real estate rentals and other........        786           759        1,001
                                              ----------------------------------
       Total revenues....................     17,343        16,365       11,486

COSTS AND EXPENSES
    Real Estate:
       Cost of sales.....................     16,566        15,250       10,984
       Operating expense.................      2,428         2,733        3,217
       Provision for loss on real estate.
         held for sale, net..............        706         1,069        7,901
       General and administrative........      1,937         1,581        1,564
                                              ----------------------------------
Loss from operations ....................     (4,294)       (4,268)     (12,180)
    Investment income - net..............      6,642           401          278
    Equity in net loss of affiliates.....       (350)       (1,217)        (267)
    Equity in net earnings (loss) of
      venture capital investment funds...        207           890         (249)
    Interest expense.....................       (570)         (107)        (189)
    Gain on sale of affiliates...........      1,795            --          111
    Other income.........................        632           159           --
                                              ----------------------------------
Earnings (loss) before income taxes......      4,062        (4,142)     (12,496)
                                              ----------------------------------
    Taxes on income (benefits):
       Current...........................     (5,100)           11       (1,225)
       Deferred..........................         73            45          (39)
                                              ----------------------------------
       Total ............................     (5,027)           56       (1,264)
                                              ----------------------------------
Earnings (loss) before minority interests.     9,089        (4,198)     (11,232)
    Minority interests....................        (4)           --           --
                                              ----------------------------------
Earnings (loss) before cumulative effect
    of change in accounting principle.....     9,093        (4,198)     (11,232)
Cumulative effect of change in
    accounting principle..................        --        (1,400)          --
                                              ----------------------------------
NET EARNINGS (LOSS)....................... $   9,093        (5,598)     (11,232)
                                              ==================================

Earnings per share--basic................. $     .92
Earnings per share--diluted............... $     .84

See accompanying notes to consolidated financial statements.


                                       29

<PAGE>



                          SLH CORPORATION AND SUBSIDIARIES
                   Consolidated Statement of Stockholders' Equity


                                                                Period Ended
                                                             December 31, 1997
                                                             -----------------
                                                               (in thousands)
Common stock:
   Capitalization on February 28, 1997.....................         $     16
   Stock split effected in the form of a dividend..........               82
   Issuance of 84,466 shares pursuant to stock option plan.                1
                                                                --------------
     Balance, end of year...................................              99
                                                                -------------

Paid-in capital:
   Capitalization on February 28, 1997......................          47,947
   Exercise of stock options................................          (2,509)
                                                                -------------
     Balance, end of year...................................          45,438
                                                                -------------

Net unrealized gains on marketable equity securities:
   Change during the period.................................              81
                                                                -------------
     Balance, end of year...................................              81
                                                                -------------

Retained earnings:
   Net earnings.............................................           5,515
   Stock split effected in the form of a dividend...........             (82)
                                                                -------------
   Balance, end of year.....................................           5,433
                                                                -------------

Stockholders' Equity........................................       $  51,051
                                                                =============

See accompanying notes to consolidated financial statements.













                                       30


<PAGE>



                        SLH CORPORATION AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                                                    Year Ended December 31,
                                               1997          1996         1995
                                               --------------------------------
                                                        (in thousands)
OPERATING ACTIVITIES
Net earnings (loss)..........................$ 9,093       (5,598)      (11,232)
Adjustments to reconcile net earnings
    (loss) to net cash provided (used)  by
       operations:
       Cumulative effect of change in
       accounting principle..................     --        1,400            --
    Depreciation and amortization............    106          374           582
    Losses applicable to minority interests..     (4)          --            --
    Equity in net loss of affiliates.........    350        1,217           267
    Equity in net (earnings) loss of
       venture capital investment funds......   (207)        (890)          249
    Gain on sale of oil and gas partnerships. (1,795)          --            --
    Gain on sale of affiliates  .............     --           --          (111)
    Provision for loss on sale of real estate
       held for sale ........................    706        1,069         7,901
    Sales of real estate .................... 15,042       12,773         9,890
    Collections of notes receivable from
       sales of real estate..................    100           14         4,132
    Increase in notes receivable from sales
       of real estate........................ (1,780)          --            --
    Additions to real estate held for sale... (1,157)      (1,726)      (12,637)
    Additions to real estate under
       development...........................   (196)          --            --
    Change in short-term trading portfolio,
       net................................... (3,498)          --            --
    Change in accounts receivable............   (113)          22           352
    Change in accounts payable...............   (140)         174             8
    Decrease (increase) in deposits..........   (225)         225            --
    Income taxes and other................... (5,094)        (201)          566
                                              ----------------------------------
    Net cash provided (used) by operations .. 11,188        8,853           (33)
                                              ----------------------------------

INVESTING ACTIVITIES
Investments in affiliates ................... (1,500)         (44)       (1,000)
Distributions from affiliates ...............     36        1,383         1,447
Distributions from venture capital investment
    funds  ..................................    896        1,308           776
Purchase of investments available  for sale..(13,650)          --            --
Sale of investments available for sale  .....  7,738           --            --
Additions to property, plant and  equipment,
    net .....................................    (89)         (27)          (21)
Sale of oil and gas partnerships.............  5,142           --            --
Proceeds from sale of affiliates.............     --           --           425
Other     ...................................     50          822            35
                                              ----------------------------------
  Net cash provided (used) by  investing
    activities............................... (1,377)       3,442         1,662
                                              ----------------------------------
<PAGE>

FINANCING ACTIVITIES
Proceeds from long-term debt  ...............     41           --            --
Payments of principal on long-term debt...... (1,215)         (95)       (1,400)
Capitalization by Lab Holdings, Inc.......... 10,000           --            --
Net issuance of stock pursuant to  stock
    option plan.............................. (2,508)          --            --
Net transactions with Lab Holdings, Inc. ....     --       (8,275)         (229)
                                              ----------------------------------
  Net cash provided (used) by financing
    activities...............................  6,318       (8,370)       (1,629)
                                              ----------------------------------
Net change in cash and cash equivalents ..... 16,129        3,925            --
Cash and cash equivalents--beginning of year.  3,925           --            --
                                              ----------------------------------
Cash and cash equivalents--end of year ......$20,054        3,925            --
                                              ==================================

    Supplemental  disclosures  of cash flow  information:  Cash paid  (received)
    during the year for:
       Interest..............................$   109          107           189
                                              ==================================
       Income taxes, net ....................$   769           12        (1,224)
                                              ==================================
     See accompanying notes to consolidated financial statements.































                                       31


<PAGE>



SLH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

     Pursuant to a Distribution  Agreement  between SLH Corporation  (SLH or the
Company) and Lab Holdings,  Inc. (Lab  Holdings),  the former parent  company of
SLH,  Lab  Holdings   transferred  certain  assets  (the  Transfer  Assets)  and
liabilities (the Transfer Liabilities), including two wholly-owned subsidiaries,
Scout Development  Corporation (Scout) and BMA Resources,  Inc. (Resources),  to
SLH  on  February  28,  1997.   The  net  amount   transferred  to  SLH  totaled
approximately  $48 million.  The Transfer  Assets and Transfer  Liabilities  are
reflected in SLH's financial  statements at Lab Holdings'  historical  cost. All
stock of SLH was then  distributed  to the  shareholders  of Lab  Holdings  (the
Distribution)  on March 3, 1997.  Lab Holdings  was  formerly  known as Seafield
Capital Corporation and changed its name to Lab Holdings in October 1997.

     The accompanying consolidated statement of operations and statement of cash
flows for the twelve month period ending  December 31, 1997 includes the results
of  operations  and cash flows for January and  February  1997 when the Transfer
Assets and Transfer Liabilities were owned and operated by Lab Holdings.

     The  accompanying  combined  balance  sheet as of December 31, 1996 and the
combined  statements of operations and combined statements of cash flows for the
twelve month  periods  ended  December  31, 1996 and 1995 present the  financial
position,  results  of  operations  and cash flows of the  business,  assets and
liabilities comprising the Transfer Assets and Transfer Liabilities which relate
directly to the businesses transferred.

     The accompanying  consolidated financial statements include the accounts of
SLH and all  majority-owned  subsidiaries  and joint  ventures.  Investments  in
affiliated  companies  of 20% to 50% in which  SLH  does not have a  controlling
interest are accounted for by the equity method.  All  significant  intercompany
transactions  have  been  eliminated  in  consolidation.  Certain  1996 and 1995
amounts have been  reclassified  for comparative  purposes with no effect on net
earnings.

     The Company is primarily engaged in promoting the development of Syntroleum
Corporation,  an  Oklahoma  corporation  (Syntroleum)  that is 31%  owned by the
Company.  Syntroleum is the  developer  and owner of a proprietary  process (the
Syntroleum(R)  Process)  designed for use in the  conversion of natural gas into
synthetic  liquid  hydrocarbons  (gas to liquids or GTL). The Company is also in
the business of managing,  developing  and  disposing of Real Estate and certain
miscellaneous assets which, together with the stock of Syntroleum, were acquired
from Lab Holdings.

     The financial information included herein may not necessarily be indicative
of the financial position and results of operations of the Company in the future
or  reflect  what  these  amounts  would  have  been if it had been a  separate,
stand-alone entity during the periods presented.



<PAGE>

Use of Estimates in the Preparation of Financial Statements

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  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.

     Significant  assumptions  include estimates of fair value less cost to sell
assets  to be  disposed  of,  principally  real  estate  properties.  Management
utilizes a variety of sources in estimating fair values  including  recent sales
of comparable  assets,  internal  appraisals based on current market conditions,
discounted cash flows, and, to a lesser extent,

                                       32

independent  appraisals.  Significant assumptions used in discounting cash flows
include  the amount and timing of  expected  cash flows and the  discount  rate.
Management  estimates  the amount and timing of cash flows as  described  above.
Discount  rates  estimated  to  be  commensurate  with  the  risk  involved  for
individual  properties  are selected  based on current  economic  conditions and
industry  practices.  The amounts  the Company  will  ultimately  realize  could
materially differ from the carrying amounts in the accompanying balance sheets.

     General and administrative expenses have been included in the 1996 and 1995
statements of operations  based on management's  estimate of what expenses would
have been  incurred had the Company  operated on a stand alone basis.  Estimated
general and  administrative  expenses  included in the  statements of operations
were  approximately  $250,000 for January and February 1997 and $1.5 million for
each of the years ended December 31, 1996 and 1995.

Cash and Cash Equivalents

     All highly liquid  investments with an original maturity of three months or
less when purchased are considered to be cash equivalents.

Real Estate and Other Long-lived Assets

     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.

     Prior to January 1, 1996, real estate held for sale was valued at the lower
of cost,  including  development  costs less  allowances  for  depreciation,  or
market. Development costs which are incurred during the period of development or
construction  are  capitalized.  Capitalized  costs are charged to operations as
properties or units are sold or, in the case of income producing properties, are
amortized as part of the depreciation charges.

