As Filed Pursuant to Rule 424(b)(1)
                                                   Registration No.333-85116

                                   PROSPECTUS

                                   ----------

                           CANARGO ENERGY CORPORATION
                                 (CANARGO LOGO)

                                5,210,000 SHARES

                                  COMMON STOCK

This prospectus relates to the offer and sale from time to time in one or more
transactions of 5,210,000 shares of common stock of CanArgo Energy Corporation
("CanArgo") by certain of our stockholders. None of our directors or executive
officers is selling shares in this offering, and neither we nor they will
receive any proceeds from the sale of the shares offered hereby. All expenses of
registration of the shares which may be offered hereby under the Securities Act
of 1933, as amended, will be paid by us (other than underwriting discounts and
selling commissions, and fees and expenses of advisors to any of the selling
stockholders).

CanArgo is an independent oil and gas exploration, production, refining and
marketing company operating in Eastern Europe with finance and administrative
functions located in London, England c/o CanArgo Services (UK) Limited, 150
Buckingham Palace Road, London, England SW1W 9TR, telephone (44) 207 808-4700.

Our common stock is traded in the Over-the-Counter (OTC) Bulletin Board (symbol:
GUSH). On January 9, 2003, the closing bid price of the common stock on the
OTC Bulletin Board was $0.06 per share. Our common stock is also traded on the
main list of the Oslo Stock Exchange (symbol: CNR). On January 9, 2003, the
last reported sale price of our common stock on the Oslo Stock Exchange was 0.34
Norwegian Kroner (NOK) per share. On January 9, 2003 one U.S. dollar equaled
6.877 NOK based upon the noon buying rate as reported by the Federal Reserve
Bank of New York.

The selling stockholders and any broker-dealers, agents or underwriters that
participate with them in the distribution of the common stock may be deemed
underwriters, as that term is defined in the Securities Act, and any commissions
received by them and any profit on the resale of the common stock purchased by
them may be deemed underwriting commissions or discounts under the Securities
Act. Selling stockholders and persons participating in the offer and sale of
their shares will be subject to the prospective delivery requirements of the
Securities Act. The common stock may be offered and sold by the selling
stockholders in one or more transactions through the facilities of any stock
exchange on which the shares are then listed for trading, in the
over-the-counter market or in negotiated transactions or a combination of these
and other methods of sale, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
common stock may be sold either (a) to a broker or dealer as principal for
resale by such broker or dealer for its account pursuant to this prospectus (for
example, in transactions with a market maker) or (b) in brokerage transactions,
including transactions in which the broker solicits purchasers or (c) directly
to third persons. See "Plan of Distribution" beginning on page 14.

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

INVESTMENT IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.

                                   ----------

                The date of this Prospectus is January 15, 2003



                                      -1-


                                TABLE OF CONTENTS



                                                                                     Page
                                                                                  

Forward Looking Statements.............................................................3
Summary................................................................................5
Risk Factors...........................................................................7
Use of Proceeds.......................................................................13
The Selling Stockholders..............................................................14
Plan of Distribution..................................................................15
Market for Common Stock and Dividend Policy...........................................16
Selected Consolidated Financial Data..................................................18
The Company...........................................................................19
Management's Discussion and Analysis of Financial Condition and Results
 of Operations........................................................................38
Management............................................................................56
Related Transactions..................................................................64
Ownership of Voting Securities........................................................64
Description of Capital Stock..........................................................66
Shares Eligible for Future Resale.....................................................70
Certain United States Federal Tax Considerations for
Non-United States Holders of Common Stock.............................................71
Limitation of Liability and Indemnification...........................................73
Legal Matters.........................................................................74
Experts...............................................................................74
Available Information.................................................................74
Index to Financial Statements........................................................F-1


                                   ----------

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY
SUPPLEMENT. WE HAVE NOT AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH
DIFFERENT OR ADDITIONAL INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND ANY SUPPLEMENT IS ACCURATE AS
OF ITS DATE ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.


                                      -2-


                           FORWARD-LOOKING STATEMENTS

The United States Private Securities Litigation Reform Act of 1995 provides a
"safe harbour" for forward-looking statements in this prospectus. When used in
this prospectus, the words "estimate," "project," "anticipate," "expect,"
"intend," "believe," "hope," "may" and similar expressions, as well as "will,"
"shall" and other indications of future tense, are intended to identify
forward-looking statements. The forward-looking statements are based on our
current expectations and speak only as of the date made. These forward-looking
statements involve risks, uncertainties and other factors that in some cases
have affected our historical results and could cause actual results in the
future to differ significantly from the results anticipated in forward-looking
statements made in this prospectus. Important factors that could cause such a
difference are discussed in this prospectus, particularly in this section and
the section "Risk Factors". You are cautioned not to place undue reliance on the
forward-looking statements.

Few of the forward-looking statements in this prospectus deal with matters that
are within our unilateral control. Joint venture, acquisition, financing and
other agreements and arrangements must be negotiated with independent third
parties and, in some cases, must be approved by governmental agencies. These
third parties generally have objectives and interests that may not coincide with
ours and may conflict with our interests. Unless we are able to compromise these
conflicting objectives and interests in a mutually acceptable manner, agreements
and arrangements with these third parties will not be consummated.

Operating entities in various foreign jurisdictions must be registered by
governmental agencies, and production licenses for development of oil and gas
fields in various foreign jurisdictions must be granted by governmental
agencies. These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and matters. In addition,
the policies and practices of governmental agencies may be affected or altered
by political, economic and other events occurring either within their own
countries or in a broader international context.

CanArgo does not have a majority of the equity in the entity that is the
licensed developer of some projects, such as the Bugruvativske and Stynawske
field projects, that CanArgo may pursue in Eastern Europe, even though we may be
the designated operator of the oil or gas field. In these circumstances, the
concurrence of co-venturers may be required for various actions. Other parties
influencing the timing of events may have priorities that differ from ours, even
if they generally share our objectives. As a result of all of the foregoing,
among other matters, any forward-looking statements regarding the occurrence and
timing of future events may well anticipate results that will not be realized.
Demands by or expectations of governments, co-venturers, customers and others
may affect CanArgo's strategy regarding the various projects. Failure to meet
such demands or expectations could adversely affect CanArgo's participation in
such projects or our ability to obtain or maintain necessary licenses and other
approvals.

CanArgo's ability to finance all of its present oil and gas projects and other
ventures according to present plans is dependent upon obtaining additional
funding. An inability to obtain financing could require CanArgo to scale back or
abandon part of all of CanArgo's project development, capital expenditure,
production and other plans. The availability of equity or debt financing to
CanArgo or to the entities that are developing projects in which CanArgo has
interests is affected by many factors, including:

         o        world economic conditions;

         o        international relations;

         o        the stability and policies of various governments;

         o        fluctuations in the price of oil and gas, the outlook for the
                  oil and gas industry and competition for funds; and

         o        an evaluation of CanArgo and specific projects in which
                  CanArgo has an interest.

Rising interest rates might affect the feasibility of debt financing that is
offered. Potential investors and lenders will be influenced by their evaluations
of us and our projects and comparisons with alternative investment
opportunities.



                                      -3-


The development of oil and gas properties is subject to substantial risks.
Expectations regarding production, even if estimated by independent petroleum
engineers, may prove to be unrealized. There are many uncertainties inherent in
estimating production quantities and in projecting future production rates and
the timing and amount of future development expenditures. Estimates of
properties in full production are more reliable than production estimates for
new discoveries and other properties that are not fully productive. Accordingly,
estimates related to CanArgo's properties are subject to change as additional
information becomes available.

Most of CanArgo's interests in oil and gas properties and ventures are located
in Eastern European countries. Operations in those countries are subject to
certain additional risks including the following:

o        enforceability of contracts;

o        currency convertibility and transferability;

o        unexpected changes in tax rates;

o        sudden or unexpected changes in demand for crude oil and or natural
         gas;

o        availability of trained personnel; and

o        availability of equipment and services and other factors that could
         significantly change the economics of production.

Production estimates are subject to revision as prices and costs change.
Production, even if present, may not be recoverable in the amount and at the
rate anticipated and may not be recoverable in commercial quantities or on an
economically feasible basis. World and local prices for oil and gas can
fluctuate significantly, and a reduction in the revenue realizable from the sale
of production can affect the economic feasibility of an oil and gas project.
World and local political, economic and other conditions could affect CanArgo's
ability to proceed with or to effectively operate projects in various foreign
countries.

