<PAGE>



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

                                    FORM 10-K

(Mark One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.

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

                          COMMISSION FILE NO. 0-21911

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

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

                            1350 South Boulder, Suite 1100
                             Tulsa, Oklahoma 74119-3295
                 (Address of principal executive offices) (Zip Code)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __
                                              -

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

At March 1, 2002, the aggregate market value of the registrant's common stock
held by non-affiliates of the registrant was approximately $116 million based
on the closing price of such stock on such date of $5.90 per share (assuming
solely for this purpose that all of the registrant's directors, executive
officers and 10% stockholders are its affiliates).

At March 1, 2002, the number of outstanding shares of the registrant's common
stock was 33,282,707.

                      DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days of December 31, 2001 for its
2001 annual meeting of stockholders are incorporated by reference into Part III
of this Form 10-K.

===============================================================================

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                                TABLE OF CONTENTS
                                                                           Page
                                                                           ----
                                     Part I
Item 1.    Business...........................................................3
Item 2     Properties........................................................26
Item 3     Legal Proceedings.................................................26
Item 4.    Submission of Matters to a Vote of Security Holders...............26
           Executive Officers of the Registrant..............................26

                                     Part II

Item 5.    Market for Registrant's Common Equity and Related
             Stockholder Matters.............................................28
Item 6.    Selected Financial Data...........................................29
Item 7.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations.............................30
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk........40
Item 8.    Financial Statements and Supplementary Data.......................40
Item 9.    Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure........................................41

                                    Part III

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

                                     Part IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K..41

                           FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-K includes forward-looking statements as
well as historical facts. These forward-looking statements include statements
relating to the Syntroleum Process and related technologies, gas-to-liquids
plants based on the Syntroleum Process, including the proposed Sweetwater
plant, anticipated costs to design, construct and operate these plants,
anticipated costs to make products from these plants, the timing of
commencement and completion of the design and construction of these plants,
obtaining required financing for these plants, the economic construction and
operation of GTL plants, the value and markets for plant products, the testing,
certification, characteristics and use of plant products, the continued
development of the Syntroleum Process (alone or with partners), anticipated
capital expenditures, use of proceeds from our 2000 public offering of common
stock, anticipated revenues, the sale of and costs associated with our real
estate inventory and any other statements regarding future growth, cash needs,
capital availability, operations, business plans and financial results. When
used in this document, the words "anticipate," "believe," "estimate," "expect,"
"intend," "may," "plan," "project," "should" and similar expressions are
intended to be among the statements that identify forward-looking statements.
Although we believe that the expectations reflected in these forward-looking
statements are reasonable, these kinds of statements involve risks and
uncertainties. Actual results may not be consistent with these forward-looking
statements. Important factors that could cause actual results to differ from
these forward-looking statements include the risks that the cost of designing,
constructing and operating commercial-scale GTL plants will exceed current
estimates, the schedule for construction of commercial-scale GTL plants will
extend beyond current estimated schedules, financing for design and
construction of commercial-scale GTL plants and our other activities may not be
available, commercial-scale GTL plants will not achieve the same results as
those demonstrated on a laboratory or pilot basis, GTL plants may experience
technological and mechanical problems, improvements to the Syntroleum Process
currently under development may not be successful, markets for GTL plant
products may not develop, plant economics may be adversely impacted by
operating conditions, including energy prices, construction risks and risks
associated with investments and operations in foreign countries, our ability to
implement corporate strategies, competition, intellectual property risks, our
ability to obtain necessary financing and other risks described under "Risk
Factors" and elsewhere in this Annual Report on Form 10-K.

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

                                      2

<PAGE>

PART I

Item 1.  Business

Overview

         We are a leading developer and licensor of a proprietary process for
converting natural gas to synthetic liquid hydrocarbons, a process generally
known as gas-to-liquids, or GTL, technology. We sell licenses to use our GTL
technology, the Syntroleum Process, for the production of fuels, and we plan to
develop and own GTL plants based on the Syntroleum Process that produce fuels
and refined specialty products. We anticipate that the Syntroleum Process will
be an attractive solution in many cases for companies with natural gas reserves
that are not economic to produce using traditional technology.

         The Syntroleum Process produces synthetic liquid hydrocarbons, also
known as synthetic crude oil, that are substantially free of contaminants
normally found in conventional products made from crude oil. These synthetic
liquid hydrocarbons can be further processed into higher margin products
through conventional refining processes. These products include:

             .    Premium, ultra-clean liquid fuels, such as synthetic diesel,
                  kerosene, gasoline, naphtha, and fuel for fuel cells, and

             .    Specialty products, such as synthetic lubricants, process
                  oils, high melting point waxes, liquid normal paraffins,
                  drilling fluids, and chemical feedstocks.

         We believe that the costs to produce ultra-clean fuels and specialty
products from natural gas using the Syntroleum Process can be competitive with
the costs to produce comparable quality products from conventional processes.
We also believe that these ultra-clean fuels meet or exceed new and proposed
environmental requirements.

         Key advantages of our technology over traditional GTL technologies are
the use of air in the conversion process (in contrast to the requirement for
pure oxygen in other technologies) and the use of our proprietary catalysts,
which enhance the conversion efficiency of the catalytic reaction. We believe
these advantages will reduce capital and operating costs of GTL plants based on
the Syntroleum Process, while also permitting smaller unit sizes, including
mobile plants that could be placed on skids, barges and ocean-going vessels.
Based on our demonstrated research, we believe that the Syntroleum Process can
be economically applied in GTL plants with throughput levels from less than
10,000 to over 100,000 barrels per day. The advantages of our technology,
combined with the large worldwide resource base of stranded natural gas,
provide what we believe is a significant market opportunity for the use of the
Syntroleum Process by our company and our licensees to develop cost-effective
GTL plants.

         We have successfully demonstrated many elements and variations of the
Syntroleum Process in pilot plant operations and laboratory tests, including
our joint participation in a 70 barrel per day GTL demonstration plant with one
of our licensees, ARCO, a subsidiary of BP. While we have not yet built a
commercial-scale GTL plant based on the Syntroleum Process, we are currently
developing a nominal 11,500 barrel per day specialty product GTL plant based on
the Syntroleum Process known as the Sweetwater plant to be constructed in
Western Australia. We are also evaluating the potential development of
additional GTL plants with our licensees and others, including facilities that
will produce synthetic fuels.

         To date, we have entered into license agreements with the following
entities or their affiliates:

         ARCO (a subsidiary of BP)             Kerr-McGee Corporation

         Commonwealth of Australia             Marathon Oil Company

         Enron Corp.                           Repsol-YPF, S.A.

         Ivanhoe Energy Inc.                   Texaco Inc. (a subsidiary of
                                               Chevron/Texaco)

                                      3

<PAGE>

         In addition, we have from time to time participated in joint
development, testing, marketing or strategic relationships with various
companies, including:

         AMEC Process and Energy Ltd.                 Ivanhoe Energy Inc.

         Criterion Catalyst Company L.P.              The Lubrizol Corporation

         DaimlerChrysler AG                           Lyondell Petrochemical
                                                      Company

         FuelCell Energy                              Marathon Oil Company

         GE Power Systems                             Nuevera (formerly Epyx
                                                      Corporation)

         General Motors Corporation                   Tessag Industrie-Anlagen
                                                      GmbH

         IdaTech (formerly Northwest Power Systems)   Volkswagen of America

Business Strategy

         Our objectives are to rapidly establish the Syntroleum Process as an
industry standard and maximize our market share relative to alternative GTL
technologies. Our business strategy to achieve these objectives involves the
following key elements:

         Broadly License the Syntroleum Process. We intend to work with our
existing licensees to develop new GTL plants and to continue selling licenses
to use the Syntroleum Process. We estimate that there are over 200 oil and gas
companies with natural gas reserves located outside the United States. We
believe that many of these companies are potential licensees. We believe that
widespread licensing, combined with research and development activities to
further improve the Syntroleum Process, provide advantages over competing
technologies, strengthens our relationships with our existing licensees and
attracts new licensees.

         Develop and Own GTL Plants. We intend to own significant equity
interests in joint ventures with our licensees and other energy industry and
financial partners that will develop and own GTL plants for the production of
specialty products and fuels. For example, we are currently developing a
nominal 11,500 barrel per day Sweetwater plant to be constructed in Western
Australia, in which we will own a significant equity interest. In addition, we
are actively pursuing development of other GTL plants in various locations in
which we expect to own significant equity interest, including our combined
NGL/GTL project under development in the Talara region of Peru. We have also
signed a nonbinding letter of intent with Petroleum Geo-Services ASA to form a
joint venture to develop, market and operate mobile marine production
facilities based on the Syntroleum Process.

         We generally retain the exclusive right to manufacture specialty
products under our license agreements. We believe that our proprietary reactor
designs and catalysts, combined with our improvements to existing refining
methods, will enable us to produce relatively high margin, high quality
specialty products more economically than conventional techniques.

         Further Expand and Develop Product Markets. We intend to continue to
develop new markets for Syntroleum synthetic fuels and specialty products in
order to promote the construction of GTL plants by our licensees and to
establish markets for the products of GTL plants developed and owned by us. We
believe that our technology can cost-effectively provide environmentally
superior ultra-clean fuels for use in diesel, gasoline and jet engines. When
made from domestic natural gas, Syntroleum diesel fuels qualify as alternative
fuels under the Energy Policy Act. In addition, we have applied for
certification that Syntroleum diesel fuels made from foreign natural gas
qualify as alternative fuels under the Energy Policy Act. We also believe that
the availability of our fuels will foster the successful development and
economic application of fuel cells and other clean combustion technologies.

         Further Reduce Costs through Networked Research and Development
Activities. We intend to continue research and development activities with a
focus on improving the efficiency of the Syntroleum Process, further reducing
capital and operating costs of GTL plants based on the Syntroleum Process, and
better understanding the unique qualities of, and markets for, the synthetic
products produced by the Syntroleum Process. We conduct research and
development activities using our own resources and through our network of joint
development arrangements with licensees and other industry partners. We believe
that this network will provide us and our

                                      4

<PAGE>

licensees with important competitive advantages and enhance our ability to
attract additional licensees and joint development partners. We generally
obtain title or exclusive rights to inventions or improvements that result from
our joint development activities with others. We regularly review technological
advances of others in related fields and actively seek to acquire rights to
technologies that may enhance the Syntroleum Process.

The Syntroleum Advantage

         We expect that products of the Syntroleum Process will become a
competitive source of supply for the anticipated demand for ultra-clean
synthetic transportation fuels and the existing market for fuels and specialty
products, based on our belief that these products can be:

             .    produced at costs competitive with costs to produce many
                  comparable products that are currently produced using
                  conventional processes, including diesel fuel, gasoline and
                  lubricants, assuming crude oil prices of at least $15.00 per
                  barrel and natural gas prices lower than $1.00 per thousand
                  cubic feet (levels at which stranded natural gas may be
                  purchased in many parts of the world),

             .    produced substantially free of contaminants normally found in
                  fuels and specialty products made from crude oil,

             .    used as blending stock to upgrade conventional fuels and
                  specialty products made from crude oil,

             .    used unblended in traditional combustion engines to
                  significantly reduce emissions,

             .    used in advanced combustion and fuel-cell engines that require
                  sulfur and aromatic-free fuels, and

             .    transported using the existing infrastructure for crude oil
                  and refined products.

         The cost to produce a barrel of fuel includes the amortized plant or
refinery capital costs, the operating costs and the feedstock costs (cost of
natural gas in the case of the Syntroleum Process and cost of crude oil in the
case of conventional refineries). Based on our current technology, we expect
the combined capital and operating costs per installed barrel of capacity to be
higher for a GTL plant based on the Syntroleum Process than for a conventional
refinery. However, we believe lower prices for natural gas relative to crude
oil can result in a total cost per equivalent barrel of product from a GTL
plant based on the Syntroleum Process that is substantially less than the
equivalent total per barrel cost for conventional refineries. Specifically, we
believe the price of stranded natural gas used as a feedstock for the
production of synthetic crude oil compares favorably with the price of crude
oil in many markets. In addition, we believe conventional refineries will face
additional capital and operating costs to meet the recently adopted EPA
requirement to reduce the sulfur content level of diesel fuel to 15 parts per
million by 2006.  The American Petroleum Institute estimates that a requirement
to reduce this sulfur content to 15 parts per million would add approximately
$4.20 per barrel of additional costs for conventional refining. In contrast,
the Syntroleum Process produces diesel fuel that already meets the new low
sulfur requirement, providing an incremental relative cost advantage compared
to conventional refineries.

         We anticipate that the Syntroleum Process will be an attractive
solution in many cases for companies with natural gas reserves that are not
economic to produce using traditional methods. This is based on our belief that
the Syntroleum Process can be low cost, used in large or small formats,
adaptable and portable.

Market Potential

         We believe that significant market potential exists for the Syntroleum
Process and its products due to the existing and growing demand for refined
fuels, the anticipated demand for ultra-clean fuels for both internal
combustion engines and fuel cells, the existing demand for high-quality
specialty products, and the large existing supply of stranded natural gas
worldwide.

         We expect demand for products created through the Syntroleum Process
to result from the following.

         Large Market for Transportation Fuels. The existing market for
transportation fuels is large, comprising 66% of the approximately 67 million
barrels per day of refined petroleum products produced worldwide in 2000, as
derived from information in the BP Statistical Review of World Energy, 2001.
Moreover, according to the Energy

                                      5

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Information Administration, estimates show that diesel fuel demand is growing
at a faster rate than the total demand for refined products due to the superior
fuel efficiency of the diesel engine. We believe that a significant portion of
the growing demand for transportation fuels can be satisfied through the
conversion of natural gas into ultra-clean Syntroleum fuels. We also believe
that even if substantial volumes of Syntroleum fuels were to flow into these
markets, these additional volumes would not cause a significant price
degradation based on the large size of the market. We estimate worldwide
consumption of refined petroleum products as follows:

              Worldwide Consumption of Refined Petroleum Products

<TABLE>
<CAPTION>
                                       1990                       1995                      2000
                              ------------------------- -----------------------  ---------------------
Product                        Volume           %         Volume          %         Volume          %
---------------------------  -----------   ------------ ----------  -----------  ----------  ---------
                                                       (millions of barrels per day)

<S>                             <C>           <C>          <C>          <C>          <C>          <C>
Gasolines (1) .............     15.6          28.6%        17.4         28.7%        19.4         29.1
Middle Distillates (2).....     18.7          34.2         21.8         36.0         24.9         37.2
Others (3).................     20.3          37.2         21.4         35.3         22.5         33.7
                                ----          ----         ----         ----         ----         ----
Total......................     54.6          100.0%       60.6         100.0%       66.8         100.0%
                                ====          =======      ====         =======      ====         ======
</TABLE>

--------------------------
(1)      Consists of aviation and motor gasoline and light distillate feedstock.
(2)      Consists of jet and heating kerosenes, gas oils and diesel oils.
(3)      Consists of fuel oil, refinery gas, propane, solvents, petroleum coke,
lubricants, bitumen, wax and refinery fuel and loss.
Source:  Derived from information in the BP Statistical Review of World Energy,
2001.

         Increasing Demand for Ultra-Clean Fuels. The market demand for
ultra-clean fuels in particular is increasing due to more stringent
environmental standards in most of the world's industrialized countries and the
need for vehicle manufacturers to respond to the challenge of producing
fuel-efficient engines that meet these standards. The burden of producing
cleaner fuels from conventional crude oil is expected to substantially increase
refining costs. We believe that these factors will promote the creation of
markets for premium ultra-clean fuels produced by the Syntroleum Process. In
addition, we believe that Syntroleum fuels, either alone or blended with
conventional fuels, can be used in existing and new generation diesel engines
on a cost-effective basis to meet or exceed current and scheduled fuel
specifications and emissions standards.

         Increasingly Restrictive Environmental Legislation. Key domestic and
international environmental regulations and initiatives that affect the demand
for ultra-clean fuels include the Clean Air Act of 1970, which establishes
specific responsibilities for government and private industry to reduce
emissions from vehicles, factories and other pollution sources. In December
1999, the EPA issued rules mandating that sulfur levels in highway diesel fuel
be lowered from the current level of 500 parts per million to 15 parts per
million beginning in 2006. The burden placed on the petroleum refining and
automobile industries to meet these new gasoline and diesel sulfur levels is
significant. In the last eight years, the sulfur content of crude oil refined
in the U.S. has increased by 20 percent as a result of shifts in the production
mix of the world's crude oil.

         The Energy Policy Act mandates that, by the year 2001, 75% of all
affected federal and state government vehicle purchases, and 90% of all
affected vehicle purchases by private alternative fuel suppliers, must be
alternative fuel vehicles. In addition, the Act provides the Department of
Energy with a goal of displacing 30% of transportation fuel with non-petroleum
replacement fuels, including alternative fuels, by the year 2010. For the goals
set forth by the Energy Policy Act to be successful, we believe an alternative
fuel must be found that offers consumers the convenience of using existing fuel
distribution systems, while at the same time meeting their expectations for
vehicle power and range performance.

         Under the Corporate Average Fuel Economy standards established under
the 1975 Energy Policy and Conservation Act, mandatory fleet fuel economy
standards were imposed on all manufactures of passenger cars and light trucks
sold in the U.S. Automakers are turning to the use of diesel engines in their
attempts to supply the demand for these vehicles without violating these
Federal fuel-efficiency standards. While they do offer better fuel economy,
traditional diesel engines, when fueled by conventional diesel fuels, produce
higher emission levels of nitrous oxide and particulate matter. To comply with
more stringent environmental standards, automakers have been partnering with
oil companies to develop ultra-clean fuels for conventional diesel engines.

                                      6

<PAGE>

         States are also looking for emission reductions. For example, the
California Air Resources Board has announced plans to implement stringent new
regulation on transit bus emissions. Under the new regulation, agencies
electing to continue using older diesel buses will be required to implement new
emission controls to reduce exhaust emission and to use low-sulfur fuels
(containing a maximum of 15 parts per million) or to shift to alternative
fuels. The regulation also requires reduced exhaust particulate matter and
nitrogen oxides from new diesel engines. These reductions are expected to be
achieved only through the use of ultra-clean fuels.

         Finally, the European Union is also seeking sharp reductions in engine
emissions. Sulfur content from the current level of 350 parts per million to
below 50 parts per million is currently mandated for diesel fuel by 2005. In
addition, the Commission of the European Communities has issued a proposal
which, if adopted, would require diesel fuel with a maximum sulfur content of
10 parts per million to be made available on a broad geographic basis within
each member state of the European Union by January 1, 2005. The proposal would
also require all diesel fuel to have a maximum sulfur content of 10 parts per
million by 2011.

         We believe that Syntroleum fuels are positioned to take advantage of
the demand for ultra-clean fuels that we expect will develop as a result of
these environmental and emission standards. Syntroleum fuels are substantially
free of contaminants, including sulfur, aromatics and heavy metals, and
demonstrate high operating efficiency. As a result, we believe that Syntroleum
fuels, either alone or blended with conventional fuels, can be used in existing
and new generation diesel engines on a cost-effective basis to meet or exceed
current and scheduled fuel specifications and emissions standards. When made
from domestic natural gas, Syntroleum diesel fuels qualify as alternative fuels
under the Energy Policy Act. In addition, we have applied for certification
that Syntroleum diesel fuels made from foreign natural gas qualify as
alternative fuels under the Energy Policy Act. By eliminating the need for
specially equipped vehicles or refueling stations, Syntroleum ultra-clean fuels
can avoid the infrastructure problems that have challenged the widespread use
of other alternative fuels to date.

         Existing Market for High-Quality Specialty Products. Synthetic crude
oil produced by the Syntroleum Process can be further refined into specialty
products using conventional refining processes that can be simplified to take
advantage of the ultra-clean nature of the synthetic feedstock. We retain the
exclusive right to manufacture these products using the Syntroleum Process
under our license agreements and intend to develop and own significant equity
interests in GTL plants designed to produce these specialty products. We
believe that Syntroleum specialty products have environmental and performance
characteristics that are superior to comparable conventional crude oil
products.  For example, we expect our synthetic lube-base oil will meet or
exceed new high performance and emissions standards established by the United
States federal government and the automobile industry for lubricants in new
vehicles beginning in 2003. Our targeted specialty product markets include the
following:

             .    Lube-Base Oils. Lube-base oils have a variety of industrial
                  applications, including use as transformer oil, passenger car
                  motor oil, heavy-duty lubricants and synthetic basestock.
                  Worldwide demand for all lubricants is approximately 800,000
                  barrels per day. Historically, lube oil prices have varied
                  from approximately $40 per barrel for the lowest quality
                  grades to over $200 per barrel for the highest quality
                  synthetic grades.