     During 1995,  the Company made a provision for loss on real estate held for
sale of $7.9 million.  The  provisions  resulted from changes in net  realizable
value based upon  management's  analysis of recent sales  transactions and other
current market conditions.


<PAGE>

     With the  adoption  of SFAS 121,  long-lived  assets to be  disposed of are
reported at the lower of carrying  amount or fair value less costs to sell.  Any
impairment  loss is recognized as the amount by which the carrying amount of the
asset  exceeds the fair value of the asset less cost to sell.  The best evidence
of fair  value is quoted  market  prices.  When  quoted  market  prices  are not
available, the estimate of fair value is based on the best information available
including  prices for  similar  assets or  discounted  cash  flows of  estimated
expected  future  cash  flows.  Assets  to be held  and used in  operations  are
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the carrying amount of the asset may not be recoverable.  If the sum of the
expected future cash flows  (undiscounted  and without interest  charges) of the
asset is less than the  carrying  amount of the asset,  an  impairment  would be
recognized as the  difference  between the carrying  amount and  estimated  fair
value.

     Adoption of SFAS 121 on January 1, 1996 resulted in an  impairment  loss on
real estate held for sale of $1.4 million which is included in the  accompanying
1996 statement of operations as the cumulative  effect of a change in accounting
principle.  This impairment loss resulted  primarily from  discounting  expected
future cash flows in  estimating  fair values less cost to sell of certain  real
estate properties.

     Additional net  impairment  losses on real estate held for sale of $706,000
and $1.1 million were recorded in 1997 and 1996, respectively.  These impairment
losses  resulted  from  changes in  estimated  expected  future cash flows based
primarily  on  lower  expected  sales  prices  on  certain  properties  based on
appraisals and other current market conditions.

                                       33

Short-Term Investments

     Short-term investments consist of US Treasury securities,  debt obligations
of US Government Agencies and equity securities.  The classification of debt and
equity securities as trading,  available for sale or held to maturity is made at
the time of purchase. Trading securities are stated at fair value and unrealized
holding gains and losses are included in income.  Marketable  equity  securities
and all debt securities which are classified as available for sale are stated at
market value,  with unrealized gains and losses,  if any, excluded from earnings
and reported in a separate component of stockholders'  equity.  Securities which
the  Company  has the  intent  and  ability  to hold to  maturity  are stated at
amortized cost.

Investment Securities

     Investment securities consisting of stock investments of two privately-held
corporations  (representing  2%  ownership  in 1997 and 1996 and 5% ownership in
1996) are accounted for at cost.  Investment in limited partnership interests in
privately-held  venture capital funds (representing 4%, 9% and 8% ownership) are
accounted for using the equity method. Fair values are not readily determinable;
however, management believes the estimated fair value of each investment exceeds
its carrying value. See Note 10 for additional  information about fair values of
financial instruments.

Property, Plant and Equipment

     Property,  plant  and  equipment  is  recorded  at cost  with  depreciation
provided over the useful lives.  Upon sale or retirement,  the costs and related
<PAGE>

accumulated  depreciation are eliminated from the accounts.  Any resulting gains
or losses are included in the results of operations.

Oil and Gas Investments

     Prior to 1997,  investments in oil and gas partnerships  were accounted for
using the equity  method as they were less than 50% owned and the  Company was a
noncontrolling investor. The Company used the full cost method of accounting for
oil and gas properties. Under this method, all costs incurred in acquisition and
development were capitalized.  Depletion was computed on the units of production
method based on all proven reserves.  All general  operating costs were expensed
as incurred.  During 1997,  the Company sold its  interests in these oil and gas
partnerships.

Intangible Assets

     Goodwill is recorded at  acquisition  as the excess of cost over fair value
of net assets  acquired  and is being  amortized on a  straight-line  basis over
periods  up  to  twenty  years.   Goodwill  is  presented  net  of   accumulated
amortization  of $286,000,  $277,000 and $195,000 at December 31, 1997, 1996 and
1995, respectively. On a periodic basis, the Company estimates the fair value of
the  business to which  goodwill  relates in order to ensure  that the  carrying
value of goodwill has not been  impaired.  During  1997,  the goodwill was fully
amortized.

Income Taxes

     Income taxes are accounted for as if the Company filed separate tax returns
pursuant to tax sharing  agreements among its subsidiaries.  Deferred tax assets
and liabilities are recognized for the future tax  consequences  attributable to
differences  between the financial statement carrying amounts of existing assets
and  liabilities  and their  respective  tax  bases.  Deferred  tax  assets  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

                                       34

Earnings per Share

     Effective  December 31, 1997,  the Company  adopted  Statement of Financial
Accounting  Standards  No.  128,  "Earnings  per  Share".  The  adoption of this
standard did not have any significant  impact on the Company's reported earnings
per share.

     Basic earnings per share is computed  using the weighted  average number of
common  shares and diluted  earnings  per shares is computed  using the weighted
average number of common shares and dilutive  stock  options.  All share and per
share  amounts  presented in the  financial  statements  reflect the two for one
common stock split that was effective on February 9, 1998.

Recently issued Accounting Standards

     Statement  of  Financial   Accounting  Standards  No.  129  "Disclosure  of
Information  about Capital  Structure" has been  implemented  for the year ended

<PAGE>

December 31, 1997.  The adoption of this  standard did not have any  significant
impact on the Company's financial position or results of operations.

     Statement   of  Financial   Accounting   Standards   No.  130,   "Reporting
Comprehensive  Income," is effective for fiscal years  beginning  after December
15,  1997.  This  standard  requires   companies  to  classify  items  of  other
comprehensive  income by their nature in a financial  statement  and display the
accumulated  balance of other  comprehensive  income  separately  from  retained
earnings and additional  paid-in capital in the equity section of a statement of
financial position.

     Statement of Financial  Accounting  Standards No. 131,  "Disclosures  about
Segments of an  Enterprise  and Related  Information,"  is effective  for fiscal
years  beginning  after  December  15,  1997.  Retroactive  application  will be
required.  The adoption of this standard is not expected to have any significant
impact on the Company's financial position or results of operations.

     No other recently issued  accounting  standards  presently exist which will
require adoption in future periods.

NOTE 2 - REAL ESTATE HELD FOR SALE AND REAL ESTATE UNDER DEVELOPMENT

A summary of real estate held for sale follows:
                                                               December 31,
                                                          1997            1996
                                                          ---------------------
                                                              (In thousands)

Land investments/developments.......................... $ 3,480          26,658
                                                        -----------------------
Commercial building
     Gross amount......................................   5,296           5,296
     Less accumulated depreciation    .................   1,293           1,293
                                                        -----------------------
                                                          4,003           4,003
                                                        -----------------------
Residential developments
     Gross amount:    Land     ........................     204           1,940
                      Buildings/improvements ..........  12,780          24,259
                                                        -----------------------
                                                         12,984          26,199
                                                        -----------------------
                                                         20,467          56,860
Less valuation allowance for write-downs...............  10,543          28,966
Less valuation allowance for impairments...............   1,160           2,469
                                                        -----------------------
                                                          8,764          25,425
     Less real estate under contract         ..........   1,973           1,223
                                                        -----------------------
              Net real estate.......................... $ 6,791          24,202
                                                        =======================




                                       35


<PAGE>

Real estate  under  development  consists of land being  developed  with a joint
venture partner.

A summary of real estate revenues follows (dollars in thousands):


                                           Year Ended December 31
                                 -----------------------------------------
                                 1997              1996               1995
                                 -----------------------------------------
                                       Units/            Units/           Units/
                             Amounts   Acres   Amounts   Acres   Amounts  Acres
                             ---------------------------------------------------
Real estate sales:
     Condominiums and homes.$ 13,487     28     14,751     40     7,348     24
     Improved lots..........      --     --         --     --       546      5
     Undeveloped land.......   3,070    752        855     21.5   2,591    302
                              ------            ------           ------
     Total real estate sales. 16,557            15,606           10,485
                              ------            ------           ------

Real estate rentals and other:
     Lease revenue..........     149               134              134
     Commercial parking
        operations..........     591               595              744
     Other..................      46                30              123
                                  --                --              ---
     Total real estate rentals
        and other...........     786               759             1,001
        Total real estate    -------           -------           -------
          revenues.......... $17,343           $16,365           $11,486
                             =======           =======           =======


NOTE 3 - INVESTMENT IN OIL AND GAS PARTNERSHIPS AND INTERESTS

                  The   Company's   interests   in  four  oil  and  gas  general
partnerships  were  sold  during  1997  for  $5.1  million.   The  oil  and  gas
partnerships  represented 36% and 40% interests in general  partnerships.  These
partnerships  were accounted for on the equity method as they were less than 50%
owned and the Company was a noncontrolling  investor. Prior to 1996, the Company
also had investments in oil and gas working interests.

                  Equity  in  operations  of  oil  and  gas  partnerships   were
generally  recorded  based on periods  ended  within one month of the  Company's
accounting period.  Shown below is unaudited  financial  information for the oil
and gas investments:

<PAGE>
                                 5 Months Ended       Year Ended December 31
                                   May 31, 1997       1996               1995
                                 -----------------------------------------------
Results of Operations                            (in thousands)
---------------------
   Oil and gas revenue               $ 2,038          7,731             6,344
   Net loss                             (202)          (797)             (647)
   The Company's equity in net loss     (143)          (291)              (70)

         Cash  distributions   received  from  the  partnerships  were  $36,000,
$1,382,000 and $1,348,000 in 1997, 1996 and 1995, respectively.
                                       36
NOTE 4 - INVESTMENT IN OTHER AFFILIATES

         The Company's 31% investment in Syntroleum Corporation  (Syntroleum) is
accounted for on the equity  method.  During 1997,  the Company's  investment in
Syntroleum was reduced to zero as the result of Syntroleum's cumulative losses.

         Syntroleum is the developer and owner of a patented process and several
related  proprietary  technologies  (Syntroleum  Process) for the  conversion of
natural gas into synthetic liquid  hydrocarbons  which can be further  processed
into fuels such as diesel,  kerosene  (used by jet  aircraft)  and  naphtha  and
related  non-fuel  chemical  feedstocks  and  lubricants.  Sale of the Company's
common  shares of  Syntroleum  is subject to certain  restrictions  pursuant  to
shareholder  agreements which require that a selling shareholder first offer the
shares to be sold to  Syntroleum  and if  Syntroleum  does not accept the offer,
then to the other Syntroleum shareholders.