Demands by or expectations of governments, co-venturers, customers and others
may affect CanArgo's strategy regarding the various projects. Failure to meet
such demands or expectations could adversely affect CanArgo's participation in
such projects or its ability to obtain or maintain necessary licenses and other
approvals.




                                      -4-


                                     SUMMARY

DESCRIPTION OF THE COMPANY

CanArgo Energy Corporation is an independent oil and gas exploration,
production, refining and marketing company operating in Eastern Europe. Our
principal operations are located in the Republic of Georgia. Our activities at
our primary field in Georgia, the Ninotsminda field, are conducted through our
100% owned subsidiary, Ninotsminda Oil Company Limited. In addition, we have
interests in several other oil and gas prospects both in Georgia and in the
Ukraine.

Our principal executive offices are located c/o CanArgo Services (UK) Limited,
150 Buckingham Palace Road, London, England SW1W 9TR, and our telephone number
is (44) 207 808 4700.

RECENT DEVELOPMENTS

In 2001, we wrote down our oil and gas properties in the Ninotsminda field by
$7.3 million as a result of a decline in Brent oil prices at December 31, 2001,
lower reserve quantities following production declines in 2001 and reduced
development plans. In addition, we wrote down our refinery and related equipment
by $3.4 million as a result of product instability and excise taxes on refined
products. In 2001, we had negative cash flows from operations and have had
negative cash flow from operations in four of the five years ended December 31,
2001.

In February 2002, we closed a private placement of 5,210,000 new shares at
Norwegian Kroner (NOK) 2.95 per share (approximately US$0.33 per share) to the
institution and qualified purchaser identified in this prospectus. Gross
proceeds from the placement were some NOK 15.4 million (approximately US$1.7
million). After completion of the private placement, we had 97,218,446 common
and Exchangeable shares issued and issuable. See "The Selling Stockholders" at
page 13 for a description of the terms of the private placement and "Description
of Capital Stock" at page 66 for a description of our common and Exchangeable
shares. We have used the net proceeds from the private placement to replenish
working capital following the withdrawal by AES from its participation in a
three well exploration programme in Georgia.

On January 24, 2002, we announced a redemption of all the outstanding
Exchangeable Shares issued by our subsidiary CanArgo Oil & Gas, Inc., which
redemption was completed on May 31, 2002 in exchange for the issuance of an
aggregate of 148,826 shares of Common Stock, in accordance with the terms of
such Exchangeable Shares.

In September 2002 CanArgo agreed terms with Ukrnafta, the Ukrainian State Oil
Company, on revisions to the existing Joint Investment Production Activity
agreement (JIPA) for the development of the Bugruvativske field in Ukraine and
reached an agreement with Gals-K Limited, an unaffiliated local Ukrainian oil
and gas company on the terms of a farm-in to the JIPA. The terms of the farm-in,
arrived at in arms-length negotiations, are that the local Ukrainian oil and gas
company will invest approximately $3 million in the Bugruvativske field over the
course of 12 months in order to drill two new wells and will bear the financial
risk under the JIPA during this period. CanArgo can match up to the amount
invested by the local Ukrainian oil and gas company, prior to December 31, 2003.
Additionally, agreement has been reached with Ukrnafta, on revisions to the
commercial terms of the JIPA. The revised JIPA provides that (assuming CanArgo
matches the local Ukrainian oil and gas company's initial expenditure) the
financing risk shall be shared between CanArgo and a subsidiary of the local
Ukrainian oil and gas company, IPEC. Ukrnafta shall be entitled to 25% of all
net profits distributed to the parties to the JIPA and the remainder shall be
shared between CanArgo and IPEC. Assuming that CanArgo matches the local
Ukrainian oil and gas company's initial expenditure, CanArgo will be entitled to
approximately 34.5% of net profits generated under the JIPA (or a proportionally
smaller amount if the amount invested is less than that invested by IPEC). In
the event that CanArgo decides not to invest in the project by December 31,
2003, it will receive an ongoing project fee of between 3-4 % of the net profits
generated under the JIPA in recognition of its earlier involvement in the
project.

In October 2002, CanArgo agreed to sell its 50% holding to Westrade Alliance
LLC, an unaffiliated company, for $4 million in an arms-length transaction, with
legal ownership being transferred upon receipt of final payment due in August
2003. The agreed consideration to be exchanged does not result in an impairment
of the carrying value of assets held for sale. The assets and liabilities of
CanArgo Standard Oil Products have been classified as "Assets of subsidiary held
for sale" and "Liabilities of subsidiary held for sale" for all periods
presented. The results of operations of CanArgo Standard Oil Products have been
classified as discontinued for all periods presented. The minority interest
related to CanArgo Standard Oil Products has not been reclassified for any of
the periods presented, however net income from discontinued operations is
disclosed net of taxes and minority interest.



                                      -5-


In November 2002, CanArgo's subsidiary, CanArgo Norio Limited (Norio), won the
tender for the oil and gas exploration and production rights to Block XIG
(Tbilisi) and Block XIH (Rustavi) in Eastern Georgia. By successfully winning
the tender, under the tender conditions issued by the Georgian State Agency for
Regulation of Oil and Gas Resources, CanArgo should be awarded a licence for
these blocks following negotiation of a Production Sharing Agreement with the
Georgian State authorities.

In November 2002, CanArgo reached agreement with the other shareholders in Norio
on increasing CanArgo's interest in Norio. Under the agreement CanArgo's
interest increased from 50% to 64% in Norio and its existing Norio and North
Kumisi production sharing agreement, as well as the two new blocks. Convertible
loans representing advances from new minority shareholders of Norio were
reclassified from advances in minority interest to minority interest as at 30
September 2002 following finalisation of CanArgo's equity interest in Norio. As
a result of the finalisation of respective equity interest, CanArgo's interest
was adjusted to reflect its share of $6,031,070, the carrying net asset value of
Norio, and in accordance with the application of SAB 51, gave rise to a
non-operating loss of $443,564, classified as other expenses. The nominal value
of the final shares issued in Norio were $1,250 per share which gives a nominal
value for Norio of $11,328,928 of which CanArgo share is $7,269,023 and the
minority shareholders share is $4,059,876.

On September 23, 2002, the Board appointed Vincent McDonnell Chief Commercial
Officer and Chief Financial Officer of the Company to replace Anthony Potter who
previously held position of Chief Financial Officer.

On November 11 2002, Roger Brittain resigned as non-executive Chairman of the
Board and on November 21 2002, the Board appointed David Robson Chairman and
Chief Executive Officer of the Company.

THE PROSPECTUS

This prospectus relates to the offer and sale from time to time in one or more
transactions of 5,210,000 shares of our common stock by certain of our
stockholders who acquired their shares in a private placement concluded on
February 12, 2002. See "The Selling Stockholders" at page 13. None of our
directors or executive officers is selling shares in this offering, and neither
we nor they will receive any proceeds from the sale of the shares offered
hereby. All expenses of registration of the shares which may be offered hereby
under the Securities Act of 1933, as amended, will be paid by us (other than
underwriting discounts and selling commissions, and fees and expenses of
advisors to any of the selling stockholders). See "Plan of Distribution" at page
15.

The shares were placed by ABG Sundal Collier ASA who received a placement fee
and reimbursement of their expenses amounting to $110,000. Net proceeds from the
placement were approximately US$1.5 million which CanArgo has used for working
capital purposes. The shares issued in connection with the private placement
were issued in a transaction intended to qualify for an exemption from
registration under the Securities Act afforded by Regulation S promulgated
thereunder by the SEC and may not be offered or sold in the United States of
America, its territories and possessions, any State of the United States and the
District of Columbia (collectively referred to in this prospectus as the United
States) or to U.S. persons (as defined in such Regulation) absent registration
under the Securities Act or pursuant to an applicable exemption from such
registration.

"U.S. person" means:

         (i)      Any natural person resident in the United States;

         (ii)     Any partnership or corporation organized or incorporated under
                  the laws of the United States;

         (iii)    Any estate of which any executor or administrator is a U.S.
                  person;

         (iv)     Any trust of which any trustee is a U.S. person

         (v)      Any agency or branch of a foreign entity located in the United
                  States;

         (vi)     Any non-discretionary account or similar account (other than
                  an estate or trust) held by a dealer or other fiduciary for
                  the benefit or account of a U.S. person;



                                      -6-


         (vii)    Any discretionary account or similar account (other than an
                  estate or trust) held by a dealer or other fiduciary
                  organized, incorporated, or (if an individual) resident in the
                  United States;

         (viii)   Any partnership or corporation if:

                  (A)      Organized or incorporated under the laws of any
                           foreign jurisdiction; and

                  (B)      Formed by a U.S. person principally for the purpose
                           of investing in securities not registered under the
                           Securities Act, unless it is organized or
                           incorporated, and owned, by accredited investors who
                           are not natural persons, estates or trusts.