                  Beginning in 2003, lubricants initially supplied with new
                  vehicles in the United States will be required to possess very
                  high performance and emissions characteristics, such as those
                  produced by the Syntroleum Process. The National Petroleum
                  Refining Association has estimated that 60% of the current
                  volume of lubricants produced will not meet these
                  specifications. We believe that this requirement will cause a
                  substantial increase in demand for high quality lubricants. We
                  have developed with others a proprietary process and catalyst
                  system for use in the production of high quality synthetic
                  lube oils.

             .    Process Oils. Process oils are used in a number of industries
                  involved in the production of chemicals, textiles, rubber and
                  plastics. These products have a wide variety of applications,
                  from mold release agents to ingredients in personal care
                  products. Process oils can also be used in electrical
                  transformers as a cooling and insulation agent. Historically,
                  prices for these products have ranged from $35 per barrel to
                  over $200 per barrel.

             .    Waxes. Waxes are longer linear chain hydrocarbon molecules
                  that are solid at room temperature and have a variety of
                  applications, including adhesives, coatings and other
                  products. These markets have primarily been supplied with
                  petroleum-derived waxes. Historically, prices have varied

                                      7

<PAGE>

                  between $30 per barrel for the lowest quality wax to over $150
                  per barrel for high melting point synthetic wax.

             .    Normal Paraffins. Normal paraffins are saturated linear
                  hydrocarbons with molecular ranges between ten and 15 carbon
                  atoms. These products must be 98% pure, have low odor levels
                  and be of water clear quality. They are primarily used in the
                  production of laundry detergent, cosmetics, pharmaceuticals,
                  paints, stains, aluminum rolling oils and other products.
                  Prices for normal paraffins historically have averaged between
                  $60 and $85 per barrel.

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

         Increasing Demand for Fuel Cells. We believe that Syntroleum fuels
have the potential to become ideal fuels for fuel cells and to significantly
enhance commercial opportunities for many fuel-cell applications. The absence
of sulfur, aromatics and heavy metals from Syntroleum fuels allows for
simplified fuel cell processor design, construction and operation. As the
storage and processing of the fuel for a fuel cell are simplified, the physical
size of fuel-cell components can be reduced. Because Syntroleum fuels have
almost twice the hydrogen content of other liquid fuels, including methanol,
Syntroleum fuels enable greater utility and wider application of fuel-cell
power for vehicles. We believe that Syntroleum fuels can be distributed using
the existing conventional fuel distribution infrastructure and have lower
toxicity and similar solubility compared to conventional fuels. A fuel cell is
a device that combines hydrogen, which can be derived from a fuel like natural
gas, propane, methanol, gasoline or diesel, with oxygen from the air to produce
electric power without combustion. Fuel-cell systems have advantages over
conventional power generation systems including low or no pollution, higher
fuel efficiency, greater flexibility in installation and operation, quiet
operation, low vibration and potentially lower maintenance and capital costs.
Fuel cells are being developed to support a variety of markets, including
transportation and continuous stationary (residential and commercial power).

Supply of Natural Gas

         Natural Gas Resource Base. Set forth below and elsewhere in this
Annual Report on Form 10-K are estimates of identified reserves of oil and
natural gas.  These estimates do not constitute proved reserves in accordance
with the regulations of the Securities and Exchange Commission. Under
Securities and Exchange Commission regulations, proved oil and gas reserves are
the estimated quantities of crude oil, natural gas and natural gas liquids,
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic
and operating conditions (i.e., prices and costs as of the date the estimate is
made). We compiled these estimates of identified reserves from the referenced
industry publications and other publicly available reports to identify the
magnitude of the gas resource base. We have not independently verified this
information.  Accordingly, we cannot assure you as to the existence or
recoverability of the estimates of identified reserves of oil and natural gas
set forth in this Annual Report on Form 10-K. References below and elsewhere in
this Annual Report on Form 10-K to the conversion of identified amounts of
natural gas into amounts of synthetic crude oil assume that all of the
referenced natural gas could be converted at anticipated conversion rates.
Actual amounts of synthetic crude oil produced will vary based on the ability
of the producer to extract the natural gas, the composition of the natural gas
and process conditions selected for the plant, and this variance may be
material.

         World natural gas reserves provide an extensive resource base from
which Syntroleum fuels and specialty products can be produced. According to
information derived from the BP Statistical Review of World Energy, 2001, and
the Department of Energy, worldwide identified natural gas reserves are
estimated to be approximately 5,304 trillion cubic feet.

                                      8

<PAGE>

         The following table presents the 2000 worldwide identified natural gas
reserves, consumption and ratio of reserves to consumption (i.e., reserve life)
by region.

  Identified 2000 Worldwide Natural Gas Reserves, Consumption and Reserve Life

<TABLE>
<CAPTION>
                         Region                               Reserves      Consumption       Reserve Life
                         ------                               --------      -----------       ------------
                                                          (trillion cubic  (trillion cubic     (years)
                                                              feet)          feet)
<S>                                                           <C>             <C>               <C>
Central and South America............................           244.6           3.2               76.4
Africa and the Middle East...........................         2,249.0           8.7              258.5
Asia.................................................           365.1          10.2               35.8
Europe...............................................           183.9          16.2               11.4
North America........................................           258.8          27.0                9.6
Russia and other former Soviet Union regions.........         2,002.6          19.3              103.8
    Total............................................         5,304.0          84.6               62.7
</TABLE>

---------------------------
Source: Information derived from BP Statistical Review of World Energy, 2000,
and the Department of Energy.

         Identified natural gas reserves have grown at a rapid rate. Identified
natural gas reserves in 1990 were estimated to be approximately 4,207 trillion
cubic feet, according to the BP statistical Review of World Energy 2001.
However, in 2000, these reserves were estimated to be approximately 5,304
trillion cubic feet. This increase occurred despite the fact that, over the
same time frame, demand for natural gas increased 22%.

         Natural Gas Field Size Distribution. The table below lists an estimate
of the distribution, by field size, of the world's natural gas fields. Only 179
of these fields are larger than five trillion cubic feet, which is generally
considered to be the minimum size necessary to support the development of a
full-scale liquefied natural gas (LNG) plant based on a typical 20-year plant
life.

                        The World's Natural Gas Fields

                                                Number of
Reserves                                         Fields
--------                                         ------
(trillion cubic feet)

Between 50 and 500........................         16
Between 5 and 50..........................        163
Between 1 and 5...........................        641
Between .5 and 1..........................        668
Between .25 and .5........................        940
Between .1 and .25........................       1,620
Between .01 and .1........................       5,085
Less than .01.............................       6,243
                                                 -----
    Total.................................       15,376
                                                 ======

---------------------------
 Source:  IHS Energy Group, 1998.

         Based on field size and portability, we believe GTL plants based on
the Syntroleum Process can potentially access over 9,133 of the world's natural
gas fields, representing approximately 95% of the total reserves held in these
fields. Assuming a typical 30-year plant life, of the 15,376 natural gas fields
shown above approximately:

             .    16 contain sufficient reserves to support ten or more 50,000
                  barrels per day plants,

             .    an additional 163 contain sufficient reserves to support one
                  or more 50,000 barrels per day plants,

             .    an additional 641 contain sufficient reserves to support one
                  or more 10,000 to 50,000 barrels per day plants,

             .    an additional 668 contain sufficient reserves to support one
                  or more 5,000 to 10,000 barrels per day plants, and

             .    an additional 940 contain sufficient reserves to support one
                  or more 2,500 to 5,000 barrels per day plants.

                                      9

<PAGE>

An additional 6,705 of these 15,376 fields contain sufficient reserves to
support a portable 2,000 barrels per day plant for a shorter plant life.

         Stranded Natural Gas Reserves. The Oil and Gas Journal has estimated
that of the world's identified natural gas reserves, approximately 60%, or
3,182 trillion cubic feet, currently have no economic market (equivalent to
approximately 310 billion barrels of synthetic crude oil).

         The term "stranded gas" generally refers to gas which exists in
reservoirs that have been discovered, but no economic market can be found for
the production, or production would be too prolific for the limited markets
available. Typically, this low value gas is managed by either not producing, or
"shutting in," the gas, flaring or venting the gas, or reinjecting the gas into
the geologic formation from which it is produced.

         The large amount of stranded natural gas throughout the world is
caused by a combination of four primary factors. First, much of the world's
stranded natural gas is located in fields of less than five trillion cubic
feet, which is generally considered the minimum size necessary to support the
development of a full-scale LNG plant for a typical 20-year plant life. The
small size of many of these fields makes the production of natural gas from the
fields uneconomical.  Second, much of the world's stranded natural gas is
located in areas where there is no local market and the distance to large
natural gas consuming areas is great. This makes transportation costs high and
often renders development projects uneconomic. Third, even in circumstances
where a transportation system is available for natural gas, the cost of
transporting natural gas in a gaseous state is generally substantially higher,
on an energy equivalent basis, than that of oil. Finally, we estimate that the
worldwide LNG market is approximately 2.4 million oil-equivalent barrels per
day, which is relatively small compared to the approximately 44 million barrels
per day transportation fuels markets.  Natural gas can also be converted to
ammonia and methanol. Based on industry publications, we currently estimate
that the market for ammonia on a barrel of oil equivalent basis is
approximately 1.5 million barrels per day and the market for methanol on a
barrel of oil equivalent basis is approximately 443,439 barrels per day. These
markets are small relative to the size of the worldwide natural gas resource
base and relative to the approximately 67 million barrels per day market for
crude oil and related products.

         We believe that energy companies with stranded natural gas reserves
will be able to cost-effectively use our GTL technology to produce Syntroleum
fuels and products that can be sold in well-developed global markets. As a
result, we believe these companies would be able to generate a return on the
exploration and development expenditures associated with their stranded natural
gas reserves.

Licensing Arrangements

         We currently market four types of license agreements. Our master
license agreement generally grants to the licensee the non-exclusive right to
enter into an unlimited number of site license agreements to construct GTL
plants based on the Syntroleum Process to produce fuels worldwide. Our volume
license agreement generally grants to the licensee the non-exclusive right to
enter into an unlimited number of site license agreements to construct GTL
plants based on the Syntroleum Process, subject to specified aggregate
production capacity limits. Our regional license agreement generally grants to
the licensee the non-exclusive right to enter into an unlimited number of site
license agreements to construct GTL plants based on the Syntroleum Process
within a designated region. Finally, our site license agreement generally
grants to the licensee the non-exclusive right to use the Syntroleum Process in
a GTL plant at a single, specified location for the life of the plant. This
type of license may be granted under our master, regional or volume license
agreements or may be granted to licensees for a specific site who have not
otherwise entered into a master, regional or volume license agreement. The
licenses generally exclude the right to use the Syntroleum Process in North
America as well as in China and India due to intellectual property protection
concerns.

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

         At the inception of a master, volume or regional license agreement,
the licensee generally makes an initial deposit to us, which is credited
against future site-specific license fees. The amount of the initial deposit
depends on market conditions and, in the case of volume and regional license
agreements, the volume limitation and the size and

                                     10

<PAGE>

location of the region covered. We have received an aggregate of $38 million
in cash as initial deposits and option fees under our existing license
agreements. In some cases, we have acquired technologies or commitments to
provide funding for future development activities in lieu of initial cash
deposits. For a discussion of license fees, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Operating
Revenues--License Revenues."

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

Key Testing and Commercial Projects

           The following sets forth our progress to date in implementing our
business strategy. Although we have made significant progress towards
commercializing the Syntroleum Process, we cannot assure you that licensees
will construct any plants under their license agreements, that we will be able
to obtain financing for specialty product or fuels gas-to-liquids plants, that
design and construction of any of these plants will be successfully completed,
that any of these plants will be commercially successful or that these plants
will be constructed or utilized on a cost-effective basis. See "Risk Factors."

         In addition to our nominal two barrel per day pilot plant and
laboratory facilities located in Tulsa, Oklahoma, which are the primary sites
for our research and development activities, we have been or are currently
involved in several projects and initiatives, including the following.

         Cherry Point Project. We were a joint participant with ARCO in a 70
barrel per day GTL demonstration plant located at ARCO's Cherry Point refinery
in the State of Washington. The plant began operating in July 1999 and
operated successfully until it was shut down at the completion of testing
shortly after June 30, 2000. ARCO funded the construction and operation of
this plant under our joint development agreement. Plant operations exceeded
our expectations and successfully demonstrated a number of key aspects of our
proprietary autothermal reformer and moving bed reactor designs and related
catalyst performance. This plant has been recently disassembled and moved to
Tulsa, Oklahoma where we expect to reassemble the plant as part of our
expected fuels project with the DOE discussed below. The data and experience
generated from our participation in plant operations will be useful in our
efforts to apply these reactor designs on a commercial basis both for fuels
and specialty product plants. We are currently conducting engineering studies
with others for commercial-scale plants using these reactor designs.

         Sweetwater Project. We are developing a nominal 11,500 barrel per day
specialty product plant in Australia that we call the Sweetwater plant. We
currently anticipate that this plant will produce synthetic lube oil, normal
paraffins, process oils and light paraffins. The plant will use a fixed tube
reactor design which produces a high yield of the desired products with high
wax content and has lower scale-up risks than other reactor designs and will
include additional refining equipment necessary to produce the targeted
specialty products. We plan to construct this plant through a joint venture
with other parties who we expect will furnish a significant portion of the
needed equity financing . In February 2000, we selected a site for the plant
about four kilometers from the North West Shelf liquid natural gas facility on
the Burrup Peninsula of Western Australia. We have entered into a firm,
lump-sum engineering, procurement and construction contract, an operation and
maintenance contract, a natural gas supply contract and other contracts for
this plant. We currently expect the capital costs of the Sweetwater plant to
be funded primarily by senior and subordinated debt at the project level, as
well as equity financing from third parties, together with our own equity
contribution.  We are currently in discussions with several parties regarding
equity financing for the Sweetwater project. However, we cannot assure you
that we will be successful in obtaining either the debt or equity financing
for this project.

         Joint Venture to Provide Contract GTL Services. We have entered into
a nonbinding letter of intent with Petroleum Geo-Services ASA to form a joint
venture to develop, market and operate mobile, marine-based production
facilities that use the Syntroleum Process. If the transaction is completed,
the joint venture will be a separate operating company offering contract GTL
services to gas producers to convert natural gas from offshore fields into
synthetic hydrocarbon products. Use of these services could enable
monetization of gas that is normally flared or otherwise wasted. Under the
letter of intent, the planned joint venture will have its initial operations
in

                                     11

<PAGE>

Aberdeen, Scotland and will be the exclusive means by which we and PGS offer
mobile, marine-based contract GTL services to third parties. Formation of the
joint venture is subject to negotiation and execution of definitive agreements
by the parties. We cannot assure you that the joint venture will be formed or
commence actual business operations.

         DOE Project. During the third quarter of 2001, the U.S. Department of
Energy (DOE) concluded an agreement with Integrated Concepts & Research
Corporation (ICRC) to provide funding to a team of companies for the GTL
Ultra-Clean Fuels Production and Demonstration Project for which preliminary
approval was announced by us in October 2000. We are the prime subcontractor
for this project under an agreement with ICRC. Under the terms of the
agreement, the DOE will fund $16 million of the $36 million project, and the
other project participants will provide the remaining $20 million. We are
currently in discussions with Marathon Oil Company and others regarding their
participation in this project. Under the program, Syntroleum's Cherry Point
GTL facility, which has been disassembled and relocated from ARCO's Cherry
Point Refinery in Washington State to a site near Tulsa, Oklahoma, is expected
to become the basis for construction of a new GTL facility expected to produce
up to approximately 70 barrels per day of Syntroleum ultra-clean diesel fuel
and synthetic naphtha.  The relocation of the Cherry Point GTL facility to
Tulsa, Oklahoma was completed in 2001. Construction of the new facility in
Tulsa is currently expected to begin in 2002, with fuel production expected to
commence in 2003. The fuels from this facility are expected to be tested by
other project participants in advanced power train and emission control
technologies and are also expected to be tested in bus fleets by the
Washington Metropolitan Area Transit Authority and the U.S. National Park
Service at Denali National Park in Alaska. Completion of the project is
subject to continued congressional appropriation of project funds. In
addition, construction of this project will be subject to the risks of delay
inherent in any large construction project.

         Talara Project. During the fourth quarter of 2001 we announced plans
to develop an integrated NGL/GTL (natural gas liquids/gas-to-liquids) project
in the Talara Basin of Northwest Peru. We expect to develop this project in
three phases. Phase I is expected to consist of construction of a nominal
2,000 barrel per day NGL plant to upgrade and replace an existing plant. Phase
II is expected to involve the expansion of the NGL plant and the construction
of a 5,000 barrel per day GTL plant. Phase III is expected to involve
expansion of the GTL facility if additional natural gas reserves and
production in the area are developed. In connection with this proposed
project, we signed a license contract with the government of Peru under which
we have acquired exploration and production rights to the offshore Peruvian
oil and gas block designated as Z-1. Previous exploration activity in the area
has identified possible gas and condensate prospects, which we believe have
remained undeveloped up to now due to lack of an adequate market for the gas.
We anticipate that development of these prospects would facilitate the third
phase of the Talara project.  Completion of this project is subject to
satisfaction of several conditions including negotiation and execution of
definitive gas purchase agreements, engineering, procurement and construction
agreements and other agreements, site acquisition and financing. We cannot
assure you that this project will commence actual operations. In addition,
this project will be subject to the risks of delay inherent in any large
construction project.

         DOD Project. During the first quarter of 2002, we announced that
Congress had appropriated $3.5 million for a proposed Flexible JP-8 (single
battlefield fuel) program under the Department of Defense Appropriation Bill,
2002. We expect to negotiate a contract with the DOD to participate in the
program, which will provide for the design of a marine-based fuel-production
plant, as well as testing of synthetically-made JP-8 fuel in military diesel
and turbine engine applications. We cannot assure you that we will be
successful in concluding a contract with DOD to participate in this program.

Research and Development

         One of our key strategies is to continue to lower the capital and
operating cost of our GTL technology through research and development. We have
spent approximately $8.3 million in 1999, $12.6 million in 2000 and $16.2
million in 2001 on pilot plant and research and development facilities and
activities. Our continued research and development efforts will take place in
four primary areas: process design, catalyst development, reactor design and
heat integration/power recovery. For a discussion of our efforts in these
areas, see "--The Syntroleum Process."

         We lease a 4,500 square foot laboratory and own a 16,500 square foot
laboratory facility located on approximately 95 acres of land where we are
engaged in extensive development and testing of Syntroleum products. These
facilities also house our product refining research and development activities,
including hydrogen saturation, hydroisomerization, hydrocracking and
distillation capabilities, as well as a fully automated dual train bench scale
hydroprocessing unit. We have recently completed construction of a large scale
hydroprocessing pilot unit that is

                                     12

<PAGE>

currently operational. Our laboratories currently have 24 fixed tube reactors,
two fluidized bed reactors, and seven continuous stirred tank reactors in
which automated tests are run and catalyst systems are evaluated and
developed. We also have arrangements with a number of universities and
companies for a full range of state-of-the-art catalyst evaluation.

         As of March 1, 2002, we had 81 employees in our laboratory, pilot
plant and engineering departments, 53 of whom are chemists, engineers or other
degreed professionals (21 with masters or Ph.D. degrees) devoted to research
and development activities. A number of other chemists, engineers and
professionals that are employed by our licensees and joint development
partners also contribute to the further development and commercialization of
the Syntroleum Process.

Sales and Marketing

         We intend to maintain an active marketing and sales effort to promote
the Syntroleum Process through several channels. We have been and will
continue to be an active participant at industry conferences relating to GTL
processes.  We also intend to continue to write and publish papers on topics
regarding the implications of GTL technology to the energy and transportation
industries.  Additionally, we will continue to educate and inform our
customers through the use of multi-media and print presentations. We also
intend to continue our efforts to establish brand recognition for specialty
products to be produced by our specialty plants. "Syntroleum" is a registered
trademark and service mark in the United States, and applications are pending
to register the trademark in various foreign countries.

         In addition, RWE (formerly Tessag), AMEC and other engineering
companies are familiar with our GTL technology and have assisted us in
marketing the Syntroleum Process. Our agreements with engineering firms
sometimes provide these firms with the right to market the Syntroleum Process.
We believe that these relationships will expand our marketing effort in a
cost-effective manner.  As of March 31, 2002, we had 14 employees in our
business development and marketing departments, seven of whom hold advanced
degrees, and we also retain a full-time sales representative in London,
England. We also have representation relationships with several other
organizations and individuals covering Europe, portions of Africa and Russia.

The Syntroleum Process

         The Syntroleum Process involves two catalytic reactions. The first
reaction converts natural gas into synthesis gas through our proprietary
autothermal reformer reactor, and the second reaction converts the synthesis
gas into hydrocarbons through the Fischer-Tropsch reaction over a proprietary
catalyst. The following diagrams illustrate the elements involved in these
reactions, but are not in exact proportions.