Summarized  financial  information  derived from  Syntroleum  audited  financial
statements is shown below.
                                                     Year Ended December 31,
                                                 1997         1996         1995
                                                 ------------------------------
                                                         (in thousands)
         Results of Operations
         Revenue............................ $  2,007          616           45
         Net loss...........................   (9,612)      (1,937)      (1,146)
         The Company's equity in net loss...     (251)        (811)        (139)

                                                              December 31,
                                                        1997             1996
                                                        ----------------------
                                                              (in thousands)
         Financial Position
         Current assets                                 10,622            $888
         Other assets                                    1,469             664
                                                        -----------------------
              Total assets                              12,091           1,552
                                                        -----------------------
         Current liabilities                               776             287
         Deferred revenue                               11,000              --
         Other liabilities                                  60              --
         Long-term borrowing                                --           1,000
                                                        -----------------------
              Total liabilities                         11,836           1,287
                                                        -----------------------
         Minority interest                               1,497              --
                                                        -----------------------
         The Company's investment in Syntroleum             --             147
<PAGE>

Total investment in Syntroleum is presented on the balance sheets as follows:

                                                              December 31,
                                                        1997             1996
                                                        -----------------------
                                                             (in thousands)

     Investment in affiliate                         $      --             147
     Intangible asset - goodwill, net                       --             113
                                                        -----------------------
         Total                                       $      --             260
                                                        =======================
   The Company has a $1.5 million  equity  investment  in  Syntroleum-Sweetwater
LLC, a subsidiary of Syntroleum.  The Company acquired an initial 6% interest in
the  Sweetwater  subsidiary  which  will be diluted  to  approximately  1% after
financing by additional  equity  investors.  The Sweetwater  subsidiary plans to
commence construction of a commercial
                                       37
plant  during  1998.  The Company's  investment  in  Sweetwater  allowed for the
commencement of certain engineering and permitting efforts for the plant.

   The Company is a 49.9% partner in a general partnership which owns a shopping
center.  Prior to  September  1995,  the Company  was also a 49.9%  partner in a
general  partnership which owned a commercial  building.  These partnerships are
accounted for on the equity method.  Summarized unaudited financial  information
for these partnerships is shown below.

                                                            Year Ended
                                                           December 31,
                                                     1997       1996      1995
                                                     --------------------------
                                                          (in thousands)
Results of Operations
Revenue                                          $    913        816       764
Net earnings (loss)                                    86       (207)     (160)
The Company's equity in
  net earnings (loss) of affiliates                    44       (115)      (58)

                                                               December 31,
                                                           1997           1996
                                                          ---------------------
                                                              (in thousands)
Financial Position

Current assets                                         $    726            367
Real estate                                               4,909          5,190
Other assets                                                191            205
                                                          ---------------------
  Total assets                                            5,826          5,762

Short-term borrowings                                       165             --
Other current liabilities                                    98            121
Long-term borrowings                                      6,005          6,170
                                                          ---------------------
  Total liabilities                                       6,268          6,291
                                                          ---------------------
The Company's investment in
  real estate affiliates                                   (220)          (263)
<PAGE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT AND ACCOUNTS AND NOTES RECEIVABLE
A summary of property, plant and equipment follows:

                                             Rate of            December 31,
                                           Depreciation     1997         1996
                                           -----------------------------------
                                                       (in thousands)
            Property, plant and equipment     20%-33%      $ 320         2,580
            Less accumulated depreciation                    237         2,155
                                                            -------------------
                                                          $   83           425
                                                            ===================
                                       38
A summary of accounts and notes receivable follows:

                                                                December 31,
                                                            1997         1996
                                                            -------------------
                                                               (in thousands)
                  Accounts receivable                     $  146            33

                  Notes receivable:
                      16% note receivable, secured
                          by real estate, final maturity
                                in January 2000            1,425            --
                      12% note receivable, secured
                                by real estate, final
                                maturity in June 2000        255            --
                                                           --------------------
                                                           1,826            33
                                  Less current portion       146            33
                                                           --------------------
                                                          $1,680            --
                                                           ====================
         The 16% note receivable was issued in conjunction with the sale of land
in 1997 (see Note 6). The note requires  quarterly payments of interest only and
a lump sum  payment  of any  outstanding  principal  on  January  15,  2000.  In
addition,  certain  prepayment charges may be assessed if principal payments are
made prior to the maturity date.

         The 12% note  receivable  was issued upon the sale of land in 1997. The
note requires quarterly payments of interest only, and all outstanding principal
is due June 20, 2000. The note may be prepaid without penalty.

NOTE 6 - NOTES PAYABLE

Notes payable are as follows:
                                                              December 31,
                                                         1997             1996
                                                         ---------------------
                                                             (in thousands)
                  16% unsecured note,
                    final maturity in January 2000     $  21               --

                  8.625% loan, secured by real estate,
                    final maturity in December 1997       --            1,194
                                                       ------------------------
                                                       $  21            1,194
                                                       ========================
<PAGE>

     The 16% note  represents  a portion  of the real  estate  commission  due a
broker  arising  from a land sale.  Principal  and interest is payable only when
like  payments of principal  and interest are received  under a note  receivable
(See Note 5) issued in conjunction with the 1997 sale of land.

     The 8.625% loan  required  semiannual  payments of interest only and a lump
sum payment of any outstanding principal on December 31, 1997. The loan was paid
off at maturity.

     The Company is obligated  under  recourse  debt (with an unpaid  balance of
$6,170,000  at December 31, 1997) of an  affiliate  accounted  for on the equity
method (see Note 4). The  Company's  obligation on this recourse debt is secured
by a $3.1 million U.S.  Treasury note  transferred to the Company as part of the
Distribution  and is  included in Short- Term  Investments  in the  accompanying
balance sheet at December 31, 1997.

                                       39

NOTE 7 - OTHER ASSETS AND LIABILITIES

The  components of other current  assets,  other current  liabilities  and other
liabilities follow:

                                                              December 31
                                                          1997            1996
                                                         ----------------------
                                                             (in thousands)
Other Current Assets
Prepaid expenses                                     $     132             238
Restricted cash                                            111             110
                                                         ----------------------
       Total                                         $     243             348
                                                         ======================

Other Current Liabilities
Accrued property tax                                 $     124             150
Deposits                                                    10             235
Accrued rent expense                                       250             250
Other                                                       26              47
                                                         ----------------------
  Total                                              $     410             682
                                                         ======================

Other Liabilities
Deferred income                                      $      --              59
Accrued rent expense                                        12             250
Other                                                       --               4
                                                         ----------------------
  Total                                              $      12             313
                                                         ======================





                                       40


<PAGE>
NOTE 8 - INCOME TAXES
The real estate assets,  energy assets,  and other  miscellaneous  assets of the
Company were  acquired  from Lab  Holdings,  and were  included in Lab Holdings'
consolidated U.S. federal income tax returns through the distribution  date. For
the pre-distribution periods, the income tax provisions and tax liabilities have
been  calculated as if the Company had filed separate  returns,  utilizing a tax
sharing  agreement with Lab Holdings.  The Company files a consolidated  federal
income tax return for taxable years beginning after the Distribution Date.
During 1997, the Company generated approximately $5.7 million in current capital
losses  that  exceeded  capital  gains and  generated  a net  operating  loss of
approximately  $11.4 million.  These losses are carried forward through the year
2002 and the year 2012, respectively.  Future realization of these tax assets or
any existing  deductible  temporary  differences or carry-  forwards  ultimately
depend on  sufficient  taxable  income of the  appropriate  character  occurring
within  the  carryover  period.  When it  becomes  more  likely  than not that a
deferred  tax asset  will not be  realized,  a  valuation  allowance  is accrued
against that deferred tax asset.
The  components of the  provision  (benefit) for income taxes on income from the
Company are as follows:
                                                     Year ended December 31,
                                                  1997        1996        1995
                                                  ----------------------------
                                                          (in thousands)
         Current:
            Federal                          $   (5,850)       --       (1,234)
            State                                   750        11            9
                                                  ----------------------------
                                                 (5,100)       11       (1,225)
                                                  ----------------------------
         Deferred:
            Federal                                  --        --           --
            State                                    73        45          (39)
                                                  -----------------------------
                                                     73        45          (39)
                                                  -----------------------------
                                             $   (5,027)       56       (1,264)
                                                  =============================
The  reconciliation  of income tax  computed at federal  statutory  tax rates to
income tax expense is as follows:
                                                     Year ended December 31,
                                                  1997        1996       1995
                                                  ---------------------------
                                                         (in thousands)
Computed expected tax expense (benefit)        $ 1,381      (1,408)     (4,249)
State income taxes, net of federal benefit
   and changes in state valuation allowances       543          37         (20)
Goodwill amortization                                3          28          20
Tax benefits not available for subsidiary losses    85         276          47
Increase in federal taxes due to
   valuation allowances                             --       1,333       2,845
Other, net                                          29        (210)         93
Pretax income not included in SLH tax return    (1,218)         --          --
Resolution of IRS dispute                       (5,850)         --          --
                                                 ------------------------------
Actual income tax expense (benefit)            $(5,027)         56      (1,264)
                                                 ==============================
Effective tax rates                              (124%)       (1%)          10%

                                       41
<PAGE>

The significant  components of deferred income tax assets and liabilities are as
follows:
                                                                Year ended
                                                                December 31,
                                                           1997           1996
                                                           -------------------
                                                               (in thousands)
Current deferred income tax assets(liabilities):
Excess book expense accruals                            $   347            782
State income tax deficiency and interest                     --            661
IRS interest accrual                                        145             19
Other, net                                                  (53)            --
                                                         ---------------------
Gross current deferred income tax assets                    439          1,462
Current valuation allowance                                (439)        (1,462)
                                                         ---------------------
Net current deferred income tax assets                       --             --

Non-current deferred income tax assets (liabilities):
Excess book expense accruals                                 --            176
Excess book partnership expenses                            268            273
Excess book oil and gas expenses                             --            519
Real estate valuation allowances and other basis
  differences                                             2,436          7,618
Excess book depreciation and amortization                   (19)            82
Other, net                                                  (34)            92
Capital loss carryforwards, federal and state             2,842            337
Federal net operating loss carryforwards                  3,881          1,100
Federal audit adjustment carryback                           --            535
State net operating loss carryforwards                    2,702          2,954
                                                         ---------------------
Gross non-current deferred income tax assets             12,076         13,686
Valuation allowance for non-current deferred
  income tax assets                                     (12,076)       (13,796)
                                                         ---------------------
  Net non-current deferred income tax assets
  (liabilities)                                              --           (110)
                                                         ---------------------
Net deferred income tax assets (liabilities)          $      --           (110)
                                                         =====================
Presented on the balance sheet as:
  Deferred income tax asset                           $      --             73
  Deferred income tax liability                              --           (183)
                                                         ---------------------
                                                      $      --           (110)
                                                         =====================

     Included in SLH, on a historical basis, are deferred income tax liabilities
that had been  accrued  for  potential  Internal  Revenue  Service  (IRS)  audit
adjustments to Lab Holdings'  1986-1990  federal income tax years.  During early
1998,  the tentative  settlement  reached  during 1997 was ratified by the Joint
Committee on Taxation.  The result of this agreement will be a refund of federal
income tax of  approximately  $5.8 million before  interest of $350,000 which is
included in Interest Payable on the December 31, 1997 balance sheet.