         "Accredited investor" includes any person who comes within any of the
following categories, or who we reasonably believe comes within any of the
following categories, at the time of the sale of common stock to that person:

         (1)      Any bank of any savings and loan association or other
                  institution whether acting in its individual or fiduciary
                  capacity; any broker dealer registered pursuant to Section 15
                  of the Securities Exchange Act of 1934; any insurance company
                  or investment company registered under the Investment Company
                  Act of 1940 or a business development company; any Small
                  Business Investment company licensed by the U.S. Small
                  Business Administration; any plan established and maintained
                  by a state, its political subdivisions, or any agency or
                  instrumentality of a state or its political subdivisions, for
                  the benefit of its employees, if such plan has total assets in
                  excess of $5,000,000; any employee benefit plan within the
                  meaning of the Employee Retirement Income Security Act of
                  1974, if the investment decision is made by a plan fiduciary
                  which is either a bank, savings and loan association,
                  insurance company, or registered investment adviser, or if the
                  employee benefit plan has total assets in excess of $5,000,000
                  or is a self-directed plan, with investment decisions made
                  solely by persons that are accredited investors;

         (2)      Any private business development company;

         (3)      Any organization described in Section 501(c)(3) of the
                  Internal Revenue code, corporation or partnership, not formed
                  for the special purpose of acquiring the securities offered
                  with total assets in excess of $5,000,000;

         (4)      Any of our directors or executive officers;

         (5)      Any entity in which all of the equity owners are accredited
                  investors.

We agreed, as soon as practicable after the closing of the private placement, to
prepare and file with the SEC a registration statement registering the shares
under the Securities Act for resale.

                                  RISK FACTORS

This offering involves a high degree of risk. You should carefully consider the
risks described below, as well as all other information in this prospectus,
before investing in our common stock. This prospectus contains forward-looking
statements that involve risks and uncertainties. Future events and our actual
results could differ materially from those anticipated in these forward-looking
statements. All of the known important factors that might cause such a
difference are discussed in the various risk factors that follow and in the
"Forward-Looking Statements" section of this prospectus.

CURRENT OPERATIONS DEPENDENT ON SUCCESS OF THE NINOTSMINDA OIL FIELD AND
GEORGIAN EXPLORATION

We have directed substantially all of our efforts and most of our available
funds to the development of the Ninotsminda oil field in the Republic of
Georgia, exploration in that area and some ancillary activities closely related
to the Ninotsminda field project. This decision is based on management's
assessment of the promise of the Ninotsminda field area. However, our focus on
the Ninotsminda field has over the past several years resulted in overall losses
for CanArgo and CanArgo has yet to be profitable. We cannot assure investors
that the exploration and development plans for the Ninotsminda field will be
successful. For example, the Ninotsminda field may not produce sufficient
quantities of oil and gas to justify the investment we have made and are
planning to make in the field, and



                                      -7-


we may not be able to produce the oil and gas at a sufficiently low cost or to
market the oil and gas produced at a sufficiently high price to generate a
positive cash flow and a profit. Ninotsminda Oil Company has also entered into
certain supply and purchase agreements for natural gas production from the
Ninotsminda field. Such agreements may benefit us, but may in the future also
limit our ability to sell associated natural gas at then market prices. Our
Georgian exploration programme is an important factor for future success, and
this programme may not be successful, as it carries substantial technical risk.
See "Oil and Gas Activities Involve Risks, Many of Which are Beyond Our Control"
at page 8 for a description of these risks.

MINIMUM INVESTMENT REQUIREMENTS IN UKRAINE HAVE NOT BEEN MET

In April 2001, we acquired approximately 82% (77% on a fully diluted basis) of
the outstanding common shares of Lateral Vector Resources Inc. pursuant to an
unsolicited offer to purchase all of its outstanding common shares. According to
publicly available information at the time, Lateral Vector Resources Inc.
negotiated and concluded with Ukrnafta, the Ukrainian State Oil Company, a Joint
Investment Production Activity (JIPA) agreement in 1998 to develop the
Bugruvativske field in Eastern Ukraine. In July 2001, we completed the
acquisition of the remaining outstanding common shares and Lateral Vector
Resources Inc. became a wholly owned subsidiary of CanArgo.

In September 2002 CanArgo agreed terms with Ukrnafta, the Ukrainian State Oil
Company, on revisions to the existing Joint Investment Production Activity
agreement (JIPA) for the development of the Bugruvativske field in Ukraine and
reached an agreement with Gals-K Limited, an unaffiliated local Ukrainian oil
and gas company on the terms of a farm-in to the JIPA. The terms of the farm-in,
arrived at in arms-length negotiations, are that the local Ukrainian oil and gas
company will invest approximately $3 million in the Bugruvativske field over the
course of 12 months in order to drill two new wells and will bear the financial
risk under the JIPA during this period. CanArgo can match up to the amount
invested by the local Ukrainian oil and gas company, prior to December 31, 2003.
Additionally, agreement has been reached with Ukrnafta, on revisions to the
commercial terms of the JIPA. The revised JIPA provides that (assuming CanArgo
matches the local Ukrainian oil and gas company's initial expenditure) the
financing risk shall be shared between CanArgo and a subsidiary of the local
Ukrainian oil and gas company, IPEC. Ukrnafta shall be entitled to 25% of all
net profits distributed to the parties to the JIPA and the remainder shall be
shared between CanArgo and IPEC. Assuming that CanArgo matches the local
Ukrainian oil and gas company's initial expenditure, CanArgo will be entitled to
approximately 34.5% of net profits generated under the JIPA (or a proportionally
smaller amount if the amount invested is less than that invested by IPEC). In
the event that CanArgo decides not to invest in the project by December 31,
2003, it will receive an ongoing project fee of between 3-4 % of the net profits
generated under the JIPA in recognition of its earlier involvement in the
project. To date, CanArgo has not made any investment in the Bugruvativske field
and subsequently, hydrocarbon reserves are classified as unproved until
CanArgo's investment is made.

In 2001 an agreement was reached to undertake a limited investment and
development program by June 2002 in order for Boryslaw Oil Company, a company in
which CanArgo has a 45% ownership interest, to retain the field licence
including the drilling of one new well. These obligations have not been fully
met, however, Boryslaw Oil Company is seeking modifications to the licence
agreement to allow a proper assessment of the workovers and development plans
completed to date. A repayment schedule of CanArgo's advances to Boryslaw Oil
Company has also been agreed of which $250,000 was repaid at September 30, 2002.
Boryslaw Oil Company has so far not been given notice by the Ukrainian licensing
body of early termination of the license. CanArgo is actively seeking to
farm-out part of its interest in Boryslaw Oil Company in return for financing to
carry out the work programme. If Boryslaw Oil Company does not proceed with the
Stynawske field development programme or if an extension to the current licence
cannot be obtained, it may be in breach of obligations it has with regard to the
field license. This could place Boryslaw Oil Company's rights to the Stynawske
field at risk and substantially reduce Boryslaw Oil Company's ability to repay
amounts advanced to it by CanArgo.

UKRAINE PROJECTS IN EARLY STAGE OF EVALUATION AND DEVELOPMENT

The Bugruvativske field together with the Stynawske field in Western Ukraine,
are both in the early stage of evaluation and development and are themselves
relatively new to us. At present, we have yet to establish our own



                                      -8-


operational and finance infrastructure in the Ukraine. Establishment of this
infrastructure may result in a diversion, temporary or otherwise, of time and
other resources from other operating activities.

WRITE OFF OF UNSUCCESSFUL PROPERTIES AND PROJECTS

In order to realize the carrying value of our oil and gas properties and
ventures, we must produce oil and gas in sufficient quantities and then sell
such oil and gas at sufficient prices to produce a profit. We have a number of
unevaluated oil and gas properties. The risks associated with successfully
developing unevaluated oil and gas properties are even greater than those
associated with successfully continuing development of producing oil and gas
properties, since the existence and extent of commercial quantities of oil and
gas in unevaluated properties have not been established. In 2001, we recorded an
impairment charge of $7.3 million following application of the full cost ceiling
limitation with respect to capitalized oil and gas property costs as a result of
a decline in Brent oil prices at December 31, 2001, lower reserve quantities
following production declines in 2001 and reduced development plans. During
1997, we recorded impairment charges totalling $19.4 million relating to three
unsuccessful ventures and in 1999, recorded impairment charges totalling $5.5
million relating to a fourth venture. We could be required in the future to
write off our investments in additional projects, including the Ninotsminda
field project, if such projects prove to be unsuccessful.