                                     Step 1
                   Conversion of Natural Gas to Synthesis Gas
<TABLE>
<CAPTION>
<S>              <C>         <C>        <C>            <C>                      <C>
                                                          Synthesis Gas
Natural Gas      Air         Steam                    (diluted with Nitrogen)   Water
                                        Catalyst
  CH/4/ +    O/2/ +  N/2/  +  H/2/0  ------------->    CO  +  H/2/  +  N/2/  +  H/2/O
</TABLE>

                                     Step 2
                           Fischer - Tropsch Synthesis

<TABLE>
<CAPTION>
<S>                     <C>          <C>                <C>           <C>
     SynthesisGas
(dilutedwithNitrogen)                Hydrocarbons       Nitrogen      Water
                         Catalyst
H/2/  +  CO  +  N/2/   ----------->    C/n/H/( 2n+2)/  +  N/2/    +   H/2/O
</TABLE>

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

                                     13

<PAGE>

         Although we believe that the Syntroleum Process can be utilized in
commercial-scale GTL plants, we cannot assure you that commercial-scale GTL
plants based on the Syntroleum Process will be successfully constructed and
operated or that these plants will yield the same economics and results as
those demonstrated on a pilot plant basis. In addition, improvements to the
Syntroleum Process currently under development may not prove to be
commercially applicable.  See "Risk Factors--Risks Relating to our Technology."

Fischer-Tropsch Catalyst Systems

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

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

         Most Fischer-Tropsch catalysts produce a very waxy synthetic crude
oil.  Typically, more than 50% of a barrel of synthetic crude oil is solid at
room temperature due to the high wax content. These waxy hydrocarbons are
typically processed through a hydrocracker to convert them into liquid
hydrocarbons at room temperature that can be further processed into
transportation fuels. Our proprietary "high alpha" catalyst produces a very
waxy synthetic crude oil which can be further processed through hydrocracking
to make liquid synthetic fuels, or, with other refining processes, the waxy
portion can be converted into higher value specialty products such as
synthetic lubricants.

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

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

Fischer-Tropsch Reactor Designs

         We have tested at our pilot plant several different proprietary
Fischer-Tropsch reactor designs and associated catalysts for use in the
Syntroleum Process. These include multiple fixed bed and moving bed reactors.
In addition, under its agreement with Syntroleum, ARCO constructed and
operated a 70 barrel per day GTL pilot plant that tested the moving bed
reactor on a larger scale. As discussed elsewhere, we have recently moved this
plant to Tulsa, Oklahoma where we expect to reconstruct it for additional
operation. We have several pending United States and foreign patent
applications related to our Fischer-Tropsch reactors.

Heat Integration and Power Recovery

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

         Different configurations of GTL plants based on the Syntroleum
Process can also change the energy sources within the plant and the excess
energy produced. For example, a steam turbine can be incorporated into the
process and utilize the steam produced by the auto-thermal reformer and
Fischer-Tropsch reactions to produce energy for

                                     14

<PAGE>

compression, and electrical power for commercial sale. In addition, we have
developed a configuration that utilizes the low-heating-value residue stream
from the process as feedstock for a specially designed gas turbine that can
utilize very low-heating-value gas. Several of these heat integration and
power recovery schemes are the subject of United States patents and patent
applications and foreign patent applications and are a part of our joint
development efforts with others.

Product Upgrading

         Synthetic liquid hydrocarbons made from the Syntroleum Process can be
refined into fuels using conventional refining processes such as
hydrocracking.  However, we believe that because of the purity and uniform
nature of the synthetic hydrocarbon molecules, conventional process
configurations and conditions may not be optimum. We have developed new
processes to further refine synthetic liquid hydrocarbons made from the
Syntroleum Process in a manner that maximizes the value of the refined product
streams, while minimizing the processing cost. In August 2000, we began
offering our licensees access to proprietary hydrocracking technology
optimized for converting synthetic crude oil into ultra-clean, sulfur-free
synthetic transportation fuels, primarily diesel and jet fuels.

Advantages Over Competing Processes

         We believe that the method by which our process uses air directly
from the atmosphere is a unique characteristic and a primary competitive
advantage of the Syntroleum Process. Competitive processes for the conversion
of natural gas into synthetic hydrocarbons generally utilize either steam
reforming or a combination of steam reforming and partial oxidation with pure
oxygen in the conversion of natural gas to synthesis gas. Steam reformers
react steam with natural gas to produce synthesis gas. A conventional steam
reformer is a relatively complex unit that consists of a large fired heater
with catalyst-filled tubes. Because the reaction operates at high temperature
and pressure, the tubes are made of exotic alloys and are expensive. Operating
costs are increased due to the endothermic nature of the process, which
requires a continuous input of heat. Processes that utilize a combination of
steam reforming and partial oxidation with pure oxygen also require an air
separation plant to produce pure oxygen. The air separation plant must be
constructed with expensive metals and materials, because its operation
involves very low temperatures and requires significant energy input, as well
as operating risks inherent in handling pure oxygen. Moreover, the use of pure
oxygen generates synthesis gas that is free of nitrogen. While the
Fischer-Tropsch reaction in competitive processes is designed to occur without
the presence of nitrogen, the Syntroleum Process is designed to utilize the
nitrogen in the Fischer-Tropsch process to remove a portion of the heat
generated by the process. Use of the auto thermal reformer reactor in the
Syntroleum Process also provides advantages over competitive processes because
of its relatively low capital and operating costs. In addition to lowering the
capital cost, the elimination of an air separation plant and steam reformer
has the additional advantage of reducing the size and complexity and lowering
the energy requirements of GTL plants based on the Syntroleum Process.

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

Feedstocks

         The Syntroleum Process is designed to produce approximately 6 million
British thermal units of liquid hydrocarbons from between 9.5 and 13 million
British thermal units of natural gas feedstock. Conversion efficiency varies
depending on gas composition and process conditions selected for each plant.
One of the benefits of the Syntroleum Process is its ability to utilize
natural gas containing nitrogen and carbon dioxide, up to specified levels,
without removing these impurities prior to consumption by the plant. However,
natural gas that contains sulfur, metals and other materials that poison
catalysts must be processed in order to remove these contaminants prior to the
use of the natural gas in the first catalytic reaction.

Byproducts and Emissions

         A byproduct of the Syntroleum Process is synthesized water that, with
treatment to remove organic materials, could be sold commercially as
industrial or irrigation water in areas where sufficient demand exists. Based

                                     15

<PAGE>

on pilot plant tests, we believe that slightly more than one barrel of
synthesized water can be produced for each barrel of synthetic crude oil
produced.

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

Intellectual Property

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

         We currently own, or have licensed rights to more than 120 patents or
patent applications pending in the United States and various foreign countries
that relate in general to one or more embodiments of the Syntroleum Process.

         We cannot assure you that additional patents will be granted with
respect to any patent applications filed by us or our licensors. Any patents
issued or licensed to us might not provide us with commercial benefit or might
be infringed, invalidated or circumvented by others. The approval or rejection
of our patent applications by the U.S. Patent Office may take several years.

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

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

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

         Although it is our policy to regularly review patents that may have
applicability in the GTL industry, we may not become aware of these patents or
rights until after we have made a substantial investment in the development
and commercialization of those technologies. Legal actions could be brought
against us, our partners or our licensees claiming damages and seeking an
injunction that would prevent us, our partners or our licensees from testing,
marketing or commercializing the affected technologies. Major energy companies
seeking to gain a competitive advantage may have an interest in bringing one
of these actions. If such an action was successful, in addition to potential
liability for damages, we, our partners or our licensees could be required to
obtain a license in order to continue to test, market or commercialize the
affected technologies. Any required license might not be made available or, if
available, might not be available on acceptable terms, and we could be
prevented entirely from testing, marketing or commercializing the affected
technology. We may have to expend substantial resources in litigation, either
in enforcing our patents, defending against the infringement claims of others,
or both. Many possible claimants, like the major energy companies that have or
may be developing proprietary GTL technologies competitive with the Syntroleum
Process, have significantly more resources to spend on litigation. We have
conducted a review of several hundred existing patents applicable to the GTL
field and believe that we are not

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<PAGE>

infringing on the valid, enforceable patents of others. We have not been
notified of any claim that our GTL technology infringes the proprietary rights
of any third party. However, we cannot assure you that third parties will not
claim infringement by us with respect to past, present or future GTL
technologies.

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

Employees

         We had 125 employees at March 1, 2002, including 60 employees involved
in research and development and pilot plant operations, 14 employees in business
development and marketing, 21 employees in engineering, and 30 employees in
finance, legal, information technology and administration. None of our employees
are represented by a labor union. We have experienced no work stoppages and
believe that our relations with our employees are excellent.

Government Regulation

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

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

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

Operating Hazards

         Operations at our GTL plants will involve a risk of incidents
involving personal injury and property damage due to the operation of
machinery in close proximity to individuals and the highly flammable nature of
natural gas and the materials produced at these plants. The frequency and
severity of personal injury and property damage

                                     17

<PAGE>

incidents will affect our operating costs, insurability and relationships with
customers, employees and regulators. Any significant frequency or severity of
these incidents, or the general level of compensation awards, could affect our
ability to obtain insurance and could have a material adverse effect on our
business, operating results and financial condition.

MANAGEMENT AND DISPOSITION OF REAL ESTATE AND MISCELLANEOUS ASSETS

         Our predecessor, SLH Corporation, owned real estate assets which we
are currently liquidating. These assets reflect the remaining assets of a real
estate development business that was conducted by Lab Holdings in association
with a previously owned life insurance company that was sold in 1990. Real
estate assets, as of December 31, 2001, consisted of land in Houston, Texas
comprised of 255 acres of undeveloped land and 69 residential lots available
for sale known as the "Houston Project." The total real estate inventory had
an aggregate carrying value at December 31, 2001 of approximately $3.0 million.

         Our real estate assets are owned by our subsidiary, Scout Development
Corporation. The Houston Project is owned by 529 Partners, Ltd., a Texas
limited partnership in which Scout holds a 75% interest. 529 Partners is
developing the property for residential and light commercial purposes. During
2001, 529 Partners sold 125 lots of the Houston Project for residential use
for approximately $2.6 million. We expect that the balance of the tract will
be developed by 529 Partners for residential use and ultimate sale.

         Our other assets at December 31, 2001 included (1) $46,532,000 of
cash, government securities and current receivables, (2) an investment in a
privately owned developer of proprietary bone substitute technology, which had
a carrying value of approximately $506,000, (3) an investment in a privately
held venture capital limited partnership, which had a carrying value of
$476,000, (4) and an equity investment in a recently renovated hotel in Tulsa,
Oklahoma. During 2001 we sold our 49.9% partnership interest in a retail
shopping center in Gillette, Wyoming for a gain of $1.9 million. We plan to
liquidate these remaining investments, other than the cash, government
securities and current receivables, in an orderly manner to maximize their
value to stockholders.

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

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

         Scout is subject to several United States environmental laws,
including: the Clean Air Act, the Comprehensive Environmental Response,
Compensation, and Liability Act, the Emergency Planning and Community
Right-to-Know Act, the Federal Water Pollution Control Act, the Oil Pollution
Act of 1990, the Resource Conservation and Recovery Act, the Safe Drinking
Water Act and the Toxic Substances Control Act. Scout is also subject to the
United States environmental regulations promulgated under these acts, as well
as state and local environmental regulations that have their foundation in the
foregoing United States environmental laws. As is the case with many
companies, Scout may face exposure to actual or potential claims and lawsuits
involving environmental matters with respect to its current inventory of real
estate as well as previously owned real estate. However, no such claims are
presently pending and Scout has not suffered, and does not anticipate that it
will suffer, a material adverse effect as a result of any past action by any
governmental agency or other party, or as a result of noncompliance with such
environmental laws and regulations.

RISK FACTORS

         You should carefully consider the risks described below. The risks
and uncertainties described below are not the only ones facing our company. If
any of the following risks actually occur, our business, financial condition
or results of operations could be materially adversely affected. In that case,
the trading price of our common stock could decline, and you may lose all or
part of your investment in our common stock.

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<PAGE>

RISKS RELATING TO OUR TECHNOLOGY

         We might not successfully commercialize our technology, and
commercial-scale GTL plants based on the Syntroleum Process may never be
successfully constructed or operated.

         To date, no commercial-scale GTL plant based on the Syntroleum
Process has been constructed. A commercial-scale GTL plant based on the
Syntroleum Process might never be successfully built either by us or by any of
our licensees. Our success depends on our ability, and the ability of our
licensees, to economically design, construct and operate GTL plants based on
the Syntroleum Process on a commercial scale. The successful commercial
construction and operation of a GTL plant based on the Syntroleum Process
depends on a variety of factors, many of which are outside our control.
Although we are currently developing the Sweetwater plant, our first
commercial-scale GTL plant, we do not know if we will be successful in
obtaining the necessary debt and equity financing for this plant. We do not
know when construction of this plant will begin or when it will become
operational. We do not have significant experience managing the financing,
design, construction or operation of commercial-scale GTL plants, and we may
not be successful in doing so.

         Commercial-scale GTL plants based on the Syntroleum Process might not
produce results necessary for success, including results demonstrated on a
laboratory and pilot plant basis.

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

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

              .   shorter than anticipated catalyst life, which would require
                  more frequent catalyst regeneration, catalyst purchases, or
                  both, and increase operating costs,

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

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

              .   higher than anticipated capital and operating costs to
                  design, construct and operate a GTL plant.

         In addition, these plants could experience mechanical difficulties,
either related or unrelated to elements of the Syntroleum Process.

         Many of our competitors have significantly more financial and other
resources than our company, and GTL technologies developed by our competitors
could become more commercially successful than our technology or render our
technology obsolete.

         The development of GTL technology is highly competitive, and other
GTL technologies could become more commercially successful than our
technology. The Syntroleum Process is based on chemistry that has been used by
several companies in synthetic fuel projects over the past 60 years. Our
competitors include major integrated oil companies that have developed or are
developing competing GTL technologies, including BP, Conoco, Exxon, Sasol
(including through its participation in a joint venture with Chevron) and
Shell. Each of these companies has significantly more financial and other
resources than us to spend for research and development of their technologies
and for funding construction and operation of commercial-scale GTL plants. In
addition to using their own GTL technologies in competition with us, these
competitors could also offer to license their technology to others. In
addition, several small companies have developed, and are continuing to
develop, competing GTL technologies. The Department of Energy has also
sponsored a number of research programs relating to GTL technology that, in
many cases, could potentially lower the cost of competitive processes.

                                     19

<PAGE>

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

         Our ability to protect our intellectual property rights involves many
complexities and uncertainties, and commercialization of the Syntroleum
Process could give rise to claims that our technology infringes upon the
rights of others.

         Our success depends on our ability to protect our intellectual
property rights, which involves complex legal, scientific and factual
questions and uncertainties. We rely on a combination of patents, copyrights,
trademarks, trade secrets and contractual restrictions to protect our
proprietary rights. We cannot assure you that additional patents will be
granted, and our existing patents might not provide us with commercial benefit
or might be infringed upon, invalidated or circumvented by others. In
addition, the availability of patents in foreign markets, and the nature of
any protection against competition that may be afforded by those patents, are
often difficult to predict and vary significantly from country to country. We
or our licensors may choose not to seek, or may be unable to obtain, patent
protection in a country that could potentially be an important market for our
GTL technology. The confidentiality agreements that are designed to protect
our trade secrets could be breached, and we might not have adequate remedies
for the breach. In addition, our trade secrets and proprietary know-how might
otherwise become known or be independently discovered by others.

         Commercialization of the Syntroleum Process may give rise to claims
that our technologies infringe upon the patents or other proprietary rights of
others. Although it is our policy to regularly review patents that may have
applicability in the GTL industry, we may not become aware of these patents or
rights until after we have made a substantial investment in the development
and commercialization of those technologies. We cannot assure you that third
parties will not claim infringement by us with respect to past, present or
future GTL technologies. Legal actions could be brought against us, our
partners or our licensees claiming damages and seeking an injunction that
would prevent us, our partners or our licensees from testing, marketing or
commercializing the affected technologies. If an infringement action were
successful, in addition to potential liability for damages, our partners, our
licensees or we could be required to obtain a license in order to continue to
test, market or commercialize the affected technologies. Any required license
might not be made available or, if available, might not be available on
acceptable terms, and we could be prevented entirely from testing, marketing
or commercializing the affected technology. We may have to expend substantial
resources in litigation, either in enforcing our patents, defending against
the infringement claims of others, or both. Many possible claimants, like the
major energy companies that have or may be developing proprietary GTL
technologies competitive with the Syntroleum Process, have significantly more
resources to spend on litigation.

         We could have potential indemnification liabilities to licensees
relating to the operation of GTL plants based on the Syntroleum Process or
intellectual property disputes.

         Our license agreements require us to indemnify the licensee, subject
to a cap of 50% of the license fees we receive, against specified losses
relating to, among other things:

              .   the use of patent rights and technical information relating
                  to the Syntroleum Process,

              .   acts or omissions by us in connection with our preparation
                  of process design packages for plants, and

              .   performance guarantees that may be provided by us.

         Our indemnification obligations could result in substantial expenses
and liabilities to us in the event that intellectual property rights claims
are made against us or our licensees, or GTL plants based on the Syntroleum
Process fail to operate as designed.

         If improvements to the Syntroleum Process are not commercially
viable, the design and construction of lower-cost GTL plants based on the
Syntroleum Process could be delayed or prevented.

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<PAGE>

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

         For example, we are seeking to develop improvements to the heat
integration of the Syntroleum Process designed to lower capital and operating
costs. These improvements may not occur because further integration of the gas
turbine into the process might not be technically feasible due to the operating
tolerances of the materials in the gas turbine.

         Industry rejection of our technology would make the construction of
GTL plants based on the Syntroleum Process more difficult or impossible and
adversely affect our ability to receive future license fees.

         As is typical in the case of any evolving technology, demand and
industry acceptance for our GTL technology is subject to a high level of
uncertainty. Failure by the industry to accept our technology would make our
construction of GTL plants more difficult or impossible and adversely affect
our ability to receive future license fees and to generate other revenue.
Should a high profile industry participant adopt the Syntroleum Process and
fail to achieve success or should any commercial GTL plant based on the
Syntroleum Process fail to achieve success, other industry participants'
perception of the Syntroleum Process could be adversely affected. In addition,
some oil companies may be motivated to seek to prevent industry acceptance of
GTL technology based on their belief that widespread adoption of GTL technology
might negatively impact their competitive position.

RISKS RELATING TO OUR BUSINESS

         We will need to obtain funds from additional financings or other
sources for the Sweetwater project and our other business activities. If we do
not receive these funds, we would need to reduce, delay or eliminate some of
our expenditures, including those for the Sweetwater project.

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

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

         The construction of the Sweetwater plant and other GTL plants based on
the Syntroleum Process will be subject to the risks of delay and cost overruns
inherent in any large construction project.

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

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<PAGE>

              .     shortages of equipment, materials or skilled labor,

              .     unscheduled delays in the delivery of ordered materials and
                    equipment,

              .     engineering problems, including those relating to the
                    commissioning of newly designed equipment,

              .     work stoppages,

              .     weather interference,

              .     unanticipated cost increases, and

              .     difficulty in obtaining necessary permits or approvals.

         We have incurred losses and anticipate continued losses.

         As of December 31, 2001, we had an accumulated deficit of $99 million.
We have not yet achieved profitability and expect to continue to incur net
losses until we recognize sufficient revenues from licensing activities, GTL
plants or other sources. Because we do not have an operating history upon which
an evaluation of our prospects can be based, our prospects must be considered
in light of the risks, expenses and difficulties frequently encountered by
small companies seeking to develop new and rapidly evolving technologies. To
address these risks, we must, among other things, continue to attract
investment capital, respond to competitive factors, continue to attract, retain
and motivate qualified personnel and commercialize and continue to upgrade our
GTL technologies. We may not be successful in addressing these risks. We cannot
assure you that we will achieve or sustain profitability.

         Our anticipated expense levels are based in part on our expectations
as to future operating activities and not on historical financial data. We plan
to continue to fund research and development and project development
activities.  Capital expenditures will depend on the progress we make in
developing various GTL projects on which we are currently working. Increased
revenues or cash flows may not result from these expenses.

         The economic application of GTL plants based on the Syntroleum Process
depends on favorable crude oil prices and other commodity prices.

         Our belief that the Syntroleum Process can be cost effective at GTL
plants with throughput levels under 10,000 to over 100,000 barrels per day is
based on our assumption that oil prices in the range of at least $15 to $20 per
barrel will prevail. However, the markets for oil and natural gas have
historically been very volatile and are likely to continue to be very volatile
in the future. Although world crude oil prices were approximately $18 per
barrel in December 2001, during 1998 crude oil prices fell to historically low
levels of below $10 per barrel for a period of time and could return to low
levels in the future.