<PAGE>

     The  accruals  for the IRS audit  adjustment  were as follows  for the year
ended December 31, 1996 (in thousands).

     Deferred income tax liability for IRS adjustments              $(7,782)
     Deferred income tax asset for 1990 loss carryback                7,599
                                                                   ---------
     Net deferred tax liability for IRS adjustments                $   (183)
                                                                   =========

     The  federal  and  state  valuation  allowances  decreased  during  1997 by
approximately $2,743,000 and increased during 1996 by approximately  $2,643,000.
The  federal  and  state  valuation  allowances  as  of  January  1,  1996  were
$12,615,000.

                                       42

NOTE 9 - LEASE COMMITMENTS

    Office  space,  equipment,  land and  buildings  are leased  under  various,
noncancelable  leases that expire over the next several years.  Rental  expense,
including an allocation of Lab Holdings' lease expense,  was $500,000,  $371,000
and $372,000 for 1997, 1996 and 1995, respectively.

    Total future minimum lease  payments  under these  agreements as of December
31, 1997 are as follows:
                                                        Year       Amount
                                                        ----       ------
                                                               (in thousands)

                                                        1998       $   406
                                                        1999           379
                                                        2000           321
                                                        2001           294
                                                        2002           294
                                                        Thereafter   5,924

    Included  above is annual rent for the ground  lease on a parking  garage in
Reno, Nevada of $294,000.  The lease agreement provides for increases every five
years based on the Consumer Price Index and expires in 2023.

NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                   December 31, 1997         December 31, 1996
                                 Carrying    Estimated     Carrying   Estimated
                                  Amount    Fair Value     Amount    Fair Value
                                 ----------------------------------------------
                                               (in thousands)
    Cash equivalents            $ 20,054      20,054         3,925      3,925
    Short-term investments        11,992      11,992            --         --
    Accounts receivable              146         146            33         33
    Investment securities-not
      practical to estimate
      fair value                   1,530          --         4,718         --
    Notes receivable               1,680       1,680            --         --
    Notes payable                     21          21         1,194      1,012
<PAGE>

    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 and notes payable
were  calculated by  discounting  scheduled  cash flows using  estimated  market
discount rates.

    At December 31, 1997, the Company owned an equity  investment in a privately
held  venture   capital   limited   partnership   having  a  carrying  value  of
approximately $515,000; and a preferred stock interest in Norian Corporation,  a
privately owned developer of proprietary bone substitute technology, which had a
carrying  value of  approximately  $1 million.  At December 31, 1996 the Company
owned (a) three equity  investments  in privately held venture  capital  limited
partnerships  having an aggregate  carrying value of $1.2 million,  (b) a common
stock   interest  in  Oclassen   Pharmaceuticals,   Inc.,   a  privately   owned
pharmaceutical manufacturer,  which had a carrying value of $2.5 million and (c)
a  preferred  stock  interest  in Norian  Corporation  with a carrying  value of
approximately $1 million.  Investment in these closely-held enterprises was made
on a  principal-to-principal  basis at negotiated values.  Therefore,  it is not
practical to estimate fair value for these  investments at December 31, 1997 and
1996.

    On February  27,  1997,  Watson  Pharmaceuticals,  Inc.,  a publicly  traded
company,  merged with  Oclassen  Pharmaceuticals  which  converted the Company's
Oclassen stock into 184,878 shares of Watson.  During 1997, the Company sold its
investment  in Watson for proceeds of $6.9  million and a gain of  approximately
$4.4 million.

                                       43

NOTE 11 - EARNINGS PER SHARE

There were no adjustments to the income available to common stockholders used in
the computation of diluted  earnings per share.  The following table  reconciles
the  weighted  average  common  shares  used in the  basic  earnings  per  share
calculation and the weighted average common shares and common share  equivalents
used in the diluted earnings per share calculation.

                                                                  1997
                                                               ---------
  Weighted average common shares                               9,790,864
  Employee stock options                                       1,190,890
                                                               ---------
  Weighted average common shares and
    common share equivalents                                  10,981,754
                                                              ==========


   All share and per share  amounts  in the  accompanying  financial  statements
reflect  the two for one common  stock split that was  effective  on February 9,
1998. Earnings per share are not presented for 1996 and 1995 because the Company
did not become public until March 3, 1997.


NOTE 12 - INVESTMENT SECURITIES

    A summary of  investment  securities  information  relating to quoted market
values and  holding  gains and losses at December  31, 1997 is in the  following
table.
<PAGE>
                                               Amount at
                                                 Which
                             Amortized  Market  Shown in  Unrealized  Unrealized
                                Cost    Value   Balance     Holding    Holding
                                                 Sheet       Gains      Losses
                             --------------------------------------------------
                                             (In thousands)
Available for Sale
  US Treasury Securities     $  5,273   5,354    5,354         81          --
                             ===================================================

Held to Maturity
  US Treasury Note           $  3,140   3,140    3,140         --          --
                             ===================================================

The US Treasury Note will mature in 1998.

    Information  about proceeds from sales of available for sale  securities and
the gross  realized  gains and losses on those sales for the year ended December
31, 1997 is summarized in the  following  table.  Cost is determined by specific
identification for computing realized gains and losses.

                                                               (In thousands)
              Proceeds                                            $   7,738
                                                                  =========
                   Gross realized gains                           $   4,396
                                                                  =========
                   Gross realized losses                          $      --
                                                                  =========

    Trading securities consist of United States government agency securities and
totaled  approximately  $3.5  million at December  31,  1997.  The change in net
unrealized holding gains and losses on trading securities that has been included
in operations is a gain $6,000 for the year ended December 31, 1997.

                                       44

NOTE 13 - RELATED PARTY TRANSACTIONS

    The Company has entered  into an  agreement  with Lab  Holdings  whereby the
Company will provide accounting and  administrative  services and record storage
space for Lab Holdings. Under this agreement, Lab Holdings pays $75,000 annually
for these services and storage space.

    During the year,  the Company  sold  certain  common  stock  holdings in its
trading portfolio for total proceeds of approximately $1.2 million.  At the same
time, Lab Holdings purchased an identical number of shares of these securities.
These sales were accomplished through stock brokers at market rates.

NOTE 14 - STOCK OPTIONS

         The Company has a Stock Option Plan which  provides for the granting of
non-qualified  stock options for not more than 1,560,000 shares of the Company's
common stock. The Company granted these stock options at their fair market value
on the March 3, 1997  Distribution  Date.  All  options  have ten year terms and
become  exercisable  in equal  installments  as follows:  one fourth on March 3,
1997, and one-fourth on each of the first, second and third anniversary dates of
the grant.

<PAGE>

         The  Company   accounts  for  stock  options  in  accordance  with  the
provisions of Accounting  Principles  Board Opinion No. 25 "Accounting for Stock
Issued  to  Employees,"   and  related   interpretations   (APB  25).  As  such,
compensation expense is recorded on the date of grant only if the current market
price of the  underlying  stock  exceeds  the  exercise  price.  The Company has
adopted  Statement of Financial  Accounting  Standards No. 123,  "Accounting for
Stock Based  Compensation,"  (FAS 123) which  permits  entities to  recognize as
expense over the vesting period the fair value of all stock-based  awards on the
date of grant.  Alternately,  FAS 123 allows  entities  to continue to apply the
provisions  of APB 25 and provide pro forma net earnings and pro forma  earnings
per  share   disclosures   for   employee   stock   option   grants  as  if  the
fair-value-based  method  defined in SFAS 123 had been applied.  The Company has
elected to continue to apply the  provisions of APB 25 and provide the pro forma
disclosure provisions of FAS 123.

         A  summary  of the  status of the  Company's  stock  option  plan as of
December 31, 1997 and changes during the year then ended is presented below:

                                                    Weighted        Options
                                       Number of    Average         Exercisable
                                       Shares       Exercise Price  at Year-end
--------------------------------------------------------------------------------

Granted                                1,560,000      3.1917
Exercised                               (292,798)     3.1917
                                       ---------

Outstanding December 31, 1997          1,267,202      3.1917           97,202
                                       =========


The following table summarizes  information  about stock options at December 31,
1997.

         Options outstanding                            Options Exercisable
--------------------------------------------     ------------------------------
                        Weighted
                        Average     Weighted                        Weighted
                        Remaining   Average                         Average
Exercise  Number        Contractual Exercise     Number             Exercise
Price     Outstanding   Life (yrs)  Price        Exercisable        Price
--------------------------------------------     ------------------------------
$3.1917    1,267,202      9.17      $3.1917         97,202          $3.1917

The weighted  average per share fair value of stock options  granted during 1997
was $.64 on the date of the grant using the Black Scholes  option-pricing  model
with the following weighted average  assumptions:  expected dividend yield of 0%
(SLH is  prohibited  from paying  dividends for at least two years in accordance
with the  Distribution  Agreement),  risk-free  interest rate of 5.5%,  expected
volatility factor of 25.4% and an expected life of 2.3 years.
                                       45

Since the Company  applies APB 25 in accounting for its plans,  no  compensation
cost has been recognized for its stock options in the financial statements.  Had
the Company recorded compensation cost based on the fair value at the grant date
for its stock options under SFAS 123, the Company's 1997 net earnings would have
been reduced by  approximately  $530,000.  Basic and diluted  earnings per share
would each have been reduced by $.05.
<PAGE>

NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized 1997 quarterly financial data is as follows:

                                     Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,
Quarter Ended                          1997       1997       1997       1997
--------------------------------------------------------------------------------
                                      (In thousands except per share amounts)
Revenues                         $    4,214      7,186       4,654      1,289
                                      ==========================================
Net earnings                     $    2,176        926       1,018      4,973
                                      ==========================================

Earnings Per share:
  Basic                          $      .22        .10         .10        .50
  Diluted                        $      .21        .09         .09        .45
Stock prices:
  High                           $     5.165     13.295      29.875     36.500
  Low                            $     2.660*     5.000      12.080     23.875


     *Reflects when issued trading prior to the March 3, 1997 Distribution Date.

                                     Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,
Quarter Ended                          1996       1996       1996       1996
--------------------------------------------------------------------------------
                                      (In thousands except per share amounts)
Revenues                         $    4,969      3,615      4,793      2,988
Net loss                         $   (1,940)    (1,427)    (1,536)     ( 695)

1997 quarterly earnings per share and stock prices have been adjusted to reflect
the two for one common  stock split  effective  on  February 9, 1998.  Quarterly
earnings per share amounts may not add to the annual  earnings per share amounts
due to the effect of common stock equivalents.

The first quarter 1997 and all 1996 revenues and earnings  include  amounts when
the  Transfer  Assets and  Transfer  Liabilities  were owned and operated by Lab
Holdings.

Earnings  per share and stock  prices are not  presented  for 1996  because  the
Company did not become public until March 3, 1997.

Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

         None.









                                       46


<PAGE>

                                    PART III


Item 10.  Directors and Executive Officers of the Registrant.