POSSIBLE INABILITY TO FINANCE PRESENT OIL AND GAS PROJECTS

CanArgo's ability to finance all of its present oil and gas projects and other
ventures according to present plans is dependent upon obtaining additional
funding. An inability to obtain financing could require CanArgo to scale back or
abandon part or all of CanArgo's project development, capital expenditure,
production and other plans. The availability of equity or debt financing to
CanArgo or to the entities that are developing projects in which CanArgo has
interests is affected by many factors, including:

         o        world economic conditions;

         o        international relations

         o        the stability and policies of various governments;

         o        fluctuation in the price of oil and gas, the outlook for the
                  oil and gas industry and competition for funds; and

         o        an evaluation of CanArgo and specific projects in which
                  CanArgo has an interest.

Rising interest rates might affect the feasibility of debt financing that is
offered. Potential investors and lenders will be influenced by their evaluations
of us and our projects and comparison with alternative opportunities.

ADDITIONAL FUNDS NEEDED FOR LONG-TERM OIL AND GAS DEVELOPMENT PLANS

It will take many years and substantial cash expenditures to develop fully our
oil and gas properties. We generally have the principal responsibility to
provide financing for our oil and gas properties and ventures. Accordingly, we
may need to raise additional funds from outside sources in order to pay for
project development costs beyond those currently budgeted through 2002. We may
not be able to obtain that additional financing. If adequate funds are not
available, we will be required to scale back or even suspend our operations or
such funds may only be available on commercially unattractive terms. The
carrying value of the Ninotsminda field may not be realized unless additional
capital expenditures are incurred to develop the field. Furthermore, additional
funds will be required to pursue exploration activities on its existing
undeveloped properties. While expected to be substantial, without further
exploration work and evaluation the amount of funds needed to fully develop all
of our oil and gas properties cannot at present, be quantified.

OIL AND ACTIVITIES INVOLVE RISKS, MANY OF WHICH ARE BEYOND OUR CONTROL

Our exploration, development and production activities are subject to a number
of factors and risks, many of which may be beyond our control. First, we must
successfully identify commercial quantities of oil and gas. The



                                      -9-


development of an oil and gas deposit can be affected by a number of factors
which are beyond the operator's control, such as:

         o        Unexpected or unusual geological conditions.

         o        The recoverability of the oil and gas on an economic basis.

         o        The availability of infrastructure and personnel to support
                  operations.

         o        Local and global oil prices.

         o        Government regulation and legal uncertainties.

Our activities can also be affected by a number of hazards, such as:

         o        Labour disputes.

         o        Natural phenomena, such as bad weather and earthquakes.

         o        Operating hazards, such as fires, explosions, blow-outs, pipe
                  failures and casing collapses.

         o        Environmental hazards, such as oil spills, gas leaks, ruptures
                  and discharges of toxic gases.

Any of these hazards could result in damage, losses or liability for us. There
is also an increased risk of some of these hazards in connection with operations
that involve the rehabilitation of fields where less than optimal practices and
technology were employed in the past, as was often the case in Eastern Europe.
We do not purchase insurance covering all of the risks and hazards that are
involved in oil and gas exploration, development and production.

RISK OF POLITICAL INSTABILITY WITH RESPECT TO FOREIGN OPERATIONS

Our principal oil and gas properties and activities are in the Republic of
Georgia, Ukraine and Russia all of which are located in Eastern Europe. In
addition, our refinery and all of our petrol stations are located in and around
Tbilisi, Georgia. Operation and development of these assets is subject to a
number of conditions endemic to Eastern European countries, including political
instability. The present governmental arrangements in Eastern Europe and
countries of the former Soviet Union in which we operate were established
relatively recently, when they replaced Communist regimes. If they fail to
maintain the support of their citizens, these governments could themselves be
replaced by other institutions, including a possible reversion to totalitarian
forms of government. Our operations typically involve joint ventures or other
participatory arrangements with the national government or state-owned
companies.

The production sharing contract covering the Ninotsminda oil field and the Joint
Investment Production Activity agreement covering the Bugruvativske oil field
are examples of such arrangements. As a result of such dependency on government
participants, our operations could be adversely affected by political
instability, changes in government institutions, personnel, policies or
legislation, or shifts in political power. There is also the risk that
governments could seek to nationalize, expropriate or otherwise take over our
oil and gas properties. We are not insured against such political risks because
management deems the premium costs of such insurance to be currently
prohibitively expensive.

RISK OF SOCIAL, ECONOMIC AND LEGAL INSTABILITY

The political institutions in Eastern Europe and countries of the former Soviet
Union have recently become more fragmented, and the economic institutions of
Eastern European countries have recently converted to a market economy from a
planned economy. New laws have recently been introduced, and the legal and
regulatory regimes in such regions are often vague, containing gaps and
inconsistencies, and are constantly subject to amendment. Application and
enforceability of these laws may also vary widely from region to region within
these countries. Due to this instability, Eastern European countries are subject
to certain additional risks including the following:

         o        Enforceability of contracts;

         o        Sudden or unexpected changes in demand for crude oil and or
                  natural gas;

         o        Availability of trained personnel; and

         o        Availability of equipment and services and other factors that
                  could significantly change the economics of production



                                      -10-


Within Georgia, the Georgian government has recently requested assistance from
the United States to combat terrorism in the Pankisi Gorge, a region of Georgia
bordering the separatist Chechnya region of Russia. Social, economic and legal
instability have accompanied these changes due to many factors which include:

         o        Low standards of living.

         o        High unemployment.

         o        Undeveloped and constantly changing legal and social
                  institutions.

         o        Conflicts within and with neighbouring countries.

This instability can make continued operations difficult or impossible.

INADEQUATE OR DETERIORATING INFRASTRUCTURE IN EASTERN EUROPE

Countries in Eastern Europe often either have underdeveloped infrastructures or,
as a result of shortages of resources, have permitted infrastructure
improvements to deteriorate. The lack of necessary infrastructure improvements
can adversely affect operations. For example, the lack of a reliable power
supply caused Ninotsminda Oil Company to suspend drilling of one well and the
testing of a second well during the 1998-1999 winter season.

CURRENCY RISKS IN EASTERN EUROPE

Payment for oil and gas products sold in Eastern European countries may be in
local currencies. Although we currently sell our oil principally for U.S.
dollars, we may not be able to continue to demand payment in hard currencies.
Although most Eastern European currencies are presently convertible into U.S.
dollars, there is no assurance that convertibility will continue. Even if
currencies are convertible, the rate at which they convert into U.S. dollars is
subject to fluctuation. In addition, the ability to transfer currencies into or
out of Eastern European countries may be restricted or limited in the future.

We may enter into contracts with suppliers in Eastern European countries to
purchase goods and services in U.S. dollars. We may also obtain from lenders
credit facilities or other debt denominated in U.S. dollars. If we cannot
receive payment for oil and oil products in U.S. dollars and the value of the
local currency relative to the U.S. dollar deteriorates, we could face
significant negative changes in working capital. See "Quantitative and
Qualitative Disclosures About Market Risk" at page 54 for a further description
of currency and other market risks.

TAX RISKS IN EASTERN EUROPE

Countries in Eastern Europe frequently add to or amend existing taxation
policies in reaction to economic conditions including state budgetary and
revenue shortfalls. Since we are dependent on international operations,
specifically those in Georgia, we are subject to changing taxation policies
including the possible imposition of confiscatory excess profits, production,
remittance, export and other taxes. While CanArgo is not aware of any recent or
proposed tax changes which could materially affect our operations, such changes
could occur.

CONFLICTING INTERESTS WITH OUR PARTNERS

Joint venture, acquisition, financing and other agreements and arrangements must
be negotiated with independent third parties and, in some cases, must be
approved by governmental agencies. These third parties generally have objectives
and interests that may not coincide with ours and may conflict with our
interests. Unless we are able to compromise these conflicting objectives and
interests in a mutually acceptable manner, agreements and arrangements with
these third parties will not be consummated.