         Because the synthetic crude oil, liquid fuels and specialty products
that GTL plants based on the Syntroleum Process are expected to produce will
compete in markets with oil and refined petroleum products, and because natural
gas will be used as the feedstock at these GTL plants, an increase in natural
gas prices relative to prices for oil and refined products, or a decrease in
prices for oil and refined products, could adversely affect the operating
results of these plants. Higher than anticipated costs for the catalysts and
other materials used in these plants could also adversely affect operating
results. Factors that could cause changes in the prices and availability of
oil, natural gas and refined products include:

              .     the level of consumer product demand,

              .     weather conditions,

              .     domestic and foreign government regulation,

              .     the actions of the Organization of Petroleum Exporting
                    Countries,

              .     political conditions in oil and natural gas producing
                    countries,

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<PAGE>

              .     the supply of foreign crude oil and natural gas,

              .     the location of GTL plants relative to natural gas reserves
                    and pipelines,

              .     the capacities of pipelines,

              .     fluctuations in seasonal demand, and

              .     the price and availability of alternative fuels and overall
                    economic conditions.

         We cannot predict the future markets and prices for oil, natural gas,
or other materials used in the Syntroleum Process or refined products.

         The economic application of GTL plants based on the Syntroleum Process
depends on favorable plant operating conditions.

         The economic application of GTL technology depends on favorable plant
operating conditions. Among the operating conditions that impact plant
economics are the site location, infrastructure, weather conditions, the size
of the equipment, the quality of the natural gas feedstock, the type of plant
products and whether the natural gas converted by the plant is associated with
oil reserves. For example, if a plant were located in an area that requires the
construction of substantial infrastructure, plant economics would be adversely
affected. In addition, plants that are not designed to produce specialty
products or other high margin products and plants that are not used to convert
natural gas that is associated with oil reserves will be more dependent on
favorable natural gas and oil prices than plants designed for those uses. We do
not expect these plants to be cost-effective at price levels below the range of
at least $15 to $20 per barrel for oil.

         GTL plants will depend on the availability of natural gas at economic
prices, and alternative uses of natural gas could be preferred in many
circumstances.

         The construction and operation of GTL plants will depend on the
availability of natural gas at economic prices. The market for natural gas is
highly competitive in many areas of the world, and in many circumstances, the
sale of natural gas for use as a feedstock in a GTL plant will not be the
highest value market for the owner of the natural gas. The cryogenic conversion
of natural gas to liquefied natural gas may compete with our GTL plants for use
of natural gas as feedstocks in many locations. Local commercial, residential
and industrial consumer markets, power generation, ammonia, methanol and
petrochemicals are also alternative markets for natural gas. Unlike us, many of
our competitors also produce or have access to large volumes of natural gas,
which may be used in connection with their GTL operations. The availability of
natural gas at economic prices for use as a feedstock for GTL plants may also
depend on the production costs for the gas and whether natural gas pipelines
are located in the areas where these plants are located. New pipelines may be
built in, or existing pipelines may be expanded into, areas where GTL plants
are built, and this may affect the operating margins of these plants as other
markets compete for the available natural gas. The United States and Western
Europe have well-developed natural gas markets. In these markets, the
relationship between natural gas prices and liquid hydrocarbon prices would
likely make investments in GTL plants that produce fuels uneconomic based upon
current natural gas and refined product prices, as well as other market,
environmental and regulatory conditions. Other areas around the world that have
developed local markets for natural gas may also have higher valued uses for
natural gas than as feedstocks for GTL plants. In addition, the
commercialization of GTL technologies may have an adverse effect on the
availability of natural gas at economic prices.

         Our receipt of license fees depends on substantial efforts by our
licensees, and our licensees could choose not to construct a GTL plant based on
the Syntroleum Process or to pursue alternative GTL technologies.

         Our licensees will control whether we issue any plant site licenses
and, as a result, whether we receive any additional license fees under our
license agreements. To date, no licensee of the Syntroleum Process has
exercised its right to obtain a site license. Under most circumstances, a
licensee will need to undertake substantial activities and investments before
we issue any plant site licenses and receive license fees. These activities may
include performing feasibility studies, obtaining regulatory approvals and
permits, obtaining preliminary cost estimates and final design and engineering
for the plant, obtaining a sufficient dedicated supply of natural gas,
obtaining adequate commitments for the purchase of the plant's products and
obtaining financing for construction of the plant. A licensee will control the
amount and timing of resources devoted to these activities. Whether licensees
are willing to expend the resources

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<PAGE>

necessary to construct GTL plants will depend on a variety of factors outside
our control, including the prevailing view of prices for crude oil, natural gas
and refined products. In addition, our license agreements may be terminated by
the licensee, with or without cause, upon 90 days' notice to us. If we do not
receive payments under our license agreements, we may not have sufficient
resources to implement our business strategy. Our licensees are not restricted
from pursuing alternative GTL technologies on their own or in collaboration
with others, including our competitors.

         Our success depends on the performance of our executive officers, the
loss of whom would disrupt our business operations.

         We depend to a large extent on the performance of our executive
officers, including Kenneth L. Agee, our founder, Chief Executive Officer and
Chairman of the Board and inventor with respect to many of our patents and
patent applications, and Mark A. Agee, our President and Chief Operating
Officer. Given the technological nature of our business, we also depend on our
scientific and technical personnel. Our efforts to develop and commercialize
our technology have placed a significant strain on our scientific and technical
personnel, as well as our operational and administrative resources. Our ability
to implement our business strategy may be constrained, and the timing of
implementation may be impacted, if we are unable to attract and retain
sufficient personnel. At March 1, 2002, we had 125 full-time employees. Except
for a $500,000 life insurance policy held by us on the life of Kenneth L. Agee,
we do not maintain "key person" life insurance policies on any of our employees.

         We depend on strategic relationships with manufacturing and
engineering companies. If these companies fail to provide necessary components
or services, this could negatively impact our business.

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

         We also intend to utilize third parties to provide engineering
services in connection with our efforts to commercialize the Syntroleum
Process. If these engineering firms are unable to provide requisite services or
performance guarantees, we or our licensees could experience material delays,
or construction plans could be canceled, while alternative engineering firms
are identified and become familiar with the Syntroleum Process. We have limited
experience in providing engineering services and have a limited engineering
staff. Consequently, we will depend on third parties to provide necessary
engineering services, and these firms may be asked by licensees or financial
participants in plants to provide performance guarantees in connection with the
design and construction of GTL plants based on the Syntroleum Process.

         Our operating results may be volatile due to a variety of factors and
are not a meaningful indicator of future performance.

         We expect to experience significant fluctuations in future annual and
quarterly operating results because of the unpredictability of many factors
that impact our business. These factors include:

              .     timing of any construction by us or our licensees of GTL
                    plants,

              .     demand for licenses of the Syntroleum Process and receipt
                    and revenue recognition of license fees,

              .     oil and gas prices,

              .     timing and amount of research and development expenditures,

              .     demand for synthetic fuels and specialty products,

              .     introduction or enhancement of GTL technologies by us and
                    our competitors,

                                     24

<PAGE>

              .     market acceptance of new technologies, and

              .     general economic conditions.

         As a result, we believe that period-to-period comparisons of our
results of operations are not meaningful and should not be relied upon as any
indication of future performance. Due to all of the foregoing factors, it may
be that in some future year or quarter our operating results will be below the
expectations of public market analysts and investors. In that event, the price
of our common stock would likely be materially adversely affected.

         We are subject to extensive laws relating to the protection of the
environment, and these laws may increase the cost of designing, constructing
and operating our GTL plants.

         If we violate any of the laws and regulations relating to the
protection of the environment, we may be subject to substantial fines, criminal
sanctions or third party lawsuits and may be required to install costly
pollution control equipment or, in some extreme cases, curtail operations. Our
GTL plants will generally be required to obtain permits under applicable
environmental laws and various permits for industrial siting and construction.
Compliance with environmental laws and regulations, and any requisite
environmental or construction permits, may increase the costs of designing,
constructing and operating our GTL plants. We may also face exposure to actual
or potential claims and lawsuits involving environmental matters with respect
to our current real estate inventory as well as previously owned real estate.

         We plan to construct GTL plants in foreign countries, where we would
be subject to risks of a political nature and other risks inherent in foreign
operations.

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

         Recent terrorist attacks and United States military action could
result in a material adverse effect on our business.

         On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. In October 2001, the United States commenced
military action in Afghanistan in response to these attacks. Military action by
the United States may continue indefinitely and may escalate and armed
hostilities may begin or escalate in other countries. Further acts of terrorism
in the United States or elsewhere may occur. These developments have caused
instability in the world's financial and insurance markets and will likely
significantly increase political and economic instability in the geographic
areas in which we may wish to operate. In addition, these developments could
lead to increased volatility in prices for crude oil and natural gas.

         Following the terrorist attacks on September 11, 2001, insurance
underwriters increased insurance premiums charged for many coverages and issued
general notices of cancellations to their customers for war risk, terrorism and
political risk insurance in respect of a wide variety of insurance coverages.
Insurance premiums could be increased further or coverages may be unavailable
in the future.

         United States government regulations effectively preclude us from
actively engaging in business activities in certain countries. These
regulations could be amended to cover countries where we may wish to operate in
the future.  These developments could subject the operations of our company to
increased risks and, depending on their magnitude, could have a material
adverse effect on our business.

         Sufficient markets for the synthetic products of the Syntroleum
Process or products that utilize these synthetic products, including fuel
cells, may never develop or may take longer to develop than we anticipate.

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

                                     25

<PAGE>

          .    the cost competitiveness of the synthetic products of the
               Syntroleum Process,

          .    consumer reluctance to try a new product,

          .    environmental, safety and regulatory requirements, and

          .    the emergence of more competitive products.

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

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

ITEM 2.   PROPERTIES

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

          We lease approximately 10 acres of land at the Port of Catoosa near
Tulsa, Oklahoma on which we intend to construct a 70 barrel per day GTL
demonstration plant as part of our clean fuels project with the DOE. The
primary term of the lease is ten years and the rent is $3,250 per month.

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

ITEM 3.   LEGAL PROCEEDINGS

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

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

          None.

EXECUTIVE OFFICERS OF THE REGISTRANT

          The following table sets forth certain information concerning our
executive officers as of May 1, 2002. Unless otherwise indicated, each of our
executive officers has served in the indicated positions since the closing of
the merger of Syntroleum Corporation and SLH Corporation on August 7, 1998 and
served in the same position with Syntroleum Corporation before the merger.
References to positions held with our company before the date of the merger
refer to positions held with our predecessor company, Syntroleum Corporation,
an Oklahoma corporation.

<TABLE>

<CAPTION>
          Name                    Age                          Position
          ----                   ----                          ---------
         <S>                    <C>        <C>

          Kenneth L. Agee         45        Chief Executive Officer and Chairman of the Board
          Mark A. Agee            49        President, Chief Operating Officer and Director
          Charles A. Bayens       63        Vice President of Engineering
          Carla S. Covey          29        Controller
          Eric Grimshaw           49        Vice President, General Counsel and Secretary
          Paul F. Schubert        46        Vice President of Research and Development
          Michael L. Stewart      47        Vice President of Information Technology
          Randall M. Thompson     43        Vice President and Chief Financial Officer
          Larry J. Weick          53        Vice President of Licensing and Business Development

</TABLE>

                                     26

<PAGE>

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

          Mark A. Agee is our President, Chief Operating Officer and a
director. Mr. Mark A. Agee joined our company in 1994 as Vice President of
Finance and became President and Chief Operating Officer in February 1996. He
has served as a director since March 1985. From 1989 to May 1993, he served as
President, Chief Executive Officer and Director of Convergent Communications, a
company which he founded in 1989 and sold in 1993. From 1981 to 1989, he served
as President, Chief Executive Officer and a Director of XETA Corp., a computer
company which he founded in 1981 and which became public in 1987. He holds a
Bachelor's degree in Chemical Engineering from the University of Tulsa and is a
licensed Professional Engineer in the State of Oklahoma.

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

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

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

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

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

          Randall M. Thompson is our Vice President and Chief Financial
Officer. Mr. Thompson joined our company in January 1997. From January 1994
through December 1996, he held various financial and marketing positions with
Tenneco Energy Corporation, as Vice President of Strategic Planning, Vice
President of Marketing and Vice President of Business Development. From 1983
through 1994, Mr. Thompson was employed by Atlantic

                                     27

<PAGE>

Richfield Company and held financial management positions. Mr. Thompson holds a
B.A. in Economics from the University of Colorado and an M.B.A. from The
Wharton School at the University of Pennsylvania.

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

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

                                  Part II

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

          Stock Prices. Our common stock is traded on the National Market
System of the Nasdaq Stock Market under the symbol "SYNM." The table below
reflects the high and low sales prices for the common stock for each quarter
during 2000 and 2001.

                                                    Sales Price
                                                    -----------
                                             -------          -------
                                               High             Low
                                             -------          -------
     Year Ended December 31, 2000:
          First Quarter                       26.38             7.13
          Second Quarter                      26.50            16.38
          Third Quarter                       20.81            12.88
          Fourth Quarter                      20.81            11.81

                                              High              Low
                                             -------          -------
     Year Ended December 31, 2001:
          First Quarter                       16.75            11.13
          Second Quarter                      14.74             7.00
          Third Quarter                        8.75             3.62
          Fourth Quarter                       7.25             4.10

          Record Holders. As of March 1, 2002, we had approximately 1,390
record holders of our common stock (including brokerage firms and other
nominees).

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

          Our stock price may continue to be volatile and could decline in the
future. Historically, the market price of our common stock has been very
volatile. The trading price of our common stock is expected to continue to be
subject to substantial volatility in response to numerous factors, including
publicity regarding actual or potential results with respect to development of
the Syntroleum Process and design, construction and commercial operation of
plants using our process, announcements of technological innovations by others
with competing GTL processes, developments concerning intellectual property
rights, including claims of infringement, annual and quarterly variances in
operating results, changes in energy prices, competition, changes in financial
estimates by securities analysts, any differences in actual results and results
expected by investors and analysts, investor perception of our favorable or
unfavorable prospects and other events or factors. In addition, the stock
market has experienced and

                                     28

<PAGE>

continues to experience significant price and volume volatility that has
affected the market price of equity securities of many companies. This
volatility has often been unrelated to the operating performance of those
companies. These broad market fluctuations may adversely affect the market
price of our common stock. There is no guarantee that an active public market
for our common stock will be sustained.

          Future sales of our common stock could adversely affect our stock
price. Substantial sales of our common stock in the public market, or the
perception by the market that those sales could occur, could lower our stock
price or make it difficult for us to raise additional equity capital in the
future. These sales could include sales of shares of our common stock by our
directors and officers, who beneficially owned approximately 41.1% of the
outstanding shares of our common stock as of March 1, 2002. We cannot predict
if future sales of our common stock, or the availability of our common stock
for sale, will harm the market price for our common stock or our ability to
raise capital by offering equity securities.

REGISTRATION STATEMENT

          In early 2000 we filed a Registration Statement on Form S-3
(Registration No. 333-32968), as amended (the "Registration Statement"), in
connection with the registration of shares of our common stock with an
aggregate offering price of up to $120,000,000. The Securities and Exchange
Commission declared the Registration Statement effective on April 25, 2000. As
described in a prospectus supplement dated June 29, 2000, an offering commended
on June 29, 2000 pursuant to the Registration Statement, and resulted in (i)
the sale by us of 5,250,000 shares of common stock on July 6, 2000 and (ii) the
sale by us of 400,000 shares of common stock on July 19, 2000 pursuant to the
exercise of the underwriters' over-allotment option.

          The net proceeds to us from the offering were approximately $92
million. To date, we have used approximately $48 million in such net proceeds
for the development of our Sweetwater project. The remaining net proceeds from
the offering are currently invested in short-term cash and cash equivalents.
None of such payments were direct or indirect payments to our directors or
officers or their associates, to persons owning ten percent or more of any
class of our equity securities or to our affiliates.

ITEM 6.   SELECTED FINANCIAL DATA

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

<TABLE>

<CAPTION>

                                         2001            2000          1999         1998           1997
                                    ------------   -----------   ------------   ----------     -------------
<S>                                <C>            <C>           <C>            <C>             <C>
Statement of Operations Data:

Joint development revenue........... $    2,239     $   1,166     $    1,986     $    1,779      $    2,006
Real estate sales revenue...........      4,484         4,758          1,219          2,416               -
Licensing revenue...................          -         2,000              -              -               -
Other revenue.......................          2            84            650            284               1
                                    ------------   -----------   ------------   ----------     -------------
Total revenue.......................      6,725         8,008          3,855          4,479           2,007
                                    ------------   -----------   ------------   ----------     -------------
Costs and expenses:
   Cost of real estate sold.........      1,447         3,646            824          2,387               -
   Real estate operating expenses...        116           250            781            267               -
   Pilot plant, engineering
          and research and development   21,908        18,520         10,863          5,693           3,554
   Catalyst services................          -             -              -              -           4,800
   General and administrative.......     17,301        13,118         10,409          9,151           3,618
                                    ------------   -----------   ------------   -----------     ------------
           Total operating expenses.     40,772        35,534         22,877         17,498          11,972
                                    ------------   -----------   ------------   -----------     ------------
Operating income (loss).............    (34,047)      (27,526)       (19,022)       (13,019)         (9,965)
Investment, interest and other
          income (expense)..........      3,747         2,358          1,864          1,308             353
                                    ------------   -----------   ------------   -----------     ------------
Net income  (loss)..................    (30,300)    $ (25,168)    $  (17,158)    $  (11,711)     $   (9,612)
                                    ------------   -----------   ------------   -----------     ------------
Net income (loss) per share-
           basic and diluted (1)....  $    (.91)    $   (0.84)    $    (0.64)    $    (0.46)     $    (0.40)
                                    ============   ===========   ============   ============    ============

</TABLE>

                                     29

<PAGE>

-------------------------------
(1) Adjusted to reflect the exchange ratio for the merger of Syntroleum
Corporation and SLH Corporation of 1.2899 shares of our common stock for each
share of our predecessor company's common stock. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>

<CAPTION>
                                                                As of December 31,
                                        2001            2000           1999            1998            1997
                                      ---------       --------        --------        ------          -------
<S>                            <C>               <C>             <C>            <C>              <C>

Balance Sheet Data:

Working capital.................  $    42,765     $    81,722     $    22,798     $    37,476     $    9,846
Property and equipment, net.....       34,049          31,274           6,442           3,210          1,245
Total assets....................      105,512         139,878          39,591          50,400         12,091
Deferred revenue................       34,351          35,680          11,000          11,000         11,000
Stockholders' equity............       62,731          94,748          24,832          35,962         (1,242)

</TABLE>

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

OVERVIEW

          We are incurring costs with respect to developing and commercializing
the Syntroleum Process and do not anticipate recognizing any significant
revenues from licensing our technology or from production from either a fuel or
specialty plant in the near future. As a result, we expect to continue to
operate at a loss unless and until sufficient revenues are recognized from
licensing activities, gas-to-liquids plants or real estate sales.

OPERATING REVENUES

          During the periods discussed below, our revenues were primarily
generated from the following:

          .    sales of real estate holdings owned by SLH Corporation prior to
               the merger of Syntroleum Corporation and SLH Corporation,

          .    reimbursement for research and development activities associated
               with the Syntroleum Process, and

          .    other sources, including rent generated by real estate holdings
               owned by SLH prior to the merger.

          .    Because substantially all of our real estate portfolio has been
               sold, we expect to receive lower levels of revenues from these
               sources in future periods.

          .    In the future, we expect to receive revenue relating to the
               Syntroleum Process from four principal sources:

          .    licensing,

          .    catalyst sales,

          .    sales of products from or fees for the use of GTL plants in
               which we own an equity interest, and

          .    revenues from research and development activities carried out
               with industry partners.

          Until the commencement of commercial operation of GTL plants in which
we own an interest, we expect that cash flow relating to the Syntroleum Process
will consist primarily of license fee deposits, site license fees and revenues
associated with joint development activities. We will not receive any cash flow
from GTL plants in which we own an equity interest until the first of these
plants is constructed. Our future operating revenues will depend on the
successful commercial construction and operation of GTL plants based on the
Syntroleum Process, the success of competing GTL technologies and other
competing uses for natural gas. We expect our results of operations and cash

                                     30

<PAGE>

flows to be affected by changing crude oil, fuel and specialty product prices.
If the price of these products increases (decreases), there could be a
corresponding increase (decrease) in operating revenues.