Directors and Officers

         The directors and executive officers of the Company are as follows:

Name                        Age   Position
----                        ---   --------

James R. Seward, CFA         45   President, Chief Executive Officer and Class A
                                      Director
P. Anthony Jacobs, CFA       56   Chairman of the Board  and Class A Director.
Steven K. Fitzwater          51   Vice President, Chief Accounting and Financial
                                      Officer, Treasurer and Secretary and Class
                                      C Director
Lan C. Bentsen               50   Class C Director
W. D. Grant                  81   Class B Director
W.T. Grant II                47   Class B Director
Michael E. Herman            56   Class A Director
David W. Kemper              47   Class B Director

     Mr. Seward has been the President,  Chief Executive Officer and director of
the  Company  since  its  inception  in  December  1996.  Previously  he was the
Executive Vice President, Chief Financial Officer and a director of Lab Holdings
from 1993  until  September  1997 and Senior  Vice  President,  Chief  Financial
Officer and director of Lab  Holdings  from 1990 to 1993.  Mr.  Seward also is a
director of Syntroleum,  Response Oncology,  Inc., a public company that manages
oncology  practices and clinics and that was a former subsidiary of Lab Holdings
("Response"),  LabOne,  Inc,  a  publicly  traded  subsidiary  of  Lab  Holdings
("LabOne") and Concorde Career Colleges, Inc.

     Mr.  Jacobs  has  been the  Chairman  of the  Board  and a  director  since
inception. He has been the President,  Chief Executive Officer and a director of
Lab Holdings since  September  1997,  and  previously  was the President,  Chief
Operating  Officer and a director  of Lab  Holdings  from May 1993 to  September
1997, and Chief  Operating  Officer and a director of Lab Holdings from May 1990
to May 1993. He is also a director of Response,  Syntroleum, and Trenwick Group,
Inc.

     Mr. Fitzwater has been the Vice President, Chief Accounting  and  Financial
Officer, Treasurer and Secretary and a  director of the Company since inception.
Mr. Fitzwater has also been the Vice President, Chief  Accounting  and Financial
Officer, Secretary and director of Lab Holdings since September 1997. Previously
he  was  the  Vice  President,  Chief  Accounting  Officer  and Secretary of Lab
Holdings from 1990 to September 1997.

     Mr. Bentsen has been a director of the Company since inception. Mr. Bentsen
has been the Executive Vice President of Frontera Resources since  1996 (oil and
gas).  He has been  Managing Partner of Remington  Partners  (investments) since
1995.  Prior to its sale in 1994, Mr. Bentsen was Chairman  and  Chief Executive
Officer of Sovereign National Management, Inc.(property management). Mr. Bentsen
is also a director of Lab Holdings.

     Mr. W. D. Grant has been a director of the Company since inception.  He was
a consultant to Lab Holdings from  August  1990 to December 1997 and Chairman of
<PAGE>

the Board of Lab Holdings until May 1993.  Mr. W. D. Grant also is a director of
LabOne and NationsBank, N.A.

     Mr. W. T. Grant II has been a director of the Company since  inception.  He
has  been  Chairman,  President  and  Chief  Executive  Officer  of LabOne since
September 1997.  Previously he was the Chairman and Chief  Executive Officer  of
Lab Holdings from May 1993 to September 1997,  and  President  of  Lab  Holdings
prior to May 1993. Mr. W.T. Grant also is a director of AMC Entertainment, Inc.,
Commerce  Bancshares,  Inc.,  Kansas  City  Power  &  Light  Company, LabOne and
Response.

     Michael E. Herman has been a director  of  th e Company since inception. He
has been engaged in private
                                       47

investments  since 1990 (partner  Herman Family Trading  Company),  President of
Kansas City Royals Baseball Team (major league baseball) since 1993 and Chairman
of the Finance  Committee of Ewing Marion  Kauffman  Foundation  since 1990. Mr.
Herman  also is a director  of  NationsBank,  N.A.,  Cerner  Corporation,  Janus
Capital Corporation and Agouron Pharmaceuticals, Inc.

     Mr. Kemper has been a director of the Company since inception. He has  been
Chairman  of  the  Board,  President  and  Chief  Executive  Officer of Commerce
Bancshares, Inc. (bank holding company) and Chairman and Chief Executive Officer
and a director of Commerce Bank, N.A.  (St. Louis)  for  more than the past five
years.   Mr.  Kemper  also  is  a  director  of  Ralcorp  Holdings,  Inc.,  Wave
Technologies International, Inc. and Tower Properties Company.

     The Articles of  Incorporation  and Bylaws  provide that the Company  Board
will be divided  into  three  classes of  directors,  with the  classes to be as
nearly  equal in number as  possible.  The Bylaws  further  provide  that of the
initial directors of the Company as identified above, the Class A directors will
continue  to serve until the 2000 Annual  Meeting of  Stockholders,  the Class B
Directors will continue to serve until the 1998 Annual  Meeting of  Stockholders
and the Class C Directors  will continue to serve until the 1999 Annual  Meeting
of Stockholders.  Starting with the 1997 Annual Meeting of  Stockholders,  which
was held in January  1997,  one class of  directors  is elected  each year for a
three-year  term. The Bylaws provide that beginning in 1998,  annual meetings of
stockholders  shall be held on the second Wednesday in May or such other date as
may be fixed by resolution of the Company Board. Due to the proposed Merger, the
Board  intends to fix the date of the annual  meeting for 1998 to coincide  with
the date fixed for the  proposed  vote on the Merger.  It is expected  that date
will be a date in June 1998.

Certain Board Committees

      The Company Board has established an  Executive  Committee  consisting  of
Messrs Seward, Jacobs, Fitzwater and Grant II,  an Audit Committee consisting of
Messrs.  Kemper,  Bentsen  and  W.D. Grant,  and  a  Nominating and Compensation
Committee (the "Compensation Committee") consisting  of  Messrs. Bentsen, Kemper
and Herman.

     During  the year  ended  December  31,  1997,  the Board  met 5 times,  the
Nominating and Compensation  Committee met twice and the Executive Committee met
once.  The  attendance at Committee  and Board  meetings by all Directors in the
aggregate was 98% and each Director attended at least 80% of the meetings of the
Board and the Committees of which the Director was a member.

<PAGE>

     The Audit  Committee  recommends  to the Board of Directors an  independent
auditor to audit the books and records of the Company and its  subsidiaries  for
the year. It also  reviews,  to the extent it deems  appropriate,  the Company's
Employee  Conduct  Policy,  litigation and pending claims,  the scope,  plan and
findings  of  the  independent  auditors'  annual  audit  and  internal  audits,
recommendations of the auditor, the adequacy of internal accounting controls and
audit procedures, the Company's audited financial statements, non-audit services
performed by the independent  auditor,  and fees paid to the independent auditor
for audit and non-audit services.

     The  Compensation  Committee  recommends  to the  Board  of  Directors  the
compensation of all officers and administers the Company's Stock Incentive Plan.
It also recommends to the Board of Directors the qualifications for new Director
nominees,   candidates  for  nomination,   and  policies   concerning   director
compensation and length of service.

Item 11.   Executive Compensation.

Compensation of Directors

           Non-employee directors of the Company receive compensation consisting
of annual cash retainers, meeting fees and stock option awards.

           Cash Compensation. Directors who are not employees of the Company are
paid an annual  retainer for Company  Board  service of $1,000 per quarter and a
fee of $500 for each Company Board meeting attended. Directors who are employees
of the Company,  which presently consist of Messrs Seward, Jacobs and Fitzwater,
are not paid any fee or additional  remuneration  for services as members of the
Company Board or any committee thereof.

                                       48

           Directors' Stock Options.  Pursuant to the SLH Corporation 1997 Stock
Incentive  Plan (the "Stock Option Plan"),  all of the above named  directors of
the Company other than Messrs.  Seward, Jacobs and Fitzwater received options to
purchase  16,200  shares of the  Company's  Common  Stock  (97,200  shares after
adjustment  for the 1997 and 1998 stock splits) at the fair market value of such
stock as of the close of business  on March 3, 1997.  The Board  determined  the
fair market  value to be $19.15 per share on that date ($3.19  after  adjustment
for the 1997 and 1998 stock splits) based on an appraisal  rendered by George K.
Baum & Company and over-the-counter trading in the Company's Common Stock on and
immediately before that date.

Compensation of  Executive Officers

           The table below sets forth  information  concerning  compensation for
the year ending  December 31, 1997 awarded to, earned by, or paid to all persons
who  served as  executive  officers  of the  Company  during  1997 for  services
rendered during that year ("Named  Executive  Officers").  Information for prior
years is not included since compensation  arrangements were not placed in effect
until the Distribution which occurred on March 3, 1997.







<PAGE>

                            SUMMARY COMPENSATION TABLE

                                                          Long-Term
                                                        Compensation
                            Annual Compensation             Awards
                       -----------------------------    ------------
                                                         Securities
                                            Other Annual Underlying   All Other
       Name and               Salary  Bonus Compensation   Options  Compensation
  Principal Position    Year  ($)(1) ($)(2)     ($)      (#)(3)     ($)(4)
--------------------- ------- ------  ----- ------------ ----------  -----------

James R. Seward, CFA
 President and Chief    1997 $64,647 $450,000    ---       390,000      $854
 Executive Officer

P. Anthony Jacobs, CFA
 Chairman of the Board  1997 111,204      ---    ---       390,000       980

Steven K. Fitzwater
 Vice President-Chief
 Financial Officer,
 Chief Accounting       1997  50,129      ---    ---       243,000      1,302
 Officer, Secretary
 and Treasurer
 -----------------

(1)      From the date of the Distribution until June 1, 1997, the base salaries
         of the Named Executive  Officers were paid by Lab Holdings  pursuant to
         the Interim  Services  Agreement  between the Company and Lab  Holdings
         that is Exhibit 10(a) to this report.  On that date the arrangement was
         terminated and the Company  commenced the payment of base  compensation
         to Messrs.  Seward  and Jacobs at the rate of $75,000  per annum and to
         Mr.  Fitzwater  at the rate of  $60,000  per annum as  contemplated  by
         employment agreements between the Company and each executive,  the form
         of which is shown at Exhibit 10(d) to this report.  The table  reflects
         amounts paid to the  Executives  by Lab  Holdings  during 1997 less the
         share of such compensation  that is properly  allocable to Lab Holdings
         plus all amounts paid to the executives by the Company.

(2)      The  bonus  was  paid  to  Mr.  Seward  pursuant  to  an  action of the
         Compensation Committee in June 1997, as  described under "Report of the
         Compensation Committee."