CanArgo does not have a majority of the equity in the entity that is the
licensed developer of some projects, such as the Bugruvativske and Stynawkse
field projects, that CanArgo may pursue in Eastern Europe, even though we may be
the designated operator of the oil or gas field. In these circumstances, the
concurrence of co-ventures may be required for various actions. Other parties
influencing the timing of events may have priorities that differ from ours, even
if they generally share our objectives. Demands by or expectations of
governments, co-venturers, customers,



                                      -11-


and others may affect CanArgo's strategy regarding the various projects. Failure
to meet such demand or expectations could adversely affect CanArgo's
participation in such projects or our ability to obtain or maintain necessary
licenses and other approvals.

Demand by or expectations of governments, co-venturers, customers and others may
affect CanArgo's strategy regarding the various projects. Failure to meet such
demands or expectations could adversely affect CanArgo's participation in such
projects or its ability to obtain or maintain necessary licenses and other
approvals.

GOVERNMENTAL REGISTRATION

Operating entities in various foreign jurisdictions must be registered by
governmental agencies, and production licenses for development of oil and gas
fields in various foreign jurisdictions must be granted by governmental
agencies. These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and matters. In addition,
the policies and practices of governmental agencies may be affected or altered
by political, economic and other events occurring either within their own
countries or in a broader international context.

CHANGES IN THE MARKET PRICE OF OIL AND GAS

Prices for oil and natural gas and their refined products are subject to wide
fluctuations in response to a number of factors which are beyond our control,
including:

         o        Global changes in the supply and demand for oil and natural
                  gas.

         o        Actions of the Organization of Petroleum Exporting Countries.

         o        Weather conditions.

         o        Domestic and foreign governmental regulations.

         o        The price and availability of alternative fuels.

         o        Political conditions in the Middle East and elsewhere.

         o        Overall economic conditions.

A reduction in oil prices can affect the economic viability of our operations.
For example, the significant decline in oil prices during 1998 adversely
affected our results of operations and increased our operating loss in 1998.
There can be no assurance that oil prices will be at a level that will enable us
to operate at a profit. In 2002 the spot price for Brent crude oil increased
from $19.29 per barrel at December 31, 2001 to $26.23 per barrel at December 10,
2002. CanArgo may also not benefit from rapid increases in oil prices as have
occurred in the first quarter of 2002 as the market for the levels of crude oil
produced in Georgia by Ninotsminda Oil Company can in such an environment be
relatively inelastic and contract prices are often set at a specified price
determined with reference to Brent when the contract is entered into or over a
short period when the crude oil is delivered.

OIL AND GAS PRODUCTION COULD VARY SIGNIFICANTLY FROM RESERVE ESTIMATES

Estimates of oil and natural gas reserves and their values by petroleum
engineers are inherently uncertain. These estimates are based on professional
judgments about a number of elements:

         o        The amount of recoverable crude oil and natural gas present in
                  a reservoir.

         o        The costs that will be incurred to produce the crude oil and
                  natural gas.

         o        The rate at which production will occur.

Reserve estimates are also based on evaluations of geological, engineering,
production and economic data. The data can change over time due to, among other
things:

         o        Additional development activity.

         o        Evolving production history.

         o        Changes in production costs, market prices and economic
                  conditions.



                                      -12-


As a result, the actual amount, cost and rate of production of oil and gas
reserves and the revenues derived from sale of the oil and gas produced in the
future will vary from those anticipated in the most recent report on the oil and
gas reserves prepared by Ashton Jenkins Mann as of January 1, 2002. The
magnitude of those variations may be material.

The rate of production from crude oil and natural gas properties declines as
reserves are depleted. Except to the extent we acquire additional properties
containing proved reserves, conduct successful exploration and development
activities or, through engineering studies, identify additional productive zones
in existing wells or secondary recovery reserves, our proved reserves will
decline as reserves are produced. Future crude oil and natural gas production is
therefore highly dependent upon our level of success in replacing depleted
reserves.

OIL AND GAS OPERATIONS ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION

Governments at all levels, national, regional and local, regulate oil and gas
activities extensively. See "Governmental Authorizations" and "Environmental and
Regulatory Matters" on page 35.We must comply with laws and regulations which
govern many aspects of our oil and gas business, including:

         o        Exploration

         o        Development

         o        Production

         o        Refining

         o        Marketing

         o        Transportation

         o        Occupational health and safety

         o        Labour standards

         o        Environmental matters

We expect the trend towards more burdensome regulation of our business to result
in increased costs and operational delays. This trend is particularly applicable
in developing economies, such as those in Eastern Europe where we have our
principal operations. In these countries, the evolution towards a more developed
economy is often accompanied by a move towards the more burdensome regulations
that typically exist in more developed economies.

COMPETITION

The oil and gas industry including the refining and marketing of crude oil
products is highly competitive. Our competitors include integrated oil and gas
companies, independent oil and gas companies, drilling and income programmes,
and individuals. Many of our competitors are large, well-established,
well-financed companies. Because of our small size and lack of financial
resources, we may not be able to compete effectively with these companies.

OPERATIONS ARE DEPENDENT ON CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE

Dr. David Robson, the Chairman of the Board and Chief Executive Officer of
CanArgo, is our executive who has the most experience in the oil and gas
industry and who has the most extensive business relationships in Eastern
Europe. Our business and operations could be significantly harmed if Dr. Robson
were to leave us or become unavailable because of illness or death. Dr. Robson
through his company, Vazon Energy Limited, has signed a comprehensive Management
Services Agreement with a two-year non competition clause effective from June
29, 2003, the date of termination of the agreement. We do not carry key employee
insurance on any of our employees.

                                 USE OF PROCEEDS

The selling stockholders are offering all of the shares of common stock covered
by this prospectus. We will not receive any proceeds from sales of these shares.
Net proceeds from the private placement have been used to replenish working
capital used following the withdrawal by AES of its participation in a three
well exploration program in Georgia.



                                      -13-


                            THE SELLING STOCKHOLDERS

All of the 5,210,000 shares being offered were acquired by the selling
stockholders pursuant to a private placement at Norwegian Kroner (NOK) 2.95
($0.33) per share, which was completed on February 12, 2002. The shares were
placed by ABG Sundal Collier ASA who received a placement fee and reimbursement
of their expenses amounting to $110,000 in the aggregate. Net proceeds from the
placement were approximately US$1.5 million have been used for working capital
purposes. The shares issued in connection with the private placement were issued
in a transaction intended to qualify for an exemption from registration under
the Securities Act afforded by Regulation S promulgated thereunder by the SEC
and may not be offered or sold in the United States or to U.S. persons (as
defined in such Regulation) absent registration under the Securities Act or
pursuant to an applicable exemption from such registration. Each of the
participants in the private placement executed and delivered subscription
agreements in which they represented and warranted to the Company, among other
matters, that they were not U.S. persons; that they were acquiring the shares
for their own account; that they were acquiring the shares for investment and
not with a view toward the distribution thereof; and that they would not sell
the shares without registration under the Securities Act or pursuant to an
applicable exemption from such registration requirement. In addition, Morgan
Stanley & Co. International Ltd., one of the participants in the private
placement, has further represented to the Company that it purchased its shares
in the ordinary course of its business and in connection with such purchase,
neither it nor any of its affiliates had entered into any contract, agreement,
arrangement or understanding with any other person or persons to, directly or
indirectly, sell, dispose of, distribute or otherwise transfer record or
beneficial ownership of its shares. However, we understand that because Morgan
Stanley & Co. International Ltd is a registered broker-dealer or an affiliate
of a registered broker-dealer, it would be deemed to be an "underwriter" within
the meaning of the Securities Act.

We agreed, as soon as practicable after the closing of the private placement, to
prepare and file with the SEC a registration statement registering the shares
under the Securities Act for resale. Under terms of the Engagement Letter
between the Company and ABG Sundal Collier ASA, we agreed to indemnify the
placement agents under certain conditions for certain liabilities arising from
the engagement, including liabilities arising under the Securities Act.

Our registration of the shares does not necessarily mean that any selling
stockholder will sell any or all of his, her, or its shares at any time or from
time to time in one or more transactions.

The following table sets forth the number of shares owned by each of the selling
stockholders. All information contained in the table below is based upon their
beneficial ownership as of October 30, 2002. The shares registered for sale
hereby are restricted and not available for trading on the OTC Bulletin Board or
on the Oslo Stock Exchange until a Registration Statement filed with SEC becomes
effective or such shares can otherwise be offered and sold in transactions
exempt from the registration requirements of the Securities Act. The following
table assumes that all of the shares being registered will be sold. The selling
stockholders are not making any representation that any shares covered by the
prospectus will be offered for sale. The selling stockholders reserve the right
to accept or reject, in whole or in part, any proposed sale of shares. As of
October 30, 2002, we had an aggregate of 97,356,206 common shares outstanding.