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

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

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

         GTL Plant Revenues. We intend to develop GTL plants and to retain
significant equity interests in these plants. These plants will enable us to
gain experience with the commercial operation of the Syntroleum Process and, if
successful, are expected to provide ongoing revenues. The anticipated products
of these plants (i.e., synthetic fuels, lube base oils, process oils, waxes,
drilling fluid and liquid normal paraffins) have historically been sold at
premium prices and are expected to result in relatively high sales margins. We
anticipate forming joint ventures with energy industry and financial partners
in order to finance and operate these plants. We anticipate that our GTL plants
will include partners who have low-cost gas reserves in strategic locations
and/or have distribution networks in place for the synthetic products to be
made in each plant.

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

         Real Estate Sales Revenues. As of December 31, 2001, our real estate
inventory consisted of land in Houston, Texas comprised of 255 acres of
undeveloped land and 69 lots known as the "Houston Project." This real estate
inventory was owned by SLH Corporation prior to the merger of Syntroleum
Corporation and SLH Corporation and reflects the remaining assets of a real
estate development business that was conducted by SLH's former parent
corporation. Our total real estate inventory had an aggregate carrying value at
December 31, 2001 of approximately $3.0 million. The Houston Project is being
developed for commercial and residential use and ultimate sale. The timing of
real estate sales will create variances in period-to-period earnings
recognition. We do not intend to acquire additional real estate holdings for
development and/or sale outside our core business interests, and real

                                     31

<PAGE>

estate sales revenues should decrease as the current real estate inventory is
liquidated.

         In February 2000, the Company sold its parking garage in Reno, Nevada
to Fitzgeralds Reno, Inc. The sale price of $3 million was paid by $750,000 in
cash and the balance in the form of a promissory note in the principal amount
of $2,250,000 together with the assumption of the lease payments due under the
ground lease. The note bears interest at the rate of 10% per annum and is
payable in monthly installments of principal and interest based on a 20 year
amortization, with the entire unpaid balance due in 10 years. The note is
secured by a deed of trust covering the leasehold estate created by the ground
lease on which the garage is located, as well as the parking garage and an
assignment of leases. In December 2000, Fitzgeralds Reno, Inc., a Nevada
corporation ("FRI") doing business as Fitzgeralds Hotel & Casino Reno, along
with several affiliates, filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court, District of Nevada. Fitzgeralds continues to make the monthly payments
due on the note and the ground lease and has informed the Company that it
intends to continue making these payments until Fitzgeralds is able to sell the
parking garage. The Company's deed of trust contains a "due on sale" provision
until the note is paid. After the note is paid, the Company's deed of trust
remains in effect to secure Fitzgeralds' performance of its obligations under
the ground lease and provides that any assignee of Fitzgeralds in the event of
the sale of the parking garage must meet certain net worth requirements in
order for Fitzgeralds to assign the ground lease.

OPERATING EXPENSES

         Our operating expenses historically have consisted primarily of pilot
plant, engineering, including third party engineering, and research and
development expenses and general and administrative expenses, which include
costs associated with general corporate overhead, compensation expense, legal
and accounting expense and expenses associated with other related
administrative functions.

         Our policy is to expense pilot plant, engineering and research and
development costs as incurred. All of these research and development expenses
are associated with our development of the Syntroleum Process. Research and
development expenses include costs to operate both our laboratory and
technology center, salaries and wages associated with these operations,
research and development services performed by universities, consultants and
third parties and additional supplies and equipment needs for these facilities.

         We have also recognized depreciation and amortization expense
primarily related to office and computer equipment and patents. Our operating
expenses have also included costs of real estate sold and real estate operating
expense.  Our general and administrative expenses have increased substantially
as we have expanded our research and development, engineering and commercial
activities, including staffing levels. We also expect to continue to incur
pilot plant, engineering and research and development expenses as we continue
to develop, improve and commercialize our GTL technology.

         As a result of the completion of a substantial portion of the
engineering and process/product testing associated with our Sweetwater project
and in an effort to conserve working capital, we plan to decrease our operating
expenses compared to prior years while continuing to fund our most critical
research and development and project development activities.

         If we are successful in developing a GTL plant in which we own an
interest, we expect to incur significant expenses in connection with the
start-up of the plant. For example, we expect that our expenses will increase
at the time of commencement of construction of the Sweetwater plant. Upon the
commencement of commercial operation of the Sweetwater plant, we will incur
cost of sales expenses relating primarily to the cost of natural gas feedstocks
for this plant and operating expenses relating to this plant, including labor,
supplies and maintenance. Due to the substantial capital expenditures
associated with the construction of GTL plants, we expect to incur significant
depreciation and amortization expense in the future. Our policy is to expense
costs associated with the development of GTL plants until financial close
unless they have future economic value for future projects. Engineering costs
are capitalized once an engineering contract leading to a firm lump sum price
has been signed.

RESULTS OF OPERATIONS

Overview

         Our primary research and development projects during 2001 related to
the GTL technology we plan to use in the Sweetwater plant, including
confirmation of catalyst performance and reactor designs. Of the $22 million

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expenses for pilot plant, engineering and research and development during 2001,
approximately $3.9 million directly related to the Sweetwater plant and $1.5
million related to our new pilot scale refining unit at our Technology Center
in Tulsa, Oklahoma. Operation of this unit allowed us to complete a battery of
confirmation tests and detailed engineering of our proposed Sweetwater plant
relating to product properties and yields. In addition, an aggregate of $11.8
million of expenses incurred during 2001 related to salaries and wages, outside
contract services, lab equipment and improvements and pilot plant and
laboratory operating expenses, which primarily supported work on technology we
plan to use in the Sweetwater plant. Another significant research and
development project during 2001 related to technology associated with our
moving bed reactor design, for which we incurred $2.6 million of directly
related expense during 2001. We also incurred $2.1 million in relocation and
preliminary engineering costs relating to our DOE clean fuels project.

         During 2001, we entered into a letter of intent with Petroleum
Geo-Services ASA (PGS) to form a joint venture to develop, market and operate
mobile, marine-based production facilities that use the Syntroleum Process. If
the transaction is completed, the joint venture is expected to be a separate
operating company offering contract GTL services to gas producers to convert
natural gas from offshore fields into synthetic hydrocarbon products. Under the
letter of intent, the planned joint venture will have its initial operations in
Aberdeen, Scotland and will be the exclusive means by which we and PGS offer
mobile, marine-based contract GTL services to third parties. Formation of the
joint venture is subject to negotiation and execution of definitive agreements
by the parties. We cannot assure you that the joint venture will be formed or
commence actual business operations.

         During the third quarter of 2001, the U.S. Department of Energy (DOE)
concluded an agreement with Integrated Concepts & Research Corporation (ICRC)
to provide funding to a team of companies for the GTL Ultra-Clean Fuels
Production and Demonstration Project for which preliminary approval was
announced by us in October 2000. We are the prime subcontractor for this
project. Under the terms of the agreement, the DOE will fund $16 million of the
$36 million project, and the other project participants will provide the
remaining $20 million. We are currently in discussions with Marathon Oil
Company regarding its participation in this project. Under the program,
Syntroleum's Cherry Point GTL facility which has been disassembled and will be
relocated from ARCO's Cherry Point Refinery in Washington State to a site near
Tulsa, Oklahoma, is expected to become the basis for construction of a new GTL
facility expected to produce up to approximately 70 barrels per day of
Syntroleum ultra-clean diesel fuel and synthetic naphtha.  Construction for the
project is currently expected to begin in 2002, with fuel production expected
to commence in early 2003. The fuels from this facility are expected to be
tested by other project participants in advanced power train and emission
control technologies and are also expected to be tested in bus fleets by the
Washington Metropolitan Area Transit Authority and the U.S. National Park
Service at Denali National Park in Alaska. Completion of the project is subject
to continued congressional appropriation of project funds as well as our
ability to attract the remaining necessary funds not otherwise provided by the
DOE. In addition, construction of this project will be subject to the risks of
delay inherent in any large construction project.

         During the fourth quarter of 2001 we announced plans to develop an
integrated NGL/GTL (natural gas liquids/gas-to-liquids) project in the Talara
Basin of Northwest Peru. We expect to develop this project in three phases.
Phase I is expected to consist of construction of a nominal 2,000 barrel per
day NGL plant to upgrade and replace an existing plant. Phase II is expected to
involve the expansion of the NGL plant and the construction of a 5,000 barrel
per day GTL plant. Phase III is expected to involve expansion of the GTL
facility as additional natural gas reserves and production in the area are
developed. In connection with this proposed project, we signed a license
contract with the government of Peru under which we have acquired exploration
and production rights to the offshore Peruvian oil and gas block designated as
Z-1. Previous exploration activity in the area has identified possible gas and
condensate reserves, which, up to now, have remained undeveloped due to lack of
an adequate market for the gas. It is anticipated that development of these
reserves would facilitate the third phase of the Talara project. We expect to
partner with an experienced oil and gas exploration and production company with
respect to any exploration activity we may engage in on the Z-1 block. Under
the terms of the Z-1 block license contract we have provided a letter of credit
in the amount of $300,000 to secure a performance bond issued to secure our
work program obligations during the first two years of the license contract.
The amount of the performance bond will increase in subsequent periods of the
work program. During 2002, we expect to spend approximately $1,000,000 in our
efforts to develop the Talara project. Completion of the Talara project is
subject to satisfaction of several conditions including negotiation and
execution of definitive gas purchase agreements and engineering, procurement
and construction agreements and other agreements, site acquisition and
financing. We cannot assure you that this project will commence actual
operations. In addition, this project will be subject to the risks of delay
inherent in any large construction project.

         During the first quarter of 2002, we announced that Congress had
appropriated $3.5 million for a proposed Flexible JP-8 (single battlefield
fuel) Pilot Plant program under the Department of Defense Appropriation Bill,
2002.

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We expect to negotiate a contract with the DOD to participate in the program,
which will provide for the design of a marine-based fuel-production plant, as
well as testing of synthetically-made (gas-to-liquids) JP-8 fuel in military
diesel and turbine engine applications. We cannot assure you that we will be
successful in concluding a contract with DOD to participate in this program.

2001 Compared to 2000

         Joint Development Revenue. Revenues from our joint research and
development and pilot plant operations were $2,239,000 in 2001, up $1,073,000
from 2000 when they were $1,166,000. The increase was primarily due to joint
development efforts related to our DOE project and feasibility studies for our
licensees and prospective licensees.

         Real Estate Sales Revenue. Revenues from the sale of real estate were
$4,484,000 in 2001, down $274,000 from $4,758,000 in 2000. The decrease was due
to the sale of our Powder Basin Partnership and the sale of 125 lots from our
Houston project in 2001, compared to the sale of our Reno parking garage and
the sale of 82 lots from our Houston Project during 2000. Real estate sales
revenues should continue to decrease as the remaining real estate inventory is
sold.

         Licensing Revenue. Revenues from license activities were zero in 2001
compared to $2,000,000 in 2000. This decrease was a result of our recognition
of $2 million in previously deferred license revenue as a result of the
expiration of an option held by a licensee to expand the licensee's licensed
territory during 2000.

         Other Revenue. Other revenues were $2,000 in 2001, down $82,000 from
2000 when they were $84,000. The decrease resulted primarily from the lower
parking and retail rentals from our parking garage in Reno, Nevada, which we
sold in February 2000.

         Cost of Real Estate Sold and Real Estate Operating Expense. The cost
of real estate sold was $1,447,000 in 2001, down $2,199,000 from $3,646,000 in
2000. The decrease resulted from the sale of our Powder Basin Partnership and
the sale of 125 lots from our Houston project during 2001, compared to the sale
of our Reno parking garage and the sale of 82 lots from our Houston Project
during 2000. Real estate operating expense was $116,000 during 2001, down
$134,000 from $250,000 in 2000. This decrease was the result of decreased costs
associated with the parking and retail operation of the Reno garage.

         Pilot Plant, Engineering and R&D. Expenses from pilot plant,
engineering and research and development activities were $21,908,000 in 2001,
up $3,388,000 from 2000 when these expenses were $18,520,000. The increase was
primarily the result of the continued expansion of our Tulsa, Oklahoma pilot
plant facility, the construction of a product upgrading pilot plant at our
technology center, higher research and development spending and higher
consulting expense associated with the design and engineering of the Sweetwater
plant.

         General and Administrative Expense. General and administrative
expenses were $17,301,000 in 2001, up $4,183,000 from 2000 when these expenses
were $13,118,000. The increase is attributable primarily to higher wages and
salaries resulting from our higher staffing levels, higher rent expense and
higher expense for outside consultants and advisors.

         Investment, Interest and Other Income. Investment, interest and other
income decreased to $4,219,000 in 2001, down $625,000 from 2000 when this
income was $4,844,000. The decrease was primarily attributable to lower cash
balances and lower interest rates and foreign currency exchange gains.

         Provision for Income Taxes. Income tax expense was $472,000 in 2001
down from $2,486,000 in 2000. This tax expense is an Australian withholding tax
on payments made to the Company by the Commonwealth of Australia under our
license and loan agreements with the Commonwealth. We expect to incur similar
withholding tax expense with respect to any future payments to the Company by
the Commonwealth under either of these agreements. We incurred a loss in both
2001 and 2000 and did not recognize an income tax benefit for such loss.

         Net Income (Loss).  In 2001, we experienced a loss of $30,300,000.
The loss was $5,132,000 higher than 2000 when we experienced a loss of
$25,168,000.  The increase in the loss is a result of the factors described
above.

2000 Compared to 1999

         Joint Development Revenue. Revenues from our joint research and
development and pilot plant operations

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<PAGE>

were $1,166,000 in 2000, down $820,000 from 1999 when they were $1,986,000.
The decrease was primarily due to reduced funding received under our joint
development agreement with ARCO relating to the construction of the pilot plant
at ARCO's Cherry Point refinery in Washington.  Construction of this pilot
plant was completed in 1999 and we continued to receive funding for the
operation of this pilot plant through June 2000. Testing was completed and the
plant was shut down in early July 2000.

         Real Estate Sales Revenue. Revenues from the sale of real estate were
$4,758,000 in 2000, up $3,539,000 from $1,219,000 in 1999. The increase was due
to the sale of our Reno parking garage and the sale of 82 lots from our Houston
Project during 2000, compared to our sale of the Santa Rosa land in Kansas City
and the sale of 38 lots from our Houston project during 1999. Real estate sales
revenues should continue to decrease as the remaining real estate inventory is
sold.

         Licensing Revenue. Revenues from license activities were $2,000,000 in
2000 compared to zero in 1999. This increase was a result of our recognition of
$2 million in previously deferred license revenue as a result of the expiration
of an option held by a licensee to expand the licensee's licensed territory.

         Other Revenue. Other revenues were $84,000 in 2000, down $566,000 from
1999 when they were $650,000. The decrease resulted primarily from the lower
parking and retail rentals from our parking garage in Reno, Nevada, which we
sold in February 2000.

         Cost of Real Estate Sold and Real Estate Operating Expense. The cost
of real estate sold was $3,646,000 in 2000, up $2,822,000 from $824,000 in
1999.  The increase resulted from the sale of our Reno parking garage and the
sale of 82 lots from our Houston Project during 2000 compared to our sale of
the Santa Rosa land in Kansas City and the sale of 38 lots from our Houston
project during 1999. Real estate operating expense was $250,000 during 2000,
down $531,000 from $781,000 in 1999. This decrease was the result of decreased
costs associated with the parking and retail operation of the Reno garage.

         Pilot Plant, Engineering and R&D. Expenses from pilot plant,
engineering and research and development activities were $18,520,000 in 2000,
up $7,657,000 from 1999 when these expenses were $10,863,000. The increase was
primarily the result of the continued expansion of our Tulsa, Oklahoma pilot
plant facility, the construction of a product upgrading pilot plant at our
technology center, higher research and development spending and higher
consulting expense associated with the design and engineering of the Sweetwater
plant.

         General and Administrative Expense. General and administrative
expenses were $13,118,000 in 2000, up $2,709,000 from 1999 when these expenses
were $10,409,000. The increase is attributable primarily to higher wages and
salaries resulting from our higher staffing levels, higher rent expense and
higher expense for outside consultants and advisors.

         Investment, Interest and Other Income. Investment, interest and other
income increased to $4,844,000 in 2000, up $2,980,000 from 1999 when this
income was $1,864,000. The increase was primarily attributable to higher
interest income from increased cash balances and foreign currency exchange
gains during 2000 compared to 1999.

         Provision for Income Taxes. Income tax expense was $2,486,000 in 2000
up from zero in 1999. This tax expense is an Australian withholding tax on
payments made to the Company by the Commonwealth of Australia under our license
and loan agreements with the Commonwealth. We expect to incur similar
withholding tax expense with respect to any future payments to the Company by
the Commonwealth under either of these agreements. We incurred a loss in both
2000 and 1999 and did not recognize an income tax benefit for such loss.

         Net Income (Loss). In 2000, we experienced a loss of $25,168,000.
The loss was $8,010,000 higher than 1999 when we experienced a loss of
$17,158,000. The increase in the loss is a result of the factors described
above.

LIQUIDITY AND CAPITAL RESOURCES

General

         As of December 31, 2001, we had $44,737,000 in cash and short-term
investments and $4,428,000 in current liabilities. Our long-term debt as of
December 31, 2001 was $1,190,000, and this debt matures in 2025. The long-term
debt amount reflects cash loan proceeds received in under our loan agreement
with the Commonwealth of Australia which are held in escrow (AUD $18 million
which is approximately U.S. $9 million) and which are discounted over the
remaining term of the loan using an imputed interest rate of nine percent. The
difference

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between the cash received and the discounted long-term debt amount of
$1,190,000 has been recorded as a reduction in the costs of the related
Sweetwater project. The long term debt amount reflected for these proceeds
will, excluding the effect of currency exchange rate fluctuations, increase
over time as the remaining term of the loan declines. Pending satisfaction of
conditions relating to the financing, construction and completion of the
Sweetwater plant, loan proceeds will be held in escrow. Should the conditions
not be fully satisfied by August 2004, any loan proceeds remaining in escrow
may be returned to the Commonwealth.

         At December 31, 2001, we had $1,795,000 in accounts and notes
receivable outstanding. During the third quarter of 2001, we sold our interest
in the Powder Basin Partnership which owns a shopping center in Gillette,
Wyoming, and we were released from our guaranty of partnership debt. The
related security for our guaranty was likewise released. We also had
$16,506,000 in restricted investments as of December 31, 2001 of which
$16,206,000 are held in escrow representing funds received from the
Commonwealth of Australia under our loan and license agreements with the
Commonwealth and $300,000 is pledged as security for a $300,000 letter of
credit issued in connection with the guaranteed work program under our license
contract for the Z-1 block in Peru.

         Cash flows provided by (used in) operations were ($34,184,000) in 2001
compared to $5,316,000 in 2000 and ($16,599,000) in 1999. This increase in cash
flows used in operations was primarily the result of the receipt in 2000 of
$27,520,000 in deferred revenue offset by the recognition in 2000 of $2,000,000
of previously deferred revenue. Cash flows used in operations also increased
because of the sale of the Reno garage during 2000 offset by the sale of the
Powder Basin Partnership during 2001. Cash flows used in investment activities
were $4,275,000 in 2001 compared to $39,656,000 in 2000 and $4,094,000 in 1999.
The decrease in 2001 resulted primarily from the decreased capitalized costs
for our Sweetwater project and the decrease in restricted funds associated with
the Commonwealth of Australia license and loan agreements.

         Cash flows provided by (used in) financing activities were
($1,059,000) in 2001 compared to $97,539,000 in 2000 and $6,028,000 in 1999.
The decrease in 2001 was primarily due to the completion of the sale of
5,650,000 shares of common stock pursuant to a public offering in which we
received net proceeds of approximately $92,242,000 after the underwriting
discount and offering expenses and the receipt of $757,000 in long-term debt
under the Commonwealth of Australia loan agreement during 2000.

         We have expended and will continue to expend a substantial amount of
funds to continue the research and development of our GTL technologies, to
market the Syntroleum Process and to design and construct GTL plants. We intend
to finance the Sweetwater plant primarily through non-recourse debt financing
at the project level, as well as equity financing, and plan to obtain
additional funds for our other GTL plant projects primarily through a
combination of equity and debt project financing. We also intend to obtain
additional funds through collaborative or other arrangements with strategic
partners and others and debt (including debt which is convertible into our
common or preferred stock) and equity financing. We have an effective
registration statement for the proposed offering from time to time of shares of
our common stock, preferred stock, debt securities, depositary shares or
warrants for an aggregate initial offering price of $250,000,000. We also
intend to obtain additional funding through joint ventures, partnerships,
license agreements and other strategic alliances, as well as various other
financing arrangements. Definitive agreements with equity and debt participants
in the Sweetwater project and our other capital projects are expected to
include conditions to funding, many of which could be outside of our control.
If adequate funds are not available, we may be required to delay or to
eliminate expenditures for the Sweetwater project and our other capital
projects, as well as our research and development and other activities or seek
to enter into a business combination transaction with another company. We could
also be forced to license to third parties the rights to commercialize
additional products or technologies that we would otherwise seek to develop
ourselves. If we obtain additional funds by issuing equity securities, dilution
to stockholders may occur. In addition, preferred stock could be issued in the
future without stockholder approval and the terms of our preferred stock could
include dividend, liquidation, conversion, voting and other rights that are
more favorable than the rights of the holders of our common stock. We can give
no assurance that any of the transactions outlined above will be available to
us when needed or on terms acceptable or favorable to us.