(3)      The  options  reflect  adjustments  made for the  1997  and 1998  stock
         splits.  All options  were  granted  pursuant to the Stock  Option Plan
         concurrent with the Distribution and are  non-qualified  stock options.
         The options  were  granted at their fair  market  value on the March 3,
         1997  Distribution  Date. The Board determined the fair market value to
         be $19.15 per share on that date ($3.19 after  adjustment  for 1997 and
         1998 stock splits)  based on an appraisal  rendered by George K. Baum &
         Company and  over-the-counter  trading in the Company's Common Stock on
         and  immediately  before that date. All options have ten year terms and
         become  exercisable  in equal  installments  as follows:  one-fourth on
         March 3, 1997, and one-fourth on each of the first, second and

                                       49

<PAGE>

         third anniversary dates of such date. The Stock Option Plan and form of
         option agreements are shown at Exhibits 10(c) and 10(e) to this report.

(4)      Reflects auto allowances.

Employment Agreements and Termination of Interim Services Agreement

         Each  of the  Named  Executive  Officers  is a party  to an  Employment
Agreement with the Company. Each Employment Agreement provides for employment of
the Executive  Officer for an initial term  commencing on the date the Executive
Officer  ceases  to be  employed  by Lab  Holdings  under the  Interim  Services
Agreement  on behalf of the Company and ending on the third  anniversary  of the
Distribution  Date. The three Named Executive Officers ceased to be employees of
Lab Holdings on May 31, 1997 so that the  Employment  Agreements  were activated
and became  effective on June 1, 1997. The term of the Employment  Agreements is
automatically  extended  for  successive  one year  periods  unless a notice  of
non-extension  is given by either party at least twelve  months prior to the end
of the then current term.

         The initial base compensation  payable under the employment  agreements
is as described in Note 3 to the Summary  Compensation  Table.  It is subject to
adjustment annually by the Board, provided that base salary may not be decreased
by more than five percent year to year. The Employment  Agreements  provide that
an executive  officer's full time is not required and that the executive officer
is entitled to pursue other employment or business opportunities  simultaneously
with his duties to the Company.

         The  employment of each of the Company's  Named  Executive  Officers is
subject  to  termination  for  cause,  which is  defined  as  including  willful
misconduct with respect to an executive officer's duties, or the perpetration of
a fraud,  embezzlement,  or other  act of  dishonesty,  or a breach  of trust or
fiduciary  duty  which   materially   adversely   affects  the  Company  or  its
stockholders  or the other  employment or business  activities of such executive
officer  conflicting  with the Company's  business.  The  Employment  Agreements
provide  that the Named  Executive  Officers  will not compete  with the Company
during the term of the  Employment  Agreements  and, if an executive  officer is
terminated with cause or voluntarily terminates his employment,  for a period of
one year thereafter.

         Effective with the  termination of the Interim Service  Agreement,  the
Company and Lab Holdings  entered into a similar  arrangement  pursuant to which
the Company  agreed to provide Lab Holdings with  administrative  and accounting
services  as well as space in the  Company's  offices  for books and  records in
exchange for an annual fee of $75,000.  The  arrangement is terminable by either
party on 30 days notice.

                                       50

Stock Options

         The table  shown below  contains  information  concerning  the grant of
stock  options  under the  Company's  Stock  Option Plan to the Named  Executive
Officers  during 1997. All information has been adjusted to reflect the 1997 and
1998 stock splits.




<PAGE>

                            OPTION GRANTS IN 1997

                                                                   Potential
                        Individual Grants                       Realizable Value
                    Number of  % of Total                         at Assumed
                    Securities Options                          Annual Rates of
                    Underlying Granted to                         Stock Price
                    Options    Employees  Exercise             Appreciation for
                    Granted    in Fiscal   Price   Expiration     Option Term
      Name           (#)(1)      Year     ($/Sh)      Date      5%($)    10%($)
      ----          ---------- ---------- -------- ----------  -----------------

James R. Seward, CFA   390,000    36.3      3.19     3/3/07  $780,000 $1,981,200
P. Anthony Jacobs, CFA 390,000    36.3      3.19     3/3/07   780,000  1,981,200
Steven K. Fitzwater    243,000    22.6      3.19     3/3/07   486,000  1,234,440

Option Exercises and Year End Holdings

         The table shown below provides  information,  with respect to the Named
Executive  Officers,  concerning  the exercise of options  during the year ended
December 31, 1997, and unexercised options held as of the end of fiscal 1997.
All information has been adjusted to reflect the 1997 and 1998 stock splits.


                       AGGREGATED OPTION EXERCISES IN 1997
                             AND FY-END OPTION VALUES

                                                    Number of
                                                    Securities       Value of
                                                    Underlying     Unexercised
                                                   Unexercised    In-the-Money
                                                    Options at      Options at
                                                    FY-End (#)      FY-End ($)
                  Shares Acquired  Value Realized  Exercisable/   Exercisable/
      Name         on Exercise(#)        ($)      Unexercisable Unexercisable(1)
      ----        ---------------  -------------- ------------- ---------------

James R. Seward, CFA   97,500        $2,346,858     0/292,500    0/$7,256,428
P. Anthony Jacobs, CFA 97,500         2,391,463     0/292,500    0/ 7,256,428
Steven K. Fitzwater    60,750         1,546,895     0/182,250    0/ 4,521,313















                                       51


<PAGE>



Performance of the Company's Common Stock

         The  following  performance  graph  compares  the  performance  of  the
Company's Common Stock during the period beginning from the Distribution Date on
March 3, 1997,  and ending  December 31, 1997,  to the NASDAQ Stock Market index
consisting  of US  companies  (the  "NASDAQ  COMPOSITE")  and a peer group index
consisting of 114 publicly  traded  companies  having a segment of business with
SIC code 1321 for the same period. SIC code 1321 covers establishments primarily
engaged  in  producing  hydrocarbons  from oil and gas  field  gases.  The graph
assumes  a $100  investment  in the  Company's  Common  Stock and in each of the
indexes at the beginning of the period and a  reinvestment  of dividends paid on
such investments throughout the period.

                         VALUE OF $100 INVESTMENTS
              ASSUMING REINVESTMENT OF DIVIDENDS AT MARCH 3, 1997
         AND AT THE END OF EVERY OTHER MONTH THROUGH DECEMBER 31, 1997


   [PERFORMANCE GRAPH OMITTED. GRAPH WHICH REFLECTS DATA SHOWN IN TABLE BELOW]

                         Mar 3   April 30   June 30   Aug 31   Oct 31   Dec 31

SLH                      $100      $220       $385     $702     $766     $841
SIC CODE 1321            $100       $99       $107     $114     $123     $111
NASDAQ COMPOSITE         $100       $96       $110     $121     $122     $120

Report of the Compensation Committee

         Compensation Committee Interlocks and Insider Participation.  Executive
compensation  is  based primarily upon (a) the structure created by Lab Holdings
as the organizer and sole shareholder  of  the  Company  in  connection with the
structuring of the Distribution and the related agreements, including the  Stock
Option Plan and Employment  Agreements  and  (b) the recommendations made to the
Board  of  Directors  by  the  Compensation  Committee  (the  "Committee").  The
Committee  for  the  year  ended  December 31, 1997 consisted of  Lan C. Bentsen
(Chairman),  Michael  E.  Herman and  David W. Kemper. All of the members of the
Committee  are  non-employee  directors  of the Company.  Mr. Bentsen  is also a
director of Lab Holdings and  Messrs. Herman and Kemper  were  directors  of Lab
Holdings until September, 1997. The Committee administers the Stock Option Plan.
Subject to the terms of the
                                       52

Employment Agreements, the Committee also recommends to the Board  of  Directors
other   compensation   and   compensation   plans    for   officers.   Committee
recommendations are acted upon by the full board which  includes Messrs. Seward,
Jacobs and Fitzwater who are the Named  Executive  Officers.  Mr. Seward and Mr.
Jacobs  were  also  members  of  the  Lab  Holdings  Board  which  passed on the
arrangements for the Distribution.

         This report is  provided by the  Committee  to assist  stockholders  in
understanding the Committee's philosophy in establishing the compensation of the

<PAGE>

Chief Executive Officer and all other Executive  Officers of the Company for the
year ended December 31, 1997 ("the Year").

         Compensation  Philosophy.  The  basic  compensation  structure  for the
Company  consisting of the Stock Option Plan, the employment  agreements and the
Interim Services  Agreement were developed by Lab Holdings as the Company's sole
shareholder  and by the Board in  connection  with the Lab Holdings  strategy to
create the Company and to cause the  Company's  stock to be  distributed  to Lab
Holdings shareholders in the Distribution.  Accordingly, as described under Item
13 below,  none of the  compensation  arrangements  implemented  pursuant to the
Distribution  are the result of  arm's-length  negotiation  between  independent
parties.

         The intent of Lab Holdings and the Company's  Board in  developing  the
initial  compensation  structure was to have compensation for executive officers
focus on two  elements:  (a) base salary and (b) long term  compensation  in the
nature of non-qualified  stock options.  It was believed that base  compensation
should be kept relatively low and that superior  performance  should be rewarded
in  relation  to the  growth in value of each  stockholder's  investment  in the
Company.  The low base  compensation  also  reflected  the fact  that the  Named
Executive  Officers under the  employment  Agreements are not required to devote
full time to the affairs of the Company.  In  connection  with and following the
Distribution it has been the policy of the Compensation Committee during 1997 to
follow this philosophy.

         Base Salary.  Following the March 3, 1997,  Distribution and until June
1, 1997, the Named Executives were compensated by Lab Holdings under the Interim
Services  Agreement  and as reflected in the Summary  Compensation  Table.  That
agreement was terminated effective at the close of business on May 31, 1997, and
the Employment  Agreements  were  activated.  Under the  Employment  Agreements,
annual base salary for  Messrs.  Seward and Jacobs is fixed at $75,000  each and
$60,000  for Mr.  Fitzwater.  During  1997,  no  adjustments  were  made to base
salaries since the employment agreements generally contemplate that adjustments,
if any, be made annually.

         Stock Option Plan.  Grants under the Stock Option Plan were made to the
Named Executive  Officers in connection with the Distribution as discussed under
the Summary  Compensation  Table.  The intent of Lab Holdings and the Committee,
was to structure the Stock Option Plan to provide for the grant of non qualified
stock options at exercise  prices equal to fair market value for the Board,  all
Executive  Officers and other key employees for up to  approximately  15% of the
Company's outstanding stock assuming the exercise of all covered options. It was
believed that this was consistent with option programs adopted by many small cap
companies  in  similar  businesses.  The  option  plan was  considered  to be an
appropriate  vehicle to provide  incentives  for  management  to take steps that
would  maximize  the values of the assets being  contributed  to the Company and
therefore  provide long term  benefits to  stockholders.  Also,  by having stock
options granted at the market price at the Distribution  Date executive  rewards
would accrue only with increases in the value of stockholder interests.  In this
way, it was believed that the Company's stock price would provide an appropriate
yardstick by which to measure and reward management performance.