                                               NUMBER OF                                             PERCENT OF
                                                SHARES                               NUMBER OF       OUTSTANDING
                                          BENEFICIALLY OWNED       NUMBERED OF     SHARES OWNED        SHARES
                                                 PRIOR          SHARES REGISTERED    AFTER THE       AFTER THE
     NAME OF SELLING STOCKHOLDER           TO THE OFFERING       FOR SALE HEREBY     OFFERING         OFFERING
     ---------------------------           ---------------      -----------------  ------------     ------------
                                                                                        

Morgan Stanley & Co. Intl. Ltd.               5,010,000            5,010,000               --               --
Jan Olav Steensland                             200,000              200,000               --               --
                                             ------------         ------------     ------------     ------------

TOTALS                                        5,210,000            5,210,000               --               --
                                             ------------         ------------     ------------     ------------


----------

* Less than one percent.



                                      -14-


                              PLAN OF DISTRIBUTION

Under the terms of the private placements, the shares registered for sale hereby
are restricted and not available for trading on the OTC Bulletin Board or the
Oslo Stock Exchange until after a Registration Statement filed with SEC becomes
effective or offers and sales of such shares are otherwise exempt from the
registration requirements of the Securities Act. Thereafter, the shares may be
sold or distributed from time to time by the selling stockholders named in this
prospectus, by their donees, pledgees or transferees, or by their other
successors in interest. The selling stockholders may sell their shares at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices at the time of sale, at negotiated prices, or at fixed prices,
which may be changed. Each selling stockholder reserves the right to accept or
reject, in whole or in part, any proposed purchase of shares, whether the
purchase is to be made directly or through agents. We are not aware that any of
the selling stockholders have entered into any arrangements with any
underwriters or broker-dealers regarding the sale of their shares of common
stock. The registration rights available to selling stockholders after the
Registration Statement becomes effective shall terminate at such time as all
shares qualified by this Registration Statement are sold by the selling
stockholder in accordance with this prospectus or in accordance with the
provisions of Rules 144, 144A or their equivalent under the Securities Act, or
have been sold pursuant to a transaction effected through the facilities of the
Oslo Stock Exchange in accordance with the provisions of Rule 904 or are
otherwise freely transferable without restriction under applicable United States
securities laws.

The selling stockholders may offer their shares, subject to the restrictions
outlined above, at various times in one or more of the following transactions:

-        in ordinary brokers' transactions and transactions in which the broker
         solicits purchasers;

-        in transactions including block trades, in which brokers, dealers or
         underwriters purchase the shares as principal and resell the shares for
         their own accounts pursuant to this prospectus;

-        in transactions "at the market" to or through market makers in the
         common stock;

-        in other ways not involving market makers or established trading
         markets, including direct sales of the shares to purchasers or sales of
         the shares effected through agents;

-        through transactions in options, swaps or other derivatives which may
         or may not be listed on an exchange;

-        an exchange distribution in accordance with the rules of such exchange;

-        in privately negotiated transactions;

-        in transactions to cover short sales; or

-        in a combination of any of the foregoing transactions.

In addition, the selling stockholders also may sell their shares in private
transactions or in accordance with Rules 144, 144A or 904 under the Securities
Act rather than under this prospectus.

From time to time, one or more of the selling stockholders may pledge or grant a
security interest in some or all of the shares owned by them. If the selling
stockholders default in the performance of the secured obligations, the pledgees
or secured parties may offer and sell the shares from time to time. The selling
stockholders also may transfer and donate shares in other circumstances. The
number of shares beneficially owned by selling stockholders who donate or
otherwise transfer their shares will decrease as and when the selling
stockholders take these actions. The plan of distribution for the shares offered
and sold under this prospectus will otherwise remain unchanged, except that the
transferees, donees or other successors in interest will be selling stockholders
for purposes of this prospectus. The selling stockholders may use brokers,
dealers, underwriters or agents to sell their shares. The persons acting as
broker, dealers or agents may receive compensation in the form of commissions,
discounts or concessions. This compensation may be paid by the selling
stockholders or the purchasers of the shares for whom



                                      -15-



such persons may act as agent, or to whom they may sell as a principal, or both.
The selling stockholders and any agents or broker-dealers that participate with
the selling stockholders in the offer and sale of the shares may, and we
understand, in the case of Morgan Stanley & Co. International Ltd, will be
deemed to be "underwriters" within the meaning of the Securities Act. Any
commissions they receive and any profit they realize on the resale of the shares
by them may be deemed to be underwriting discounts and commissions under the
Securities Act. Neither any selling stockholders nor we can presently estimate
the amount of such compensation. Because selling stockholders may, and we
understand in the case of Morgan Stanley & Co. International Ltd, will be deemed
to be "underwriters" within the meaning of the Securities Act, selling
stockholders and persons participating in the offer and sale of their shares
will be subject to the prospectus delivery requirements of the Securities Act.

The selling stockholders and any other person participating in a distribution of
the securities covered by this prospectus will be subject to applicable
provisions of the Exchange Act and the rules and regulations under the Exchange
Act, including Regulation M, which may limit the timing of purchases and sales
of any of the securities by the selling stockholders and any other such person.
Furthermore, under Regulation M, any person engaged in the distribution of the
securities may not simultaneously engage in market-making activities with
respect to the particular securities being distributed for certain periods prior
to the commencement of or during such distribution. All of the above may affect
the marketability of the securities and the availability of any person or entity
to engage in market-making activities with respect to the securities.

Under our agreements with the selling stockholders, we are required to bear the
expenses relating to the registration of this offering. The selling stockholders
will bear any underwriting discounts or commissions, brokerage fees, stock
transfer taxes and fees of their legal counsel. The selling stockholders may
agree to indemnify any broker-dealer or agent that participates in transactions
involving sales of the shares against certain liabilities, including liabilities
arising under the Securities Act. The selling stockholders have agreed to
indemnify us against certain liabilities in connection with the offer of the
shares, including liabilities arising under the Securities Act.

If we are notified by a selling stockholder that any material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, we will file a supplement to this prospectus, if
required, pursuant to Rule 424(b) under the Securities Act. In addition, if we
are notified by a selling stockholder that a donee or pledgee intends to sell
more than 500 shares, we will file a supplement to this prospectus.

To the extent required, this prospectus may be amended or supplemented from time
to time to describe a specific plan of distribution. In effecting sales,
broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in the resales.

The selling stockholders may enter into hedging transactions with broker-dealers
in connection with distributions of the shares or otherwise. In such
transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with the selling stockholders. The
selling stockholders also may sell shares short and redeliver the shares to
close out such short positions. The selling stockholders may enter into option
or other transactions with broker-dealers, which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus. The selling stockholders also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
shares so loaned, or upon a default, the broker-dealer may sell the pledged
shares pursuant to this prospectus.

                   MARKET FOR COMMON STOCK AND DIVIDEND POLICY

On March 30, 1999, our common stock commenced trading on the OTC Bulletin Board
after trading from April 6, 1995 through March 29, 1999 on the NASDAQ National
Market System under the symbol "GUSH". The common stock was delisted from the
NASDAQ Stock Market following the failure to meet Nasdaq's continued listing
requirement that the bid price for a listed security be at least $1.00 per
share. Our common stock is also listed on the Oslo Stock Exchange and has traded
there under the symbol "CNR" since May 1995. As a result of the shift in the
principal domestic market for our common stock from the NASDAQ National Market
System to the OTC Bulletin Board, stockholders may:



                                      -16-


o        find it more difficult to obtain accurate and timely quotations
         regarding the bid and asked prices for common stock;

o        experience greater spreads between bid and asked prices;

o        be charged relatively higher transactional costs when buying or selling
         common stock; and

o        encounter more difficulty in effecting sales or purchases of common
         stock.

In addition, while securities listed on The NASDAQ National Market System are
exempt from the registration requirements of state securities laws, securities
traded on the OTC Bulletin Board must comply with the registration requirements
of state securities laws, which increases the time and costs associated with
complying with state securities laws when raising capital. The listing of our
common stock on the Oslo Stock Exchange had until October 2000, been a secondary
listing, with the primary listing being on The NASDAQ Stock Market. In October
2000, we obtained a primary listing on the Oslo Stock Exchange where we are now
included on the main list.