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

         We have sought and intend to continue to temporarily invest our
assets, pending their use, so as to avoid becoming subject to the registration
requirements of the Investment Company Act of 1940. These investments are

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<PAGE>

likely to result in lower yields on the funds invested than might be available
in the securities market generally. If we were required to register as an
investment company under the Investment Company Act, we would become subject to
substantial regulation that would materially adversely affect us.

Initial Specialty Product GTL Plant

         We are developing a nominal 11,500 barrel per day specialty product
GTL plant in Australia that we call the Sweetwater plant. We currently
anticipate that this plant will produce synthetic lube oil, normal paraffins,
process oils and light paraffins. The plant will use a fixed tube reactor
design which produces a high yield of the desired products with high wax
content. The plant design has lower scale-up risks than other reactor designs
and will include additional refining equipment necessary to produce the
targeted specialty products. We plan to construct this plant through a joint
venture with other parties who we expect will furnish a portion of the needed
equity financing.  After receiving a financial commitment from the Commonwealth
of Australia, we selected a site for the plant about four kilometers from the
North West Shelf liquid natural gas facility on the Burrup Peninsula of Western
Australia. We have applied for and received most of the necessary permits for
the plant.

         We currently expect the capital costs of the Sweetwater plant to be
funded primarily by non-recourse senior and subordinated debt at the project
level, as well as equity financing from third parties, together with our own
equity contribution. We are seeking third party equity participation in the
project and to obtain debt financing to fund final design, construction, and
start-up of the plant. However, we cannot assure you that we will obtain the
necessary financing for this project.

         The State of Western Australia has announced its intention to assist
the Sweetwater project with an AUD $30 million (approximately U.S. $15 million)
common use infrastructure package, including construction of a desalination
plant to which the Sweetwater plant will supply steam and from which the plant
will receive cooling water. In addition, we have entered into a gas purchase
agreement with the North West Shelf Gas Partners, whose members include
affiliates of BHP Petroleum, BP, Chevron, Mitsui, Mitsubishi, Royal Dutch Shell
and Woodside Energy Ltd. Subject to certain conditions, North West Shelf Gas
Partners have agreed to supply the Sweetwater plant with the natural gas
required to operate the plant at full capacity for 20 years. The agreement
provides fixed purchase prices for the gas, subject to fixed periodic
escalation provisions.

         In August 2000, we entered into a license agreement with the
Commonwealth of Australia to license the Syntroleum Process as part of a
program designed to unlock the value of Australia's energy reserves and improve
the quality of the environment. Under the license agreement, the Commonwealth
made an AUD $30 million (approximately U.S. $15 million) deposit, of which AUD
$15 million (approximately U.S. $7 million) is currently held in escrow pending
satisfaction of conditions relating to the construction of the Sweetwater
plant.  AUD $20 million (approximately U.S. $10 million) of the license fee may
be credited against future site license fees otherwise payable under the
Commonwealth license. At the same time, we entered into a loan agreement with
the Commonwealth under which the Commonwealth will make a non-amortizing,
interest-free loan to us in the amount of AUD $40 million (approximately U.S.
$22 million) with a 25-year maturity to support the further development and
commercialization of GTL technologies in Australia and under which we have
agreed to conduct a feasibility study on constructing a large-scale GTL fuels
plant in Australia. Loan proceeds are to be made available to us in three
successive advances. Pending satisfaction of conditions relating to the
financing, construction and completion of the Sweetwater plant, loan proceeds
will be held in escrow. Should the conditions not be fully satisfied by August
2004, any license and loan proceeds remaining in escrow may be returned to the
Commonwealth. To date, we have received three advances of loan proceeds under
our loan with the Commonwealth, which are currently being held in escrow.

          In April 2001, we entered into an agreement with Clough-PGS Joint
Venture to provide operating and maintenance services for the Sweetwater plant
during the construction and provisional acceptance phases and for the following
10 operating years. Clough-PGS is a joint venture between Clough Engineering
Ltd., an Australian company that is part of Clough Ltd., and PGS Production
Pty.  Ltd., an Australian subsidiary of Petroleum Geo-Services ASA. The
agreement provides for total payments to Clough-PGS of approximately AUD$350
million (approximately U.S. $173 million) over the ten year operations phase of
the agreement. In addition, we will pay Clough-PGS on a monthly basis for
services provided to us during the construction and provisional acceptance
phases of the Sweetwater plant, as well as reimburse Clough-PGS for additional
services not otherwise within the scope of the contracted services. The
agreement also provides additional financial incentives for Clough-PGS to
maximize plant revenues and financial penalties for plant underperformance.

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         We have also entered into multiple agreements with the Dampier Port
Authority in April 2001. These 30-year agreements provide us with access to the
Dampier port facilities and services for shipping products produced at the
Sweetwater plant. The port facilities agreement provides us with priority
loading of vessels carrying products from the plant. Under that agreement, the
port will construct additional facilities that will enable accommodation of
increased traffic at the port. The related lease agreement provides us with a
small parcel of land adjacent to the wharf that will be used for loading
equipment, pumps and storage tanks. The related easement agreement provides us
with right of way access on Dampier Port Authority land for laying and
operating product pipelines from the plant to the wharf.

         In August of 2001, we entered into an engineering , procurement and
construction (EPC) contract with Tessag Industrie Anlagen GmbH (as a result of
a recent name change, now known as RWE Industrie-Losugen GmbH), a subsidiary of
RWE AG. The EPC contract covers engineering, procurement, construction,
pre-commissioning, commissioning and testing of the Sweetwater plant, plus
personnel training for a lump sum price of $599.5 million. The plant's
operating capacity has increased from the original 10,000 to 11,500 nominal
barrels-per-day as a result of pilot plant tests demonstrating higher
conversion rates than those included in the original design as well as standard
engineering design margins which had not been considered previously. The price
is an increase from Tessag's February 2001 quote of $506 million, primarily as
a result of an increase of $35 million for Tessag's contingency and margin,
which now totals more than $100 million, higher costs associated with
additional product upgrading facilities, expanded operating parameters for the
autothermal reformers (ATRs) and Fischer-Tropsch (F-T) reactors, higher labor
costs due to wage-rate inflation in the Western Australia region and changes in
foreign currency exchange rates. The final price may also vary up or down with
exchange rates until financial close on the project, when the price will be
fixed in U.S.  dollars. Tessag's final price does not include interest during
construction and other owner's costs, which include proprietary catalysts to be
supplied by Syntroleum. Our current estimate of these costs, excluding interest
during construction, is approximately $90 million. Financing for and
construction of the plant will be subject to the risks inherent in any large
construction project.

         In addition to the EPC contract, during 2001 we completed several
other agreements important to the Sweetwater plant.

           .  In September 2001, we signed an option with the State of Western
              Australia, which grants us the irrevocable right to lease the
              approximately 160 acre site for the Sweetwater plant. The lease
              option is for a term of two years and execution of the final
              lease agreement is subject to completion of project financing
              and notice to Tessag to proceed with construction of the plant
              under the engineering, procurement and construction contract
              discussed above.

           .  In October 2001, we signed a 20 year agreement with the Water
              Corporation of Western Australia for the supply of water to the
              Sweetwater plant. Under the terms of the agreement, Water
              Corporation will, subject to construction of a new water
              desalination plant and satisfaction of various other conditions,
              supply over 1.4 million gallons of water per day for use in
              process cooling. In return, we will provide Water Corporation
              steam and electricity produced by the plant, along with a modest
              operating fee.

           .  In October 2001, we concluded a contract with a major Australian
              natural gas pipeline company for transportation of natural gas
              from the Northwest Shelf LNG facility to the Sweetwater plant
              site and transportation of products produced at the plant site
              to the Dampier public wharf, where they will be loaded to
              tankers. This agreement is for a term of 20 years at a fixed
              price, with extension options. Under the terms of the agreement,
              a natural gas pipeline to the plant site will be constructed and
              approximately six product pipelines will be constructed from the
              plant site to the wharf.

REAL ESTATE AND OTHER ASSET SALES

         As of December 31, 2001, our real estate inventory consisted of land
in Houston, Texas comprised of 255 acres of undeveloped land and 69 lots known
as the "Houston Project." This real estate inventory was owned by SLH
Corporation prior to the merger of Syntroleum Corporation and SLH Corporation
and reflects the remaining assets of a real estate development business that
was conducted by SLH's former parent corporation. Our total real estate
inventory had an aggregate carrying value at December 31, 2001 of approximately
$3.0 million. The Houston Project is being developed for commercial and
residential use and ultimate sale. The timing of real estate sales will create
variances in period-to-period earnings recognition. We do not intend to acquire
additional real estate holdings for development and/or sale outside our core
business interests, and real estate sales revenues should decrease as the

                                     38

<PAGE>

current real estate inventory is liquidated.

         During 2001, we sold 125 lots from the Houston Project for $2.6
million. Also during the third quarter of 2001, we sold our partnership
interest in the Powder Basin Partnership which owns a shopping center in
Gillette, Wyoming for a gain of approximately $1.9 million dollars. The
investment had a negative carrying value of $104,000. This sale also released
approximately $3.2 million in short-term investments which secured 49.9% of a
letter of credit issued to secure obligations of the partnership.

         In February 2000, the Company sold its parking garage in Reno, Nevada
to Fitzgeralds Reno, Inc. The sale price of $3 million was paid by $750,000 in
cash and the balance in the form of a promissory note in the principal amount
of $2,250,000 together with the assumption of the lease payments due under the
ground lease. The note bears interest at the rate of 10% per annum and is
payable in monthly installments of principal and interest based on a 20 year
amortization, with the entire unpaid balance due in 10 years. The note is
secured by a deed of trust covering the leasehold estate created by the ground
lease on which the garage is located, as well as the parking garage and an
assignment of leases. In December 2000, Fitzgeralds Reno, Inc., a Nevada
corporation doing business as Fitzgeralds Hotel & Casino Reno, along with
several affiliates, filed voluntary petitions for reorganization under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court,
District of Nevada. Fitzgeralds continues to make the monthly payments due on
the note and the ground lease and has informed the Company that it intends to
continue making these payments until Fitzgeralds is able to sell the casino and
parking garage. The Company's deed of trust contains a "due on sale" provision
until the note is paid. After the note is paid, the Company's deed of trust
remains in effect to secure Fitzgeralds' performance of its obligations under
the ground lease and provides that any assignee of Fitzgeralds in the event of
the sale of the parking garage must meet certain net worth requirements in
order for Fitzgeralds to assign the ground lease.

         We plan to liquidate our real estate assets and other investments in
an orderly manner to maximize their value. The timing of these sales will
create variances in period-to-period earnings recognition. We do not intend to
acquire additional real estate holdings for development or sale outside our
core business interests, and revenue from real estate sales should decrease as
the current real estate inventory is liquidated. We estimate that construction
and disposal costs relating to our Houston real estate project for the current
year will be approximately $2 million, although the actual amount could be
materially different than this estimated amount. We expect these costs will be
offset by lot sales in 2002 and 2003

         Our other assets at December 31, 2001 included an investment in a
privately owned developer of proprietary bone substitute technology, which had
a carrying value of approximately $506,000; an investment in a privately held
venture capital limited partnership, which had a carrying value of $476,000;
and an equity investment in a recently renovated hotel in Tulsa, Oklahoma.

CURRENCY RISK

         We expect to conduct a portion of our business in currencies other
than the United States dollar. We may attempt to minimize our currency exchange
risk by seeking international contracts payable in local currency or we may
choose to convert our currency position into United States dollars. Our
engineering, procurement and construction contract for the Sweetwater plant is
denominated primarily in Australian dollars and Euros but, upon the closing of
the debt and equity financing for the plant, the contract will be converted to
and denominated in United States dollars at then prevailing exchange rates.
Until then, we expect the contract to subject us to risks associated with
exchange rate fluctuations. In addition, we expect to seek contractual purchase
price adjustments based on an exchange rate formula related to United States
dollars.  In the future, we may also have significant investments in countries
other than the United States. The functional currency of these foreign
operations may be the local currency, and accordingly, financial statement
assets and liabilities may be translated at prevailing exchange rates and may
result in gains or losses in current income. Currently, all of the Company's
subsidiaries use the U.S.  dollar for their functional currency. Monetary
assets and liabilities are translated into United States dollars at the rate of
exchange in effect at the balance sheet date. Transaction gains and losses that
arise from exchange rate fluctuations applicable to transactions denominated in
a currency other than the U.S. dollar are included in the results of operations
as incurred.

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Statement No. 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be

                                     39

<PAGE>

recorded in the balance sheet as either an asset or liability measured at its
fair value. Statement No. 133 requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement. Companies must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. We do not currently
purchase futures contracts nor do we hold derivative investments. We adopted
Statement No. 133 beginning January 1, 2001. Adoption of Statement No.133 did
not have a material effect on our financial statements.

         In July, 2001, the FASB issued Statement No. 141, Business
Combinations, Statement No. 142, Goodwill and Other Intangible Assets, and
Statement No. 143, Accounting for Asset Retirement Obligations.  Statement No.
141 requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method of accounting.  Under Statement No.
142, goodwill is no longer subject to amortization over its estimated useful
life.  Rather, goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value-based test.  Additionally, an acquired
intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so.  Under these statements there
will be more recognized intangible assets, such as unpatented technology and
database content, being separated from goodwill.  Those assets will be
amortized over their useful lives, other than assets that have an indefinite
life.  Statement No. 142 is required to be applied starting with fiscal years
beginning after December 15, 2001.  The Company does not believe the adoption
of Statement No. 142 will have a material impact on the financial conditions
and results of operations.

         Statement No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset.  Statement No. 143 is effective for fiscal years beginning
after June 15, 2002. The Company is currently assessing the impact of Statement
No. 143 on its financial condition and results of operations.

         In August, 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.  Statement No. 144 supercedes the
previously issued Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of and addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. Statement No. 144 is effective for fiscal years beginning after
December 15, 2001.  The Company is currently assessing the impact of Statement
No. 144 on its financial condition and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We had $45 million in cash equivalents in the form of money market
instruments as of December 31, 2001. We also hold restricted funds in the form
of Australian escrow accounts. These funds earn interest at approximately 3.5%
and are marked to market at the end of each reporting period. These accounts
can have fluctuating balances relating to foreign currency exchange between the
U.S. and Australian Dollar.

         Foreign exchange risk currently relates to two escrow accounts held in
Australian dollars in the amount of U.S. $16,206,000 at December 31, 2001, and
to long-term debt held in Australian dollars in the amount of U.S. $1,190,000
at December 31, 2001. This long-term debt matures in 2025 and has been
discounted using an imputed interest rate of nine percent. We also have
deferred revenue, a portion of which is denominated in Australian currency.
This deferred revenue was U.S. $15,351,000 at December 31, 2001. These
restricted funds, long-term debt, and associated discount and deferred revenue
are converted to U.S. dollars for financial reporting at the end of every
reporting period. To the extent that the conversion results in gains or losses,
such gains or losses will be shown in our statements of operations.

         We have not purchased futures contracts nor have we purchased or hold
any derivative financial instruments.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Our consolidated financial statements, together with the report
thereon of Arthur Andersen LLP dated January 18, 2002, are set forth on pages
F-1 through F-17 hereof. See Item 14 for an index to the consolidated financial
statements.

                                     40

<PAGE>

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

          None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.  EXECUTIVE COMPENSATION

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

         The information required by Items 10, 11, 12 and 13 is incorporated
herein by reference to our definitive proxy statement for our 2002 annual
meeting of stockholders, which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
within 120 days of December 31, 2001.

         Certain information with respect to our executive officers is set
forth in Item I of this annual report under the caption "Executive Officers of
the Registrant."

                                     PART IV

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

         (a)(1)  Financial Statements

<TABLE>
<CAPTION>
               Consolidated Financial Statements for the Three Years Ended December 31, 2001:
<S>                                                                                                    <C>
Report of Independent Public Accountants...............................................................F-1
Consolidated Balance Sheets as of December 31, 2001 and 2000...........................................F-2
Consolidated Statements of Operations for the Three Years Ended December 31, 2001......................F-3
Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 2001............F-4
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2001......................F-5
Notes to Consolidated Financial Statements.............................................................F-6
</TABLE>
         (a)(2)   Financial Statement Schedules

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

         (a)(3)   Exhibits

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

         Exhibit
           No.                             Description of Exhibit
           ---                             ----------------------

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

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

                                     41

<PAGE>

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

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

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

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

       +*10.2   Form of Amended and Restated Indemnification Agreement
                between Syntroleum and each of its officers and directors
                (incorporated by reference to Exhibit 10.2 to the Company's
                Annual Report on Form 10-K for the year ended December 31, 2000)

       +*10.3   Syntroleum Corporation 1993 Stock Option and Incentive Plan
                First Amendment and Restatement (incorporated by reference to
                Appendix B to the Proxy Statement filed by the Company with the
                Securities and Exchange Commission on April 18, 2001).

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

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

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

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

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

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

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

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

                                     42

<PAGE>

      +*10.12   SLH Corporation 1997 Stock Incentive Plan (incorporated by
                reference to Exhibit 10(c) to Amendment No. 1 to the Company's
                Annual Report on Form 10/A of the Company for the year ended
                December 31, 1997).

      +*10.13   Form of Option Agreement with certain executive officers under
                the SLH Corporation 1997 Stock Incentive Plan (incorporated by
                reference to Exhibit 10(e) to Amendment No. 1 to the Company's
                Annual Report on Form 10K/A for the year ended December 31,
                1997).

      +*10.14   Form of Option Agreement with directors under the SLH
                Corporation 1997 Stock Incentive Plan (incorporated by
                reference to Exhibit 10(f) to Amendment No. 1 to the Company's
                Annual Report on Form 10K/A for the year ended December 31,
                1997).

      +*10.15   Form of Consent to Adjustment to Option Agreements called
                for by Section 2.1(c) of the Agreement and Plan of Merger dated
                as of March 30, 1998 by and between SLH and Syntroleum
                (incorporated by reference to Exhibit 10.8 to the Company's
                Registration Statement on Form S-4 (Registration No.
                333-50253)).

       *10.16   License Agreement dated April 26, 2000 between Syntroleum
                Corporation and Ivanhoe Energy Inc. (incorporated by reference
                to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
                for the quarter ended March 31, 2000).

       *10.17   License Agreement dated August 2, 2000 between Syntroleum
                Corporation and Syntroleum Australia Licensing Corporation
                (incorporated by reference to Exhibit 10.1 of the Company's
                Quarterly Report on Form 10-Q for the quarter ended June 30,
                2000).

       *10.18   License Agreement dated August 3, 2000 between Syntroleum
                Australia Licensing Corporation and the Commonwealth of
                Australia (incorporated by reference to Exhibit 10.2 of the
                Company's Quarterly Report on Form 10-Q for the quarter ended
                June 30, 2000).

       *10.19   A$Loan Agreement dated August 3, 2000 between Syntroleum
                Australia Credit Corporation and the Commonwealth of Australia
                (incorporated by reference to Exhibit 10.3 of the Company's
                Quarterly Report on Form 10-Q for the quarter ended June 30,
                2000).

       *10.20   Deposit Agreement dated August 3, 2000 between Syntroleum
                Australia Licensing Corporation, the Commonwealth of Australia
                and Westpac Banking Association (incorporated by reference to
                Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q for
                the quarter ended June 30, 2000).

       *10.21   Deposit Agreement dated August 3, 2000 between Syntroleum
                Australia Credit Corporation, the Commonwealth of Australia and
                Westpac Banking Corporation (incorporated by reference to
                Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for
                the quarter ended June 30, 2000).

       *10.22   Letter Agreement dated August 3, 2000 between Syntroleum
                Corporation and the Commonwealth of Australia (incorporated by
                reference to Exhibit 10.6 of the Company's Quarterly Report on
                Form 10-Q for the quarter ended June 30, 2000).

       *10.23   Amendment No. 1 to Volume License Agreement dated October 11,
                2000 between Syntroleum Corporation and Ivanhoe Energy Inc.
                (incorporated by reference to Exhibit 10.1 of the Company's
                Quarterly Report on Form 10-Q for the quarter ended September
                30, 2000).