         Compensation  of the  Chief  Executive  Officer  for  1997.  All of the
components of the 1997  compensation of the Chief  Executive  Officer other than
cash bonuses were determined in accordance with the criteria described above for
the other Named  Executive  Officers.  In connection with the termination of the
Interim Services Agreement and the  implementation of the Employment  Agreements
the  Committee   concluded   that  in  addition  to  the   relatively  low  base
<PAGE>

compensation,  a performance  based bonus be established  for the Company's CEO.
The Committee  decided to use the Company  stock price as a measurement  of both
performance  and reward so that  benefits  would  accrue only in  proportion  to
increases in the value of stockholder interests.  Accordingly, under the program
that was adopted in June 1997,  Mr. Seward was granted a cash bonus equal to one
times his $75,000 base annual  compensation  at such time as (a) the  thirty-day
average  trading price of the Company's  common stock equaled or exceeded $10.00
per share (as adjusted for the 1997 and 1998 stock  splits) and (b) that a bonus
in the same amount be paid each time the thirty-day average trading price of the
Company 's Common Stock equaled or exceeded  $3.34 more than the price for which
the then most  recent  bonus had been  paid (as  adjusted  for the 1997 and 1998
stock  splits).  Pursuant  to this  program,  Mr.  Seward's  cash bonus for 1997
amounted to $450,000. The cash bonus program terminates on June 1, 1998.

                                       53

         This report is being made over the names of Lan C. Bentsen,  Michael E.
Herman and David W. Kemper who were the members of the Committee which passed on
executive compensation for the year.

Item 12.         Security Ownership of Certain Beneficial Owners and Management.

By Management

         The table shown below sets forth the number of shares of Company Common
Stock beneficially owned as of February 1, 1998, directly or indirectly, by each
director,  each Named Executive Officer and all directors and executive officers
as a group.  Except  as  otherwise  indicated,  each  individual  named has sole
investment and voting power with respect to the securities  shown.  All holdings
have been adjusted to reflect the 1997 and 1998 stock splits.

                                          Amount and Nature of
                Name                   Beneficial Ownership (1)(2) Percentage(3)
                ----                   --------------------------- ------------
      James R. Seward (4).............           190,460                1.9%
      P. Anthony Jacobs (5)...........           222,606                2.2%
      Steven K. Fitzwater.............           107,908                1.1%
      Lan C. Bentsen (6)..............            60,372                 --
      W. D. Grant (7).................         1,504,386               15.0%
      W.T. Grant II (8)...............           128,526                1.3%
      Michael E. Herman (9)...........           115,302                1.1%
      David W. Kemper (10)  ..........            34,258                 --
      All Directors and Officers
        as a group of eight (11)......         2,363,818               22.5%
----------------

 (1)     A  beneficial  owner of a security  includes a person who,  directly or
         indirectly,  has or shares voting or  investment  power with respect to
         such  security.  Voting power is the power to vote or direct the voting
         of the security and investment  power is the power to dispose or direct
         the disposition of the security. Each person listed has stated that he,
         either  alone  or with  his  spouse,  has sole  voting  power  and sole
         investment  power  with  respect to the  shares  shown as  beneficially
         owned, except as otherwise indicated.

 (2)     Shares  of  Company  Common  Stock  shown as beneficially owned include
         shares   issuable   upon   the   exercise  of  stock  options that were
         exercisable  on February 1, 1998, or that  become exercisable within 60
<PAGE>

         days thereafter, as follows:Lan C. Bentsen, 48,600 shares, W. D. Grant,
         48,600 shares; W.T. Grant II, 48,600 shares; Michael E.  Herman, 48,600
         shares;  David  W.  Kemper,  24,300  shares;  P. Anthony Jacobs, 97,500
         shares,  James R. Seward, 97,500 shares;  Steven  K. Fitzwater,  60,750
         shares, and  all directors and  executive  officers as a group, 474,450
         shares.

(3)      The  percentages  represent  the total number of shares of Common Stock
         shown in the adjacent column divided by 9,902,588, the number of issued
         and  outstanding  shares of the  Company's  Common Stock on February 1,
         1998,  plus, in each  instance,  all shares of Common Stock issuable to
         the person or group named upon the  exercise of stock  options  granted
         under  the SLH  Corporation  Stock  Option  Plan  for  1997  that  were
         exercisable on February 1, 1998, or that become  exercisable  within 60
         days thereafter. Percentages of less than one percent are omitted.

(4)      Includes  2,250  shares  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.

(5)      Includes  1,500  shares  owned  by  the wife of P. Anthony Jacobs as to
         which he disclaims beneficial ownership.

(6)      Includes  2,148  shares  held by a family  trust for the benefit of Mr.
         Bentsen's  children for which Mr.  Bentsen  serves as trustee with sole
         voting and investment powers.

                                       54

(7)      Includes  746,802  shares  held by W.D.  Grant  in trust  for  himself;
         356,940  shares held by a family trust for which W.D. Grant serves as a
         co-trustee  and in that capacity  shares voting and  investment  powers
         with UMB Bank,  Kansas City, N.A., as to which he disclaims  beneficial
         ownership;  170,124 shares in a trust for the benefit of W.D. Grant for
         which W.D. Grant acts as co-trustee and in that capacity  shares voting
         and investment  powers with UMB Bank,  Kansas City, N.A.; 60,648 shares
         held by a trust for the benefit of W.D. Grant in which UMB Bank, Kansas
         City,  N.A.  is the sole  trustee  but W.D.  Grant has sole  investment
         control, as to which he disclaims beneficial  ownership;  60,648 shares
         held by a family trust for which W. D. Grant serves as a co-trustee and
         in that  capacity  shares voting and  investment  powers with UMB Bank,
         Kansas City, N.A., as to which he disclaims beneficial ownership;  also
         including  10,176  shares owned by W.D.  Grant's wife and 40,272 shares
         held by a trust for the benefit of W.D.  Grant's  wife,  as to which he
         disclaims beneficial ownership.

 (8)     Includes 46,884 shares held  by  W. T.  Grant  II as  custodian for his
         children;  also   includes  17,802  shares  owned  by  the wife of W.T.
         Grant II, as to which he disclaims beneficial ownership.

 (9)     Includes  30,000 shares owned by the Herman Family  Trading  Company of
         which Mr. Herman is a general partner and  approximately  73% owner and
         300 shares owned by ARK Management.

(10)     Includes  8,980  shares  held in a family  trust for  which Mr.  Kemper
         serves as a trustee,  and in that capacity  shares voting power and has
         sole investment power.

<PAGE>

(11)     Includes  474,450  shares of Company  Common  Stock  issuable  upon the
         exercise of stock options  granted  under the SLH 1997 Stock  Incentive
         Plan  that  were  exercisable  on  February  1,  1998  or  that  become
         exercisable within 60 days thereafter.

 By Others

         The table  below sets forth each person or entity  (other than  persons
set forth in the  preceding  table) that has reported to the Company  beneficial
ownership of more than 5% of the Company's Common Stock as of February 15, 1998.
The  percentage  of  ownership is based on 9,902,588  shares  outstanding  as of
February 1, 1998.

                                      Amount and Nature of
         Name                         Beneficial Ownership           Percentage
         ----                         --------------------           ----------

Gotham Partners, L.P. (1)............        746,750                    7.46%
110 East 42nd Street, 18th Floor,
New York, New York 10017.

------------
(1)      The shares include 6,006 shares reported in the Gotham  Partners,  L.P.
         Schedule  13D,  filed on  February  3, 1998,  as being  owned by Gotham
         Partners II, L.P.

Item 13.  Certain Relationships and Related Transactions.

         The Company and Lab Holdings have entered into certain  agreements  for
the purpose of effecting the Distribution and defining the ongoing  relationship
between  them.  These  agreements  consist  of the  Distribution  Agreement,  an
Assignment and Assumption  Agreement , the Interim Services Agreement (which was
terminated effective June 1, 1997) and a Tax Sharing Agreement. These agreements
have been  described  in the  Company's  registration  statement  on Form 10, as
amended and the Company's Form 10-K for the year ended December 31, 1996.
Copies of the Agreements are Exhibits to this report.

          The above agreements were developed by Lab Holdings in connection with
its  strategy  to create  the  Company  and to cause the  Company's  stock to be
distributed to Lab Holdings shareholders in the Distribution.  Accordingly, none
of the agreements are the result of arm's-length negotiation between independent
parties.

                                       55

         P. Anthony Jacobs, CFA, and Steven K. Fitzwater,  who are the President
and  Chief  Executive  Officer  and  Vice  President  and  Chief  Financial  and
Accounting  Officer of Lab  Holdings,  respectively,  are the  Chairman and Vice
President  and  Chief   Financial  and   Accounting   Officer  of  the  Company,
respectively. All but one of the directors of Lab Holdings are also directors of
the Company.  These  officers and directors of the Company will continue in such
dual  capacities  with Lab Holdings and the Company for an indefinite  period of
time.  Because  the  management  of  both  Lab  Holdings  and  the  Company  are
essentially  identical,  conflicts  may arise with respect to the  operation and
effect of the agreements and arrangements  described above and also with respect
to the negotiation of any additional agreements which may well arise between Lab
Holdings and the Company.  Although Lab Holdings and the Company plan to utilize
independent  directors who have no  affiliation  with the Company to resolve any
<PAGE>

material issue that may arise between Lab Holdings and the Company following the
Distribution, such resolutions may not reflect the results of actual arms-length
negotiations.  Accordingly,  conflicts arising out of the management of both Lab
Holdings and the Company by the same persons could have an adverse affect on the
Company and its stockholders if not properly resolved.

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

         The following documents are filed as part of this report:

             (a) Financial Statements:
                 Report of Independent  Auditors with respect to SLH Corporation
                 SLH Corporation  Consolidated Balance Sheets as of December 31,
                 1997  and  1996  SLH  Corporation  Consolidated  Statements  of
                 Operations for the years ended December 31, 1997,
                    1996 and 1995
                 SLH Corporation Statements of Consolidated Equity
                 SLHCorporation  Consolidated  Statements  of Cash Flows for the
                    years ended December 31, 1997, 1996 and 1995
                 Notes to SLH Corporation Consolidated Financial Statements

             (b) Financial Statement Schedules:

                 Auditors Report on Financial Statement Schedules
                 III.  Real Estate and Accumulated Depreciation

                 Allother  schedules are omitted because they are not applicable
                    or  the   information  is  contained  in  the   Consolidated
                    Financial Statements or notes thereto.

             (c) Exhibits:

                  Exhibit
                   Number                 Description
                  -------                 -----------

                  2(a)     Copy  of  Distribution  Agreement   [incorporated  by
                           reference to Exhibit 2(a) to Form 10/A of the Company
                           dated February 3, 1997].

                  2(b)     Copy of Blanket  Assignment,  Bill of Sale,  Deed and
                           Assumption  Agreement  [incorporated  by reference to
                           Exhibit 2(b) to the Company's Report on Form 10-K for
                           the year ended December 31, 1996].