The following table sets forth the high and low sales prices of the common stock
on the Oslo Stock Exchange, and the high and low bid prices on the NASDAQ OTC
Bulletin Board for the periods indicated. Average daily trading volume on these
markets during these periods is also provided. OTC Bulletin Board data is
provided by NASDAQ Trading and Market Services and/or published financial
sources and Oslo Stock Exchange data is derived from published financial
sources. The over-the-counter quotations reflect inter-dealer prices, without
retail markup, mark-down or commissions, and may not represent actual
transactions. Sales prices on the Oslo Stock Exchange were converted from
Norwegian Kroner into United States dollars on the basis of the daily exchange
rate for buying United States dollars with Norwegian Kroner announced by the
central bank of Norway. Prices in Norwegian Kroner are denominated in "NOK".



                                                              NASDAQ/OTCBB                                 OSE
                                                ---------------------------------------   ---------------------------------------
                                                                              AVERAGE                                   AVERAGE
                                                   HIGH          LOW       DAILY VOLUME      HIGH          LOW       DAILY VOLUME
                                                ----------    ----------   ------------   ----------    ----------   ------------
                                                                                                   
FISCAL QUARTER ENDED
March 31, 2000                                        1.00          0.63        95,167          0.97          0.73       144,854
June 30, 2000                                         1.45          0.69       103,033          1.57          0.79       469,500
September 30, 2000                                    1.66          1.03        69,800          1.78          1.04     1,097,007
December 31, 2000                                     1.38          0.75        24,500          1.45          0.75       881,592
March 31, 2001                                        1.19          0.75        12,933          1.32          0.79       754,976
June 30, 2001                                         0.87          0.50         4,467          0.86          0.43       301,201
September 30, 2001                                    0.50          0.24        20,923          0.56          0.21       261,900
December 31, 2001                                     0.43          0.24        12,757          0.49          0.23       830,746
March 31, 2002                                        0.36          0.26        32,697          0.36          0.25       550,687
June 30, 2002                                         0.38          0.19         3,508          0.32          0.14       250,000
September 30, 2002                                    0.20          0.05         9,156          0.20          0.05       256,500
December, 2002                                        0.10          0.04        29,404          0.08          0.04       712,500
March 31, 2003 (through January 9, 2003)              0.11          0.05        66,033          0.05          0.05       403,333


At January 9, 2003, the closing price of our common stock on the OTC Bulletin
Board and Oslo Stock Exchange was $0.060 and $0.049 respectively.

On October 30, 2002 the number of holders of record of our common stock was
approximately 8,150. We have not paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, for use in our business and,
therefore, do not anticipate paying any cash dividends in the foreseeable
future. The payment of future dividends, if any, will depend, among other
things, on our results of operations and financial condition and on such other
factors as our Board of Directors may, in their discretion, consider relevant.




                                      -17-


                      SELECTED CONSOLIDATED FINANCIAL DATA

The following data, insofar as it relates to each of the years 1997-2001, has
been derived from annual financial statements, including our consolidated
balance sheets at December 31, 2001 and 2000 and the related consolidated
statements of operations, of cash flows and of stockholders' equity for the
three years ended December 31, 2001 and notes thereto appearing elsewhere
herein. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements included herein.



Reported in $000's except for         NINE MONTHS
per common share amounts           ENDED SEPTEMBER 30,                         YEAR ENDED DECEMBER 31,
                                  ---------------------     ------------------------------------------------------------
                                    2002         2001         2001         2000         1999         1998         1997
                                  --------     --------     --------     --------     --------     --------     --------
                                                                                           
FINANCIAL PERFORMANCE

Total revenue from continuing
operations                           4,558        5,801        7,171        7,010        2,783          821          313

Operating income (loss) from
continuing operations               (2,047)      (3,089)     (16,091)      (2,401)      (8,119)      (6,357)     (25,583)

Other income (expense)                (558)         943        2,529          258         (354)         247       (2,100)

Net income (loss) from
continuing operations               (2,605)      (2,146)     (13,562)      (2,143)      (8,473)      (6,110)     (27,683)

Net income (loss) from
discontinued operations, net
of taxes and minority
interest (1)                           173          129          344           (8)          --           --           --

Comprehensive income (loss)
from continuing operations          (2,334)      (2,017)     (13,218)      (2,152)      (8,473)      (6,110)     (27,683)

Net loss per common share -
    basic and diluted from
    continuing operations            (0.03)       (0.02)       (0.16)       (0.04)       (0.32)       (0.39)       (2.47)
Net loss per common share -
    basic and diluted
    from discontinued
    operations                       (0.00)       (0.00)       (0.00)       (0.00)          --           --           --
Net loss per common share -
    basic and diluted                (0.03)       (0.02)       (0.16)       (0.04)       (0.32)       (0.39)       (2.47)

Cash generated by (used in)
operations                           1,182      (13,906)     (12,364)       7,881       (1,210)     (14,718)      (4,176)

Working capital                      1,658       13,195        9,948       23,322        2,729        1,366       13,971

Total assets                        72,855       84,260       70,312       82,849       43,948       46,618       37,434

Minority shareholder advances           --           --          450           --           --           --           --

Stockholders' equity                65,094       77,001       65,800       72,426       37,863       40,031       26,779
Cash dividends per common
share                                   --           --           --           --           --           --           --


(1)      In September 2002, CanArgo approved a plan to sell CanArgo Standard Oil
         Products to finance Georgian and Ukrainian development projects and in
         October 2002, CanArgo agreed to sell its 50% holding to Westrade
         Alliance LLC, an unaffiliated company, for $4 million in an
         arms-length transaction, with legal ownership being transferred



                                      -18-


         upon receipt of final payment due in August 2003. The agreed
         consideration to be exchanged does not result in an impairment of the
         carrying value of assets held for sale. The assets and liabilities of
         CanArgo Standard Oil Products have been classified as "Assets of
         subsidiary held for sale" and "Liabilities of subsidiary held for sale"
         for all periods presented. The results of operations of CanArgo
         Standard Oil Products have been classified as discontinued for all
         periods presented. The minority interest related to CanArgo Standard
         Oil Products has not been reclassified for any of the periods
         presented, however net income from discontinued operations is disclosed
         net of taxes and minority interest. CanArgo Standard Oil Products was
         purchased in 2000 and operations were developed in 2001, therefore
         prior to 2000 there is no effect on the financial statements in respect
         of discontinued operations.

                                   THE COMPANY

We are engaged in the acquisition, exploration, development and production of
oil and natural gas reserves. Our activities also include investments in
downstream operations such as refining and marketing. In 2001, revenues from oil
and gas sales, refining and marketing activities accounted for 27%, 18% and 51%
of total revenue respectively. Our oil and gas properties, refinery and petrol
stations are concentrated in Eastern Europe and, in particular the Republic of
Georgia. Our management and technical staff have substantial experience in these
areas. Our principal product is crude oil and refined products, and the sale of
crude oil and refined products is our principal source of revenue.

With regard to oil and natural gas reserves, our reserves and production have
been derived principally through development of the Ninotsminda field. We
typically focus on properties that either offer us existing production as well
as additional exploitation opportunities, or exploration prospects management
believes have significant potential. We believe that our cash flow from
operations and our financial resources will provide us with the ability to
complete our near term exploration projects in Georgia but will not be
sufficient to develop our interests in the Bugruvativske and Stynawske fields in
Eastern Ukraine. See "Management's Analysis and Discussion of Financial
Condition and Results of Operations" at page 38.

Our business strategy is focused on the following:

Further Development of Existing Properties

We intend to further develop our properties that have established oil. We seek
to add proved reserves and increase production through the use of advanced
technologies, including detailed technical analysis of our properties, drilling
new structures from existing locations and selectively recompleting existing
wells. We also plan to drill step-out wells to expand known field limits.

Growth Through Exploitation and Exploration

We conduct an active technology-driven exploitation and exploration program that
is designed to complement our property acquisition and development drilling
efforts with moderate to high-risk exploration projects that have greater
reserve potential. We generate exploration prospects through the analysis of
geological and geophysical data and the interpretation of seismic data. We
intend to manage our exploration expenditures through the optimal scheduling of
our drilling program and, if considered appropriate, selectively reducing our
participation in certain exploratory prospects through sales of interests to
industry partners.

Pursuit of Strategic Acquisitions

We continually review opportunities to acquire producing properties, leasehold
acreage and drilling prospects. We seek to acquire operational control of
properties that we believe have significant exploitation and exploration
potential. We are especially focused on increasing our holdings in fields and
basins from which we leverage existing infrastructure and resources.