      +*10.24   Form of Employment Agreement between Syntroleum and its
                executive officers dated

                                     43

<PAGE>

                June 17, 1999 incorporated by reference to Exhibit 10.1 to the
                Company's Quarterly Report on Form 10-Q for the period ended
                June 30, 1999 filed with the Securities and Exchange Commission
                on August 12, 1999.

      +*10.25   Syntroleum Corporation 1993 Stock Option and Incentive Plan
                First Amendment and Restatement (incorporated by reference to
                Appendix B to the Company's Proxy Statement filed with the
                Securities and Exchange Commission on April 18, 2001).

       *10.26   Secured Promissory Note dated June 25, 2001 from Mark A. Agee
                to Syntroleum Corporation (incorporated by reference to Exhibit
                10.1 to the Company's Quarterly Report on Form 10-Q for the
                period ended June 30, 2001 field with the Securities and
                Exchange Commission on August 14, 2001).

       *10.27   Security and Stock Pledge Agreement dated June 25, 2001 between
                Mark A. Agee and Syntroleum Corporation (incorporated by
                reference to Exhibit 10.2 to the Company's Quarterly Report on
                Form 10-Q for the period ended June 30, 2001 field with the
                Securities and Exchange Commission on August 14, 2001).

       *10.28   Secured Promissory Note dated June 25, 2001 from Kenneth L.
                Agee to Syntroleum Corporation (incorporated by reference to
                Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
                the period ended June 30, 2001 field with the Securities and
                Exchange Commission on August 14, 2001).

       *10.29   Security and Stock Pledge Agreement dated June 25, 2001 between
                Kenneth L. Agee and Syntroleum Corporation (incorporated by
                reference to Exhibit 10.4 to the Company's Quarterly Report on
                Form 10-Q for the period ended June 30, 2001 field with the
                Securities and Exchange Commission on August 14, 2001).

           21   Subsidiaries

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

           23   Consent of Arthur Andersen LLP

--------------------

*  Incorporated by reference as indicated.
+  Compensatory plan or arrangement.

         (b) Reports on Form 8-K

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

                                     44

<PAGE>

                                   SIGNATURES

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

                                          SYNTROLEUM CORPORATION

Dated:  March 15, 2002                    By: /s/ Mark A. Agee
                                              ----------------------------------
                                          Mark A. Agee
                                          President and Chief Operating Officer

         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 and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
               Name                                          Capacity                                  Date
               ----                                          --------                                  ----
<S>                                      <C>                                                    <C>
                                         Chairman and Chief Executive Officer  (Principal       March 15, 2002
s/ Kenneth L. Agee                       Executive Officer)
------------------------------------
Kenneth L. Agee
                                         Vice President and Chief Financial Officer             March 15, 2002
s/ Randall M. Thompson                   (Principal Financial Officer)
------------------------------------
Randall M. Thompson

s/ Carla S. Covey                        Controller (Principal Accounting Officer)              March 15, 2002
------------------------------------
Carla S. Covey

s/ Mark A. Agee                          Director                                               March 15, 2002
------------------------------------
Mark A. Agee

s/ Alvin R. Albe, Jr.                    Director                                               March 15, 2002
------------------------------------
Alvin R. Albe, Jr.

s/ Frank M. Bumstead                     Director                                               March 15, 2002
------------------------------------
Frank M. Bumstead

s/ Robert A. Day                         Director                                               March 15, 2002
------------------------------------
Robert A. Day

s/ P. Anthony Jacobs                     Director                                               March 15, 2002
------------------------------------
P. Anthony Jacobs

s/ Robert B. Rosene, Jr.                 Director                                               March 15, 2002
------------------------------------
Robert B. Rosene, Jr.

s/ James R. Seward                       Director                                               March 15, 2002
------------------------------------
James R. Seward

s / J. Edward Sheridan                   Director                                               March 15, 2002
------------------------------------
J. Edward Sheridan
</TABLE>

                                     45

<PAGE>



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
 of Syntroleum Corporation:

We have audited the accompanying consolidated balance sheets of Syntroleum
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the related statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Syntroleum Corporation and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

                                                    ARTHUR ANDERSEN LLP

Tulsa, Oklahoma
 January 18, 2002

                                      F-1

<PAGE>

                             SYNTROLEUM CORPORATION AND SUBSIDIARIES
                                   CONSOLIDATED BALANCE SHEETS
                              (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                 December 31,         December 31,
                                                                     2001                 2000
                                                               --------------       -------------
                                                   ASSETS
<S>                                                            <C>                  <C>
CURRENT ASSETS:
   Cash and cash equivalents.................................  $     44,737         $     83,150
   Short-term investments....................................             -                3,347
   Accounts and notes receivable.............................         1,795                  572
   Other current assets......................................           661                  407
                                                               --------------       --------------
      Total current assets...................................        47,193               87,476

REAL ESTATE UNDER DEVELOPMENT................................         3,028                3,340
INVESTMENTS..................................................         1,072                  959
RESTRICTED CASH..............................................        16,506               13,744
PROPERTY AND EQUIPMENT, net..................................        34,049               31,274
NOTES RECEIVABLE.............................................         2,322                2,362
OTHER ASSETS, net............................................         1,342                  723
                                                               --------------       --------------
                                                               $    105,512         $    139,878
                                                               ==============       ==============

                                    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable..........................................  $      3,993         $      5,178
   Accrued liabilities.......................................           435                  576
                                                               --------------       --------------
      Total current liabilities..............................         4,428                5,754

LONG-TERM DEBT...............................................         1,190                  731
OTHER NONCURRENT LIABILITIES.................................            26                   29
DEFERRED REVENUE.............................................        34,351               35,680
MINORITY INTERESTS...........................................         2,786                2,936
                                                               --------------       --------------
      Total liabilities......................................        42,781               45,130
                                                               --------------       --------------

COMMITMENTS AND CONTINGENCIES - SEE NOTE 12

STOCKHOLDERS' EQUITY:
   Preferred stock, $0.01 par value, 5,000 shares authorized,
      no shares issued.......................................             -                    -
   Common stock, $0.01 par value, 150,000 shares authorized,
      40,958 and 40,812 shares issued in 2001 and 2000,
      respectively, including shares in treasury.............           410                  408
   Additional paid-in capital................................       163,734              163,858
   Notes receivable from sale of common stock................          (599)                (599)
   Notes receivable from officers secured by common stock....        (1,595)                   -
   Accumulated deficit.......................................       (99,142)             (68,842)
                                                               --------------       --------------
                                                                     62,808               94,825

   Less-treasury stock, 7,675 shares in
     2001 and 2000, respectively.............................           (77)                 (77)
                                                               --------------       --------------
      Total stockholders' equity.............................        62,731               94,748
                                                               --------------       --------------
                                                               $    105,512         $    139,878
                                                               ==============       ==============
</TABLE>
                     The accompanying notes are an integral part of these
                        consolidated balance sheets.

                                      F-2

<PAGE>

                                  SYNTROLEUM CORPORATION AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                            For the Year Ended December 31,
                                                                 -------------------------------------------------------
                                                                       2001               2000               1999
                                                                 -----------------  -----------------   ----------------
<S>                                                              <C>                <C>                 <C>
REVENUES:
   Joint development revenue..............................       $       2,239      $       1,166       $      1,986
   Real estate sales......................................               4,484              4,758              1,219
   Licensing..............................................                   -              2,000                  -
   Other..................................................                   2                 84                650
                                                               -----------------  -----------------   ----------------
        Total revenues....................................               6,725              8,008              3,855
                                                               -----------------  -----------------   ----------------

COSTS AND EXPENSES:
   Cost of real estate sales .............................               1,447              3,646                824
   Real estate operating expense..........................                 116                250                781
   Pilot plant, engineering and research and development                21,908             18,520             10,863
   General and administrative.............................              17,301             13,118             10,409
                                                               -----------------  -----------------   ----------------

INCOME (LOSS) FROM OPERATIONS.............................             (34,047)           (27,526)           (19,022)

INVESTMENT AND INTEREST INCOME............................               4,226              4,432              1,681
FOREIGN CURRENCY EXCHANGE.................................                 279                365                  -
OTHER INCOME (EXPENSE)....................................                  (1)               (17)               154
                                                               -----------------  -----------------   ----------------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND INCOME TAXES..........................................             (29,543)           (22,746)           (17,187)

MINORITY INTERESTS........................................                (285)                64                 29
INCOME TAXES..............................................                (472)            (2,486)                 -
                                                               -----------------  -----------------   ----------------

NET INCOME (LOSS).........................................       $     (30,300)     $     (25,168)      $    (17,158)
                                                               =================  =================   ================

NET INCOME (LOSS) PER SHARE -
   Basic and diluted......................................       $       (0.91)     $       (0.84)      $      (0.64)
                                                               =================  =================   ================
WEIGHTED AVERAGE COMMON SHARES
   OUTSTANDING............................................              33,209             30,107             26,906
                                                               =================  =================   ================
</TABLE>
                             The accompanying notes are an integral part of
                                these consolidated statements.

                                      F-3

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                Notes             Notes
                                         Common Stock                         Receivable        Receivable
                                    ----------------------     Additional    From Sale of     From Officers
                                       Number                   Paid-in         Common         Secured by         Accumulated
                                     of Shares       Amount     Capital          Stock         Common Stock          Deficit
                                    -------------  ---------  -------------  --------------  -----------------  --------------
<S>                                      <C>        <C>        <C>            <C>             <C>                <C>
BALANCE, December 31, 1998 .......       34,575     $  346     $  62,908      $      (699)    $            -     $    (26,516)
  SETTLEMENT OF MERGER
    CONTINGENCY...................            -          -         5,997                -                  -                -
  STOCK OPTIONS EXERCISED.........           94          1            30                -                  -                -
  NET INCOME (LOSS)...............            -          -             -                -            (17,158)
                                  --------------     --------  -------------  --------------  -----------------  --------------
BALANCE, December 31, 1999 .......       34,669        347        68,935             (699)                 -          (43,674)
  STOCK OPTIONS EXERCISED.........          499          5         2,513                -                  -                -
  CONSULTANT OPTIONS
    GRANTED.......................            -          -           302                -                  -                -
  OTHER...........................           (6)         -          (134)             100                  -                -
  COMMON STOCK ISSUANCE ..........        5,650         56        92,242                -                  -                -
  NET INCOME (LOSS)...............            -          -             -                -                  -          (25,168)
                                  --------------     --------  -------------  --------------  -----------------  --------------
BALANCE, December 31, 2000 .......       40,812        408       163,858             (599)                 -          (68,842)
  STOCK OPTIONS EXERCISED.........          146          2            19                -                  -                -
  CONSULTANT OPTIONS
    GRANTED......................             -          -          (143)               -                  -                -
  NOTES RECEIVABLE FROM
    OFFICERS......................            -          -             -                -             (1,595)               -
  NET INCOME (LOSS)...............            -          -             -                -                  -          (30,300)
                                  --------------    ---------  -------------  --------------  -----------------  --------------
BALANCE, December 31, 2001........       40,958     $  410     $ 163,734      $      (599)            (1,595)         (99,142)
                                  ==============    =========  =============  ==============  =================  ==============

<CAPTION>
                                                Treasury      Stockholders'
                                                Stock          Equity
                                             ------------   ---------------
<S>                                           <C>            <C>
BALANCE, December 31, 1998........            $      (77)    $      35,962
  SETTLEMENT OF MERGER
    CONTINGENCY...................                     -             5,997
  STOCK OPTIONS EXERCISED.........                     -                31
  NET INCOME (LOSS)...............                     -           (17,158)
                                             ------------   ---------------
BALANCE, December 31, 1999 .......                   (77)           24,832
  STOCK OPTIONS EXERCISED.........                     -             2,518
  CONSULTANT OPTIONS
    GRANTED.......................                     -               302
  OTHER...........................
                                                       -               (34)
  COMMON STOCK ISSUANCE ..........                     -            92,298
  NET INCOME (LOSS)...............                     -           (25,168)
                                             ------------   ---------------
BALANCE, December 31, 2000........                   (77)           94,748

  STOCK OPTIONS EXERCISED.........                     -                21
  CONSULTANT OPTIONS
    GRANTED.......................                     -              (143)
  NOTES RECEIVABLE FROM
    OFFICERS......................                     -            (1,595)
  NET INCOME (LOSS)...............                     -           (30,300)
                                             ------------   ---------------
BALANCE, December 31, 2001 .......
                                              $      (77)    $      62,731
                                             ============   ===============
</TABLE>

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

                                      F-4

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                For the Year Ended December 31,
                                                                        ----------------------------------------------
                                                                              2001            2000            1999
                                                                        --------------   -------------   -------------
<S>                                                                      <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)....................................................  $   (30,300)    $   (25,168)    $   (17,158)
  Adjustments to reconcile net income (loss)
    to net cash provided by (used in) operations:
    Minority interest in subsidiaries..................................         (150)            (87)           (313)
    Depreciation and amortization......................................          925             993             676
    Non-cash compensation expense......................................         (143)            302               -
    Equity in investments..............................................         (113)            145            (141)
    Foreign currency exchange..........................................       (1,384)              -               -
    Changes in real estate held for sale and under development.........          312           2,674            (170)
    Changes in assets and liabilities--
      Accounts and notes receivable....................................       (1,183)         (1,609)           (333)
      Short-term investments...........................................          107               -               -
      Other assets.....................................................         (915)           (502)            206
      Accounts payable.................................................       (1,196)          2,990             823
      Accrued liabilities and other....................................         (144)             58            (189)
      Deferred revenue.................................................            -          25,520               -
                                                                        --------------   -------------   -------------

        Net cash provided by (used in) operating activities............      (34,184)          5,316         (16,599)
                                                                        --------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment...................................       (3,658)        (25,793)         (3,881)
  Increase in restricted cash..........................................       (3,857)        (14,081)              -
  Changes in investments and distributions from investment funds.......        3,240             218            (213)
                                                                        --------------   -------------   -------------

        Net cash used in investing activities..........................       (4,275)        (39,656)         (4,094)
                                                                        --------------   -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock and option exercises..............          21          94,782              31
   Minority interest investment ........................................           -           2,000               -
   Proceeds from issuance of long-term debt.............................         515             757               -
   Settlement of merger contingency.....................................           -               -           5,997
   Notes receivable from officers secured by common stock...............      (1,595)              -               -
                                                                        --------------   -------------   -------------

        Net cash provided by (used in) financing activities.............      (1,059)         97,539           6,028
                                                                        --------------   -------------   -------------

FOREIGN EXCHANGE EFFECT ON CASH.........................................       1,105            (365)              -
                                                                        --------------   -------------   -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................     (38,413)         62,834         (14,665)
CASH AND CASH EQUIVALENTS, beginning of period..........................      83,150          20,316          34,981
                                                                        --------------   -------------   -------------

CASH AND CASH EQUIVALENTS, end of period................................ $    44,737     $    83,150     $    20,316
                                                                        ==============   =============   =============
</TABLE>

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

                                      F-5

<PAGE>

                     SYNTROLEUM CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF REPORTING

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

         The Company's current focus is to further demonstrate the commercial
viability of the Syntroleum Process. The Company has sold license agreements to
seven oil companies and the Commonwealth of Australia. In addition to operating
its own pilot plant in Tulsa, Oklahoma, the Company participated in the
operation of a demonstration plant located at ARCO's refinery in Cherry Point,
Washington.

OPERATIONS

         The construction of GTL plants will require significant capital
expenditures. The Company's other efforts to commercialize the Syntroleum
Process will also involve significant expenditures. The Company has an
effective registration statement for the proposed offering from time to time of
shares of the Company's common stock, preferred stock, debt securities,
depositary shares or warrants for an aggregate initial offering price of
$250,000,000. The Company intends to obtain additional funding through joint
ventures, partnerships, license agreements and other strategic alliances, as
well as various other financing arrangements. The Company may also seek debt or
additional equity financing in the capital markets. In the event such capital
resources are not available to the Company, its GTL plant development and other
activities may be curtailed.

         The Company is developing a commercial-scale specialty products plant
to be located in Western Australia known as the Sweetwater plant. Definitive
agreements with equity and debt participants in the Sweetwater project and the
Company's other capital projects are expected to include conditions to funding,
many of which could be outside of its control. If adequate funds are not
available, the Company may be required to delay or to eliminate expenditures
for the Sweetwater project and its other capital projects, as well as its
research and development and other activities or seek to enter into a business
combination transaction with another company. The Company could also be forced
to license to third parties the rights to commercialize additional products or
technologies that it would otherwise seek to develop itself. If the Company
obtains additional funds by issuing equity securities, dilution to stockholders
may occur. In addition, preferred stock could be issued in the future without
stockholder approval and the terms of the preferred stock could include
dividend, liquidation, conversion, voting and other rights that are more
favorable than the rights of the holders of the Company's common stock. The
Company can give no assurance that any of the transactions outlined above will
be available to it when needed or on terms acceptable or favorable to the
Company.

CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated. Investments in affiliated
companies of 20% to 50% in which Syntroleum does not have a controlling
interest are accounted for by the equity method. Investments in affiliated
companies of less than 20% are accounted for by the cost method.

REVENUE RECOGNITION

         The Company recognizes revenues from joint development activities as
the related expenses are incurred because the contracts provide that revenue is
earned as the expenses under the contract are incurred. Substantially all of
the Company's joint development revenues during the periods presented have been
from joint development activities with several major oil companies (see Note
16). All such joint development activities were pursuant to

                                      F-6

<PAGE>

joint research and development agreements where the Company expenses its
research and development costs as incurred.

         The Company recognizes revenue on the sale of license agreements by
recording 50% of the license fee deposit as revenue when: (1) the license
agreement has been formally executed, (2) the license fee deposit has been paid
in cash and (3) the Company has delivered to the licensee the process design
package for the licensee's initial licensed plant. Since 50% of the license fee
deposit is subject to the Company's indemnity obligation with respect to the
performance guarantee on the related plant, the remaining license fee deposit
is recorded as deferred revenue in the consolidated balance sheets and will be
recognized as revenue in the consolidated statements of operations after the
related plant has passed certain performance tests. Option fees, which provide
licensees the right to include additional geographic areas in its license
agreement territory, are deferred until the earlier of the option being
exercised or lapsing. As of December 31, 2001, the Company has deferred all
amounts received related to license agreements except for $2 million in license
revenue recognized by the Company in 2000 related to an option granted to
acquire the right to use the Syntroleum Process in certain additional
geographic areas, which lapsed in April 2000.

CASH AND CASH EQUIVALENTS

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

REAL ESTATE

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

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

         During 2001, the Company sold its partnership interest in the Powder
Basin Partnership, which owns a shopping center in Gillette, Wyoming, for a
gain of approximately $1.9 million. The Company also sold 125 lots in Houston
in 2001 for $2,555,000.

SHORT-TERM INVESTMENTS

         Short-term investments consist of U.S. Treasury securities and debt
obligations of U.S. Government agencies with original maturities between three
and twelve months. Management determines the appropriate classification of
these securities at the time of purchase and re-evaluates such designation at
each subsequent balance sheet date. At December 31, 2000, the Company's
investment portfolio consisted of debt securities classified as trading
securities or held-to-maturity presented at amortized cost.

RESEARCH AND DEVELOPMENT

         The Company incurs significant costs for research, development and
engineering programs. Expenses classified as research and development include
salaries and wages, rent, utilities, equipment, engineering and outside testing
and analytical work associated with our research, development and engineering
programs. These costs are charged to expense when incurred.

INCOME TAXES

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

                                      F-7

<PAGE>

IMPAIRMENT OF LONG-LIVED ASSETS

         The Company follows the provisions of Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." The Company makes assessments of impairment on a
project-by-project basis. The impairment provision is based on the excess of
carrying value over fair value. Fair value is defined as the present value of
the estimated future net revenues of a project. No impairment provisions were
required in 2001, 2000 or 1999.

SEGMENTS

         The Company acquired certain real estate assets in the merger with SLH
Corporation ("SLH") in 1998, which have since been sold with the exception of
the Company's real estate development in Houston, Texas. Management's intent is
to complete the development of its remaining real estate in Houston and to
continue to liquidate these assets. Management does not intend to acquire
additional real estate holdings. The Company's primary operation is to
commercialize its proprietary technology. Accordingly, management views the
Company as having only one segment.

EARNINGS PER SHARE

         The Company applies the provisions of Statement No. 128, "Earnings Per
Share." Basic and diluted earnings (losses) per common share were computed by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding during the reporting period. Options to purchase 3,844,161,
3,114,347 and 2,721,925 shares of common stock at an average exercise price of
$10.40, $10.43 and $7.44 were not included in the computation of diluted
earnings per share for the years ended December 31, 2001, 2000 and 1999,
respectively, as inclusion of such options would be anti-dilutive.