                   3(a)    Articles   of   Incorporation   of  SLH   Corporation
                           [incorporated  by  reference  to Exhibit  3(a) to the
                           Form 10 of the Company filed December 24, 1996].

                  3(b)     Bylaws of SLH Corporation  [incorporated by reference
                           to Exhibit  3(b) to the Form 10 of the Company  filed
                           December 24, 1996].


                                       56

<PAGE>



                  4        Copy of Rights Agreement dated as of January 31, 1997
                           [incorporated  by  reference to Exhibit 4 to the Form
                           10/A of the Company filed February 12, 1997].

                  10(a)    Copy of Facilities  Management  and Interim  Services
                           Agreement [incorporated by reference to Exhibit 10(a)
                           to the  Company's  Report  on Form  10-K for the year
                           ended December 31, 1996].

                  10(b)    Copy  of  Tax  Sharing  Agreement   [incorporated  by
                           reference to Exhibit 10(b) to the Company's Report on
                           Form 10-K for the year ended December 31, 1996] .

                  10(c)    Copy of SLH  Corporation  1997 Stock  Incentive  Plan
                           [incorporated  by reference  to Exhibit  10(c) to the
                           Form 10/A of the Company filed February 12, 1997].

                  10(d)    Form of Employment  Agreements with certain executive
                           officers of SLH [incorporated by reference to Exhibit
                           B to Exhibit 2(a)].

                  10(e)    Form of Option  Agreement with certain executive
                           officers under the Stock Option Plan.

                  10(f)    Form  of  Option  Agreement  with directors under the
                           Stock Option Plan.

                  10(g)    Certified copy of  resolutions  approving  a  certain
                           bonus arrangement for James R. Seward.

                  21       Subsidiaries of SLH Corporation

                           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       Consent of Independent Auditors

                  24       Powers of Attorney for  officers and directors of the
                             Registrant  (incorporated   by  reference   to  the
                             signature page).

                  27       Financial Data Schedule

         No  reports  on Form 8-K have  been  filed  during  the  quarter  ended
December 31, 1997.


                                       57

<PAGE>


                                   SIGNATURES

         Pursuant to  requirements  of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report  to  be signed on its behalf
by the undersigned, thereunto duly authorized,  in  the city of Prairie Village,
State of Kansas, on this 30th  day of March 1998.

                                            SLH CORPORATION

                                            By S/ James R. Seward
                                               -------------------------------
                                               James R. Seward, President

                                 POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below  constitutes  and appoints James R. Seward,  P. Anthony Jacobs and
Steven K. Fitzwater and each of them, his true and lawful  attorneys-in-fact and
agents, with full power of substitution and re-substitution,  for him and in his
name, place and stead, in any and all capacities, to sign any and all reports of
the  Registrant on Form 10-K and to sign any and all  amendments to such reports
and to file  the  same  with  all  exhibits  thereto,  and  other  documents  in
connection therewith,  with the Securities & Exchange Commission,  granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the  premises,  as fully to all  intents  and  purposes as he might or
could  do  in  person,   hereby   ratifying   and   confirming   all  that  said
attorneys-in-fact  and  agents  or any of them,  or their or his  substitute  or
substitutes, may lawfully do or cause to be done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant in the capacities indicated on the dates indicated.

            Name                        Title                        Date
            ----                        -----                        ----
   S/James R. Seward
----------------------------   President (Principal
    James R. Seward            Executive Officer) and Director    March 30, 1998

   S/P. Anthony Jacobs
----------------------------   Chairman of the Board and
    P. Anthony Jacobs          Director                           March 30, 1998


   S/Steven K. Fitzwater
----------------------------   Vice President, Treasurer,
    Steven K. Fitzwater        Secretary and Chief Financial and
                               Accounting Officer and Director    March 30, 1998


   S/Lan C. Bentsen
---------------------------    Director
    Lan C. Bentsen                                                March 30, 1998



<PAGE>

   S/W. D. Grant
---------------------------    Director
    W.D. Grant                                                    March 30, 1998


   S/W. T. Grant II
---------------------------    Director
      W. T. Grant II                                              March 30, 1998


   S/Michael E. Herman
---------------------------    Director
    Michael E. Herman                                             March 30, 1998


   S/David W. Kemper
---------------------------    Director
    David W. Kemper                                               March 30, 1998





































                                       58


<PAGE>






















                               SLH CORPORATION

                    Consolidated Financial Statement Schedule
                                  (Form 10-K)

                               December 31, 1997




























<PAGE>




                                  SLH CORPORATION
                                    Schedule III
                       Real Estate and Accumulated Depreciation

                                 December 31, 1997
                                   (Page 1 of 2)

                                       Costs Capitalized        Gross Amount
                      Initial Cost         Subsequent         At Which Carried
                       to Company       to Acquisition      at December 31, 1997
                      ----------------------------------------------------------
                          Buildings &                         Buildings &
                            Improve-   Improve-  Carrying       Improve-
Description           Land    ments     ments     Costs   Land    ments  Total
------------          ----------------------------------------------------------
                                            (In thousands)
Land Investments/
Developments:
Houston, TX        $  6,158      49     1,120     1,604   2,228     195   2,423
Ft Worth, TX          1,000      --        --        --     665      --     665
Olathe, KS            3,292      --        49        --   2,659      --   2,659

Parking:
Reno, NV                 --   5,277        19        --      --   5,296   5,296

Residential:
Santa Fe, NM          4,576      --    67,202    17,607     204  12,780  12,984
                     -----------------------------------------------------------
                   $ 15,026   5,326    68,390    19,211   5,756  18,271  24,027
                     ===========================================================

Reserves                                                                (11,703)
Net real estate before depreciation                                      12,324
Accumulated depreciation                                                 (1,293)
                                                                         -------
Net real estate                                                          11,031
Less current portion                                                     (1,973)
                                                                         -------
Real estate, net of current portion                                      $ 9,058
                                                                         =======

(1)Reserves have been  established to reflect lower net realizable  values based
     on  periodic  evaluation  of changes  in market  conditions,  recent  sales
     prices, and appraisals.







                                      S-2

<PAGE>




                                 SLH CORPORATION
                                   Schedule III
                      Real Estate and Accumulated Depreciation

                                December 31, 1997
                                  (Page 2 of 2)



                                                      Date
                        (1)     Accum.       Tax     Constr.     Date      Depr.
Description          Reserves    Depr.      Basis     Began    Acquired    Life
--------------------------------------------------------------------------------
                                        (In thousands)

Land Investments/
Developments
Houston, TX         $     --       --        4,779     1997       1974      --
Ft Worth, TX             632       --          665       --       1986      --
Olathe, KS                --       --        2,442       --       1991      --

Parking:
Reno, NV               1,264    1,293        4,205       --       1989    20 yrs

Residential:
Santa Fe, NM           9,807       --        4,195     1987       1985      --
                      -------------------------------------
                    $ 11,703    1,293       16,286
                      =====================================























                                      S-3


<PAGE>




                                 SLH CORPORATION
                                   Schedule III
                       Real Estate and Accumulated Depreciation
                            Reconciliation Between Years

A) Reconciliations of total real estate carrying value for the three years ended
December 31, 1997 are as follows:

                                              1997          1996         1995
                                             ----------------------------------
                                                        (In thousands)
Balance at beginning of year             $   26,718        40,234       44,595

Additions during year:
  Improvements                                1,353         1,726       12,637
                                             ----------------------------------
                                             28,071        41,960       57,232

Deductions during year:
  Value of real estate sold                  15,041        12,773        9,890
  Provision for loss on real estate held
    for sale                                    706         1,069        7,108
  Cumulative effect of change in accounting
    principle                                    --         1,400           --
                                             ----------------------------------
                                             15,747        15,242       16,998
                                             ----------------------------------
 Balance at end of year                   $  12,324        26,718       40,234
                                             ==================================

B)   Reconciliations  of  accumulated  depreciation  for  the  three years ended
     December 31, 1997 are as follows:

                                              1997          1996         1995
                                             ----------------------------------
                                                        (In thousands)
Balance at beginning of year              $   1,293         1,293        1,081
Additions during year - depreciation             --            --          212
                                             ----------------------------------
                                              1,293         1,293        1,293

Deductions during year - accumulated
  depreciation of real estate sold               --            --           --
                                             ----------------------------------
Balance at end of year                    $   1,293         1,293        1,293
                                             ==================================






                                      S-4


<PAGE>

                                  EXHIBIT INDEX

  Exhibit
  Number                   Description
  -------                  -----------

   2(a)               Copy of Distribution Agreement  [incorporated by reference
                      to Exhibit 2(a) to Form 10/A of the Company dated February
                      3, 1997].

   2(b)               Copy  of  Blanket  Assignment,  Bill  of  Sale,  Deed  and
                      Assumption Agreement [incorporated by reference to Exhibit
                      2(b) to the  Company's  Report  on Form  10-K for the year
                      ended December 31, 1996].

   3(a)               Articles of Incorporation of SLH Corporation [incorporated
                      by reference to Exhibit 3(a) to the Form 10 of the Company
                      filed December 24, 1996].

   3(b)               Bylaws of SLH  Corporation  [incorporated  by reference to
                      Exhibit 3(b) to the Form 10 of the Company filed  December
                      24, 1996].

   4                  Copy of Rights Agreement  dated  as  of  January  31, 1997
                      [incorporated by reference to Exhibit 4 to the  Form  10/A
                      of the Company  filed February 12, 1997].

   10(a)              Copy  of  Facilities   Management  and  Interim   Services
                      Agreement  [incorporated  by reference to Exhibit 10(a) to
                      the  Company's  Report  on Form  10-K for the  year  ended
                      December 31, 1996].

   10(b)              Copy of  Tax  Sharing Agreement [incorporated by reference
                      to Exhibit 10(b) to the Company's Report  on Form 10-K for
                      the year ended December 31, 1996].

   10(c)              Copy  of   SLH   Corporation  1997  Stock  Incentive  Plan
                      [incorporated  by  reference to  Exhibit 10(c) to the Form
                      10/A of the Company  filed February 12, 1997].

   10(d)              Form  of  Employment  Agreements  with  certain  executive
                      officers of SLH [incorporated by reference to Exhibit B to
                      Exhibit 2(a)].

   10(e)              Form of Option Agreement with certain  executive  officers
                      under the Stock Option Plan.

   10(f)              Form of Option Agreement  with  directors  under the Stock
                      Option Plan.

   10(g)              Certified  copy  of  resolutions approving a certain bonus
                      arrangement for James R. Seward.

   21                 Subsidiaries of SLH Corporation

                      Scout Development Corporation (a Missouri corporation)
                      Scout Development Corporation of New Mexico
                        (a Missouri corporation)
<PAGE>


                      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                 Consent of Independent Auditors

   24                 Powers  of  Attorney  for  officers  and  directors of the
                      Registrant  (incorporated  by  reference  to the signature
                      page).

   27                 Financial Data Schedule