                                      -19-


GENERAL DEVELOPMENT OF BUSINESS

CanArgo Energy Corporation was formed in 1994 to continue, through
re-incorporation in Delaware, the business of a predecessor Oklahoma corporation
which was formed in 1980. CanArgo changed its name from Fountain Oil
Incorporated to CanArgo Energy Corporation in connection with a business
combination with CanArgo Oil & Gas Inc. completed on July 15, 1998. CanArgo
conducts its principal operations through subsidiaries, and unless otherwise
indicated by the context, the term CanArgo refers to CanArgo Energy Corporation
and its consolidated subsidiaries, including Ninotsminda Oil Company.

CanArgo initially operated as an oil and gas exploration and production company.
It altered its principal focus to the application of electrically enhanced heavy
oil recovery technology in 1988, and that focus continued through 1994. In early
1995, CanArgo shifted its principal activities to acquiring and developing
interests in Eastern European oil and gas properties. From 1995 to 1997 CanArgo,
then known as Fountain Oil Incorporated, established significant ownership
interests in four Eastern European oil and gas development projects. As a result
of disappointing results and other negative indications, CanArgo during the
fourth quarter of 1997 wrote-off its entire investment in three of those four
projects and began to actively seek a business combination or similar
transaction with another oil and gas company.

As a result of this effort, CanArgo then known as Fountain Oil Incorporated
entered into a business combination with CanArgo Oil & Gas Inc. Upon completion
of the business combination in July 1998, CanArgo Oil & Gas Inc. became a
subsidiary of CanArgo, the management of CanArgo Oil & Gas Inc. assumed the
senior management positions in CanArgo, and CanArgo changed its name from
Fountain Oil Incorporated to CanArgo Energy Corporation. At the time of the
business combination, the principal operations and assets of CanArgo Oil & Gas
Inc. were associated with the Ninotsminda oil field in the Republic of Georgia.
Since completion of the business combination, a large portion of CanArgo's
resources have been focused on the development of the producing areas of the
Ninotsminda field and its Georgian exploration programme and in 1999, CanArgo
wrote-down the fourth and last significant project that was being developed by
Fountain Oil Incorporated prior to the business combination.

To increase efficiency within the company's current structure and to better
position the company for future growth, CanArgo announced in November 2001 plans
to recommend to its shareholders a move of the company's domicile from the
United States to Europe. These plans continue to progress and will be subject to
shareholder, regulatory, tax and all other related approvals and rulings as
applicable. Further information will be provided to shareholders once a formal
plan is completed.

CanArgo's principal activities are oil and gas exploration, development and
production of oil and gas. These activities are carried out under three
production sharing arrangements (PSC's), these being the Ninotsminda, Manavi and
West Rustavi Production Sharing Contract, the Nazvrevi and Block XIII Production
Sharing Contract and the Norio (Block XIc) and North Kumisi Production Sharing
Agreement. In late 2000 CanArgo also began to engage in oil and gas marketing
and refining activities in Georgia. In November 2000, CanArgo acquired a 51%
interest in Georgian American Oil Refinery which held a refurbished American
refinery with a design capacity of approximately 4,000 barrels per day. Shortly
thereafter, in December 2000, CanArgo expanded its interest in Georgia to
include a 50% controlling interest in CanArgo Standard Oil Products with the
objective of developing within Georgia a chain of retail petrol stations. In
September 2002, CanArgo approved a plan to sell CanArgo Standard Oil Products to
finance Georgian and Ukrainian development projects and in October 2002, CanArgo
agreed to sell its 50% holding with legal ownership being transferred upon
receipt of final payment due in August 2003. Discontinued Operation activity and
segment and geographical information for refining including revenue from
external customers, operating profit (loss) and total assets is incorporated
herein by reference from notes 14 and 15 to the consolidated financial
statements.

EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES

In Georgia CanArgo's exploration, development and production activities are
carried out under three production sharing arrangements (PSC's), these being the
Ninotsminda, Manavi and West Rustavi Production Sharing Contract, the Nazvrevi
and Block XIII Production Sharing Contract in which CanArgo owns a 100% interest
through its subsidiary CanArgo (Nazvrevi) Limited, and the Norio (Block XI(c))
and North Kumisi Production Sharing



                                      -20-


Agreement which CanArgo entered into through its subsidiary CanArgo Norio
Limited. In November and December 2000 respectively, CanArgo expanded this
activity with the acquisition of a controlling interest in a refinery and
investment in a chain of petrol stations all located in and around Tbilisi, the
capital of Georgia. Despite this investment, however, CanArgo continues to
direct most of its efforts and resources to the development of the exploration
programme and the Ninotsminda field.

                                     [MAP]

NINOTSMINDA OIL FIELD

Since completion of the business combination with CanArgo Oil & Gas Inc.,
CanArgo's resources have, through its wholly owned subsidiary Ninotsminda Oil
Company, been focused on the development of the Ninotsminda oil field and some
associated activities. The Ninotsminda oil field covers some 10 square
kilometres and is located 40 kilometres north east of the Georgian capital,
Tbilisi. It is adjacent to and east of the Samgori oil field, which was
Georgia's most productive oil field. The Ninotsminda field was discovered later
than the Samgori field and has experienced substantially less development
activity. The state oil company, Georgian Oil, and others including Ninotsminda
Oil Company have drilled seventeen wells in the Ninotsminda field, of which
thirteen are currently classified as producing.

CanArgo believes the field license to have significant exploration potential,
and has invested substantial funds in an exploration programme.

OTHER PROJECTS

CanArgo also has additional exploratory and developmental oil and gas properties
and prospects in Georgia and Ukraine and owns interests in other Eastern
European oil and gas projects. In Ukraine, CanArgo's activities are focused on
the further development of the Stynawske oilfield, through the Boryslaw Oil
Company joint venture, and



                                      -21-


the Bugruvativske oilfield, through the Joint Investment Production Activity
(JIPA) agreement. CanArgo's principal product is crude oil, and the sale of
crude oil and crude oil products is its principal source of revenue.

                                     [MAP]

BUSINESS STRUCTURE

CanArgo and its active subsidiaries are as follows:

                                     [CHART]

CanArgo's activities at the Ninotsminda oil field are conducted through
Ninotsminda Oil Company. In May 2000, CanArgo Energy Corporation reached an
agreement with JKX Oil & Gas plc to acquire its 21.2% interest in Ninotsminda
Oil Company for a direct equity interest in CanArgo. In July 2000, this
transaction was completed and Ninotsminda Oil Company became a wholly owned
subsidiary of CanArgo. In November 1999, CanArgo had increased its percentage
ownership of Ninotsminda Oil Company from 68.5% to 78.8% when JKX Oil & Gas plc
chose not to subscribe for its pro rata portion of shares being offered to
increase Ninotsminda Oil Company capital. Ninotsminda Oil Company obtained its
rights to the Ninotsminda field, including all existing wells, and two other
fields under a 1996 production sharing contract with Georgian Oil and the State
of Georgia. Ninotsminda Oil Company's rights under the agreement expire in
December 2019, subject to possible loss of undeveloped areas prior to that date
and possible extension with regard to developed areas. Under the production
sharing contract, Ninotsminda Oil Company is required to relinquish at least
half of the area then covered by the production sharing



                                      -22-


contract, but not any portions being actively developed, at five year intervals
commencing December 1999. In 1998, these terms were amended with the initial
relinquishment being due in 2006 and a reduction in the area to be relinquished
at each interval from 50% to 25%.

Under the production sharing contract, Georgian Oil had a priority right to
receive oil representing a projection of what the Ninotsminda field would have
yielded through 2001 based upon the wells and equipment in use at the time the
contract was entered into. The priority right amounts to approximately:

o        740 barrels of oil per day during 1998;

o        542 barrels of oil per day during 1999;

o        280 barrels of oil per day during 2000;

o        93 barrels of oil per day during 2001; and

o        none thereafter.

These priority rights represented 49%, 48%, 21% and 8% of gross production
respectively. Of the remaining production, up to 50% will be allocated to
Ninotsminda Oil Company for the recovery of the cumulative allowable capital,
operating and other project costs associated with the Ninotsminda field, which
Ninotsminda Oil Company initially pays. The balance of production is allocated
on a 70/30 basis between Georgian Oil and Ninotsminda Oil Company respectively.
While Ninotsminda Oil Company continues to have unrecovered costs, it will
receive 65% of production in excess of the oil allocated to Georgian Oil on a
priority. After recovery of its cumulative capital, operating and other
allowable project costs, Ninotsminda Oil Company will receive 30% of production
after Georgian Oil's priority allocation. Thus, while Ninotsminda Oil Company is
responsible for all of the costs associated with development of the Ninotsminda
field, it is only entitled