USE OF ESTIMATES

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

FOREIGN CURRENCY TRANSACTIONS

         All of the Company's subsidiaries use the U.S. dollar for their
functional currency. Assets and liabilities are translated into U.S. dollars at
the rate of exchange in effect at the balance sheet date. Transaction gains and
losses that arise from exchange rate fluctuations applicable to transactions
denominated in a currency other than the U.S. dollar are included in the
results of operations as incurred.

NEW ACCOUNTING PRONOUNCEMENTS

          In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Statement No. 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. Statement No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement. Companies must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting treatment. The Company does not purchase futures contracts nor
does it hold derivative investments. The Company adopted Statement No. 133
beginning January 1, 2001. The adoption of Statement No.133 had no material
effect on the Company's financial statements.

         In July 2001, the FASB issued Statement No. 141, "Business
Combinations," Statement No. 142, "Goodwill and Other Intangible Assets," and
Statement No. 143, "Accounting for Asset Retirement Obligations." Statement No.
141 requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method of accounting. Under Statement No. 142,
goodwill is no longer subject to amortization over its

                                      F-8

<PAGE>

estimated useful life. Rather, goodwill will be subject to at least an annual
assessment for impairment by applying a fair-value-based test. Additionally, an
acquired intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so. Under these statements there will
be more recognized intangible assets, such as unpatented technology and
database content, being separated from goodwill. Those assets will be amortized
over their useful lives, other than assets that have an indefinite life.
Statement No. 142 is required to be applied starting with fiscal years
beginning after December 15, 2001. The Company does not believe the adoption of
Statement No. 142 will have a material impact on its financial condition and
results of operations.

         Statement No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. Statement No. 143 is effective for fiscal years beginning
after June 15, 2002. The Company is currently assessing the impact of Statement
No. 143 on its financial condition and results of operations.

         In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Statement No. 144 supercedes the
previously issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" and addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. Statement No. 144 is effective for fiscal years beginning after
December 15, 2001.  The Company is currently assessing the impact of Statement
No. 144 on its financial condition and results of operations. However, the
Company does not believe the adoption of Statement No. 144 will have a material
impact on its financial condition and results of operations.

2.  INVESTMENTS:

         At December 31, 2001, the Company had a 4.3% interest in a hotel
partnership in Tulsa, Oklahoma having a carrying value of $90,000. The Company
also owns a 3.6% investment in a privately held venture capital limited
partnership having a carrying value of $476,000 and an investment in a
developer of a proprietary bone substitute technology, which has a carrying
value of $506,000 at December 31, 2001. These assets were acquired in the
Company's merger with SLH.

3.  RESTRICTED CASH:

         Restricted cash consists of $16,206,000 held in two escrow accounts
denominated in Australian dollars and $300,000 pledged to secure a letter of
credit, all of which are carried at fair value. The restricted Australian funds
are held in the Company's name in a custodian account with a major Australian
financial institution and are restricted as to withdrawal (see Notes 7 and 9).
These funds are restricted as to use and can only be withdrawn with a valid
drawdown notice signed by both the Company and the Commonwealth of Australia
after certain conditions have been met related to the Sweetwater project. The
Company has sole rights to all interest earned on these escrow balances, except
after notice of default by the Company on the related note payable.

4.  PROPERTY AND EQUIPMENT:

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

                                                         December 31,
                                                -------------------------------
                                                     2001            2000
                                                --------------   --------------
                                                        (in thousands)
Furniture and office equipment................       $  3,969        $   3,341
Buildings.....................................            840              840
Land..........................................            118              118
Leasehold improvements........................            368              355
Construction in progress......................         31,692           28,675
                                                --------------   --------------
                                                       36,987           33,329
Less-accumulated depreciation.................          2,938            2,055
                                                --------------   --------------
                                                     $ 34,049        $  31,274
                                                ==============   ==============

                                      F-9

<PAGE>

5.  NOTES RECEIVABLE RELATED TO COMMON STOCK:

         During 2001, the Company loaned $300,000 to Kenneth L. Agee, the
Company's Chairman and Chief Executive Officer, and $1,295,217 to Mark A. Agee,
the Company's President and Chief Operating Officer. The proceeds of these
loans were used by the Agees to either reduce or repay margin account loans to
the Agees from third parties and thereby avoid the sale by either of the Agees
of shares of the Company's common stock to satisfy margin calls as a result of
a decline in the market price of the Company's common stock. Each of the loans
to the Agees is full recourse, matures in one year, bears interest at the rate
of six percent, and is secured by the pledge to the Company by each of the
Agees of shares of the Company's common stock, which they own and which have a
value (based on the Company's stock price) equal to or greater than two times
the outstanding principal and accrued interest of their respective loans.

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

6.  NOTES RECEIVABLE:

         In February 2000, the Company sold its parking garage in Reno, Nevada
to Fitzgeralds Reno, Inc. The sale price of $3 million was paid by $750,000 in
cash and a promissory note in the principal amount of $2,250,000 together with
the assumption of the lease payments due under the ground lease. The note bears
interest at the rate of 10% per annum and is payable in monthly installments of
principal and interest based on a 20 year amortization, with the entire unpaid
balance due in 10 years. The note is secured by a deed of trust covering the
leasehold estate created by the ground lease on which the garage is located, as
well as the parking garage and an assignment of leases. In December 2000,
Fitzgeralds Reno, Inc., a Nevada corporation doing business as Fitzgeralds
Hotel & Casino Reno, along with several affiliates, filed voluntary petitions
for reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court, District of Nevada. Fitzgeralds continues to
make the monthly payments due on the note and the ground lease and has informed
the Company that it intends to assume these obligations and continue making
these payments until the sale of the casino and parking garage. The Company's
deed of trust contains a "due on sale" provision until the note is paid. After
the note is paid, the Company's deed of trust remains in effect to secure
Fitzgeralds' performance of its obligations under the ground lease and provides
that, in the event of the sale of the parking garage, any assignee of
Fitzgeralds must meet certain net worth requirements in order for Fitzgeralds
to assign the ground lease.

7.  LONG-TERM DEBT:

         In August 2000, a wholly-owned subsidiary of the Company entered into
a loan agreement with the Commonwealth of Australia under which the
Commonwealth will make an unsecured, non-amortizing, interest-free loan to the
Company in the amount of AUD $40 million (approximately U.S. $22 million) with
a 25-year maturity. Loan proceeds are to be used to support the further
development and commercialization of GTL technologies in Australia. Under the
terms of the loan agreement, the Company has agreed to conduct a feasibility
study on constructing a large-scale GTL fuels plant in Australia. Loan proceeds
are to be made available to the Company in three successive advances. Pending
satisfaction of certain conditions relating to the financing, construction and
completion of the Sweetwater project, proceeds will be held in escrow. Should
the conditions not be fully satisfied by August 2004, any loan proceeds
remaining in escrow may be returned to the Commonwealth.

         During 2000 the Company received the first advance and during 2001 the
Company received the second advance of loan proceeds in the amount of AUD $8
million (approximately U.S. $4 million) and AUD $12 million (approximately U.S.
$6 million), respectively. These funds were placed in escrow and are being held
in Australian currency. Both the restricted funds and the long-term debt have
been adjusted to reflect the exchange rates in effect as of the balance sheet
date. The long-term amount reflects cash loan proceeds received in escrow from
both the 2001 and 2000 distributions, discounted over the remaining term of the
loan using an imputed interest rate of nine percent. The difference between the
cash proceeds received and the discounted long-term debt has been recorded as a
reduction in the cost of the related property and equipment. The long-term debt
amount reflected for these proceeds will, excluding the effect of currency
exchange rate fluctuations, increase over time as the remaining term of the
loan declines.

                                     F-10

<PAGE>

8. MINORITY INTERESTS:

         During 2000, the Company received $2 million from Methanex
Corporation towards the cost of the engineering work being performed by a
third party for the Sweetwater project. The $2 million contribution was
recorded as a reduction in engineering costs for the Sweetwater plant during
the second quarter of 2000.

9. LICENSING ACTIVITY:

         In August 2000, the Company signed a non-exclusive license agreement
with the Commonwealth of Australia, granting the Commonwealth the right to
utilize the Syntroleum Process. Under the license agreement, the Commonwealth
has paid the Company a license fee in the amount of AUD $30 million
(approximately U.S.  $17 million), half of which is being held in escrow and
will be distributed to the Company upon satisfaction of certain conditions
relating to the construction of the Sweetwater project. Should the conditions
not be fully satisfied by August 2004, any license proceeds remaining in
escrow will be returned to the Commonwealth.

         In October 2000, the Company modified its existing volume license
agreement with Ivanhoe to a master license agreement. The license agreement,
as amended, no longer contains limitations on the volume of synthetic
hydrocarbons which may be produced by Ivanhoe under the agreement and enables
Ivanhoe to pursue an unlimited number of gas-to-liquids projects around the
world.

         Also during 2000, the Company recognized $2 million in license
revenue reflecting funds previously received by the Company as payment for an
option granted to a licensee to acquire the right to use the Syntroleum
Process in certain additional geographic areas not included in the original
licensed territory. Revenue received upon the grant of this option was
deferred until the earlier of the licensee exercising the option or the
expiration of the option. The option lapsed in April 2000, resulting in the
recognition of the related revenue.

10.  PUBLIC OFFERING:

         In July 2000, the Company completed the sale of 5,650,000 shares of
common stock (including 400,000 shares of common stock pursuant to the
exercise of a portion of the underwriter's over-allotment option) pursuant to
a public offering at a price to the public of $17.50 per share. The Company
received net proceeds of approximately $92 million after the underwriting
discount and offering expenses.

         The Company has used and intends to continue to use a substantial
portion of the net proceeds from the offering to fund a portion of the
Sweetwater project construction costs. The Company intends to use any
remaining net proceeds to fund costs associated with pilot plant facilities,
the development of additional GTL plants, research and development activities,
the acquisition of complementary technologies, working capital needs and other
general corporate purposes.

11.  INCOME TAXES:

         The Company has federal income tax net operating loss (NOL)
carry-forwards of approximately $89 million at December 31, 2001. In
connection with the Company's merger with SLH, the Company obtained NOLs of
approximately $17.6 million and capital loss carry-forwards of approximately
$4.6 million. These carry-forwards generally begin to expire in 2004.

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

         The Company has not recorded an income tax provision or benefit for
the years ended December 31, 2001, 2000 and 1999. This differs from the amount
of income tax benefit that would result from applying the 35% statutory
federal income tax rate to the pretax loss due to the increase in the
valuation allowance in each period. The valuation allowance increased by
approximately $12,226,000, $11,983,000 and $9,690,000 for the years ended
December 31, 2001, 2000 and 1999, respectively. Deferred taxes arise primarily
from NOL carry-forwards and the

                                     F-11

<PAGE>

recognition of revenues and expenses in different periods for financial and tax
purposes.

         Deferred taxes consist of the following:

<TABLE>
<CAPTION>
                                                                       December 31,
                                                             ------------------------------------
                                                                 2001                   2000
                                                             ------------------------------------
                                                                      (in thousands)
<S>                                                             <C>                    <C>
Deferred tax assets:
  NOL carry-forwards...................................        $  33,834               $  23,637
  Capital loss carry-forwards..........................            1,614                   1,614
  Research and development credit......................            2,703                   1,826
  Deferred revenue ....................................            6,937                   6,968
  Investments                                                      3,562                   3,464
  Other ...............................................            2,602                   1,169
                                                             ------------            ------------
                                                                  51,252                  38,678

Deferred tax liabilities:
  Depreciation ........................................              (66)                    (80)
  Other................................................             (531)                   (169)
                                                             ------------            ------------
  Net deferred tax asset before valuation allowance....           50,655                  38,429
  Valuation allowance .................................          (50,655)                (38,429)
                                                             ------------            ------------
              Net deferred tax assets..................        $     -                 $     -
                                                             ============            ============
</TABLE>

         During 2001 and 2000, the Company made Australian withholding tax
payments in the amount of $472,000 and $2,486,000, respectively, for
Australian sourced income. These taxes were withheld by the Commonwealth of
Australia upon the Commonwealth's payment of advances under the loan agreement
and by the Australian bank upon payments of interest on these monies.  Under
the Australian tax treaty with the U.S., the payor is required to withhold 10%
on Australian sourced revenue and to remit it to the Australian tax
authorities.

12.  COMMITMENTS:

         The Company has entered into various, non-cancelable operating leases
for office space, equipment, land and buildings that expire over the next
several years. Rental expense was $1,077,000 in 2001, $866,000 in 2000, and
$1,246,000 in 1999. Total future minimum lease payments under these agreements
as of December 31, 2001 are as follows:

                            Year        Amount
                        ---------------------------
                              (in thousands)
                           2002         1,032
                           2003           421
                           2004           379
                           2005           364
                           2006           345
                        Thereafter      5,508

         The Company has entered into employment agreements which provide
severance benefits to several key employees. Commitments under these
agreements totaled approximately $5,049,000 at December 31, 2001.

         The Company's subsidiary, Scout Development Corporation, is 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 its financial statements and that none of these are deemed to be material,
individually or in the aggregate.

                                     F-12

<PAGE>

13.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

<TABLE>
<CAPTION>
                                                       2001                                    2000
                                        ------------------------------------    -----------------------------------
                                           Carrying           Estimated            Carrying           Estimated
                                            Amount            Fair Value            Amount           Fair Value
                                        ------------------------------------    -----------------------------------
                                                                      (in thousands)
<S>                                      <C>                 <C>                 <C>                 <C>
Cash and cash equivalents............    $    44,737         $    44,737         $    83,150         $    83,150
Short-term investments...............             -                   -                3,347               3,347
Accounts receivable..................          1,795               1,795                 572                 572
Investments..........................          1,072               1,072                 959                 959
Restricted cash......................         16,506              16,506              13,744              13,744
Notes receivable.....................          2,322               2,447               2,362               2,607
Notes receivable from sale of
     common stock....................            599                 599                 599                 599
Notes receivable from officers.......          1,595               1,595
</TABLE>

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

14.  CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

         At December 31, 2000, all marketable securities were classified as
held-to-maturity and trading securities. Held-to-maturity investments were
carried at amortized cost and trading securities were carried at fair value.
During 2000, no securities classified as held-to-maturity or trading
securities were transferred out of held-to-maturity or trading securities.
Investments consisted of the following at December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                       Amortized      Market      Amount on        Unrealized       Unrealized
                                       Cost           Value       Balance Sheet    Holding Gains    Holding Losses
                                      -----------------------------------------------------------------------------
<S>                                    <C>            <C>         <C>              <C>              <C>
Trading Securities
Equity Securities..................    $    663       $   107     $   107          $     -          $  556

Held-to-Maturity
U.S. Government Securities.........    $  3,240       $ 3,240     $ 3,240          $     -          $    -
</TABLE>

15.  STOCK OPTIONS:

         The Company maintains stock option and incentive plans for employees
and directors and has reserved 7,125,751 shares of common stock for issuance
under the employee and director plans including one percent of the outstanding
shares of common stock of the Company as of January 1 of each year (331,367 as
of December 31, 2001) for the director plan. Under the terms of the plans,
incentive stock options may be issued with an exercise price of not less than
100% of fair market value at the date of grant. Options granted vest at a rate
determined by the Compensation Committee of the Company's Board of Directors
and are exercisable for varying periods, not to exceed ten years. At December
31, 2001, 1,791,818 shares were available for granting future options.

                                     F-13

<PAGE>

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

<TABLE>
<CAPTION>
                                                    Shares              Weighted
                                                    Under              Average Price
                                                    Option              Per Share
                                               --------------        ----------------
<S>                                                 <C>                <C>
OUTSTANDING AT DECEMBER 31, 1998                    2,131,839         $         7.44
    Granted at market price................           736,351                   6.89
    Granted at price exceeding market......            35,000                   7.57
    Exercised..............................          (101,694)                  1.06
    Expired................................           (79,571)                 10.48
                                               --------------        ----------------
OUTSTANDING AT DECEMBER 31, 1999                    2,721,925                   7.44
    Granted at market price...............            908,955                  16.26
    Granted at price exceeding market.....             58,284                  12.37
    Exercised.............................           (506,331)                  5.16
    Expired...............................            (68,486)                  9.59
                                               --------------        ----------------
OUTSTANDING AT DECEMBER 31, 2000                    3,114,347                  10.43
    Granted at market price...............          1,046,525                   8.70
    Exercised.............................           (242,616)                  3.66
    Expired...............................            (74,095)                  9.57
                                               --------------        ----------------
OUTSTANDING AT DECEMBER 31, 2001                    3,844,161         $        10.40
                                               ==============        ================
</TABLE>

The following is a summary of stock options outstanding as of December 31, 2001:

<TABLE>
<CAPTION>
                                  Options Outstanding                                Options Exercisable
       -----------------------------------------------------------------  ----------------------------------
                                                            Weighted
                                         Weighted           Average                             Weighted
                                         Average           Remaining                            Average
    Range of           Options           Exercise         Contractual          Options       Exercise Price
 Exercise Price       Outstanding         Price              Life            Exercisable       Per Share
---------------       -----------     ---------------    -------------      -------------   ----------------
<S>                     <C>              <C>                      <C>           <C>           <C>
 $3.19 -  $5.30         1,009,962                4.33             6.10            462,850               3.19
 $5.75 -  $6.88           798,568                6.60             7.31            483,811               6.55
 $7.25 - $15.44           913,528               12.33             7.32            489,571              11.00
$15.75 - $16.38           612,899               16.36             8.75            212,902              16.34
$16.75 - $20.29           509,204               17.96             6.87            324,965              18.34
                      -----------     ---------------                       -------------   ----------------
                        3,844,161        $      10.40                           1,974,099     $         9.86
                      ===========     ===============                       =============   ================
</TABLE>

         The Company applies the disclosure-only provisions of Statement No.
123, "Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the stock option plans. However, pursuant to the
requirements of Statement No. 123, the following disclosures are presented to
reflect the Company's pro forma net income (loss) for the three years ended
December 31, 2001 as if the fair value method of accounting prescribed by
Statement No. 123 had been used. Had compensation cost for the Company's stock
option plans been determined consistent with the provisions of Statement No.
123, the Company's net income (loss) and income (loss) per share would have
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                              December 31,
                                       --------------------------------------------------------------
                                           2001                  2000                  1999
                                      --------------------------------------------------------------
                                                  (in thousands, except per share data)
<S>                                     <C>                   <C>                   <C>
NET INCOME (LOSS):
     As reported............            $      (30,300)       $      (25,168)       $      (17,158)
     Pro forma..............            $      (37,273)       $      (28,610)       $      (19,632)
BASIC AND DILUTED INCOME
     (LOSS) PER SHARE:
     As reported............            $        (0.91)       $        (0.84)       $        (0.64)
     Pro forma..............            $        (1.12)       $        (0.95)       $        (0.73)
</TABLE>

                                     F-14

<PAGE>

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

         The weighted average per share fair value at date of grant for
options granted during 2001, 2000 and 1999 was $6.41, $12.32 and $5.82 per
share, respectively.  Prior to the Company's merger with SLH on August 7, 1998,
the Company was a privately held corporation and used the minimum value method
with the following assumptions during 1997: dividend yield of 0%, risk-free
interest rate of 5.60% to 6.83%, and expected lives of 5 to 10 years. During
1997 and prior to the merger in 1998, volatility was assumed to be 0%.  The
fair values of options granted since the merger have been estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:
                                        2001          2000             1999
                                       ---------------------------------------
         Expected dividend yield         0%            0%               0%
         Expected volatility            93%            98%              83%
         Risk-free interest rate       4.48%          5.78%            5.07%
         Expected life                 5 yrs.         5 yrs.          9.77 yrs.

         Subsequent to December 31, 2001, the Company granted 17,745 options
to purchase shares of common stock to directors at an average exercise price of
$7.10.

16.  SIGNIFICANT CUSTOMERS:

         Substantially all of the Company's joint development revenue for the
three years ended December 31, 2001 was from several major oil companies for
joint development work conducted in the Company's research and development
facilities and at the pilot plant located at ARCO's Cherry Point Refinery in
Cherry Point, Washington and in connection with the conduct of several
feasibility studies.  The testing in the laboratories under the agreements with
ARCO was completed in September 2000.  In addition, since 1996 the Company has
signed master license agreements with four oil companies and with the
Commonwealth of Australia.  The Company has also signed volume license
agreements with three other oil companies. The license agreements allow the
licensees to use the Syntroleum Process in their production of synthetic crude
oil and fuels primarily outside of North America.  Syntroleum received an
aggregate of $36 million and rights to certain technologies in connection with
these license agreements.  The amounts received under license agreements have
been recorded as deferred revenue at December 31, 2001 and 2000, except for $2
million in license revenue recognized by the Company in 2000 related to an
option granted to acquire the right to use the Syntroleum Process in certain
additional geographic areas which lapsed in April 2000.

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

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

17.  STOCKHOLDER RIGHTS PLAN:

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

                                      F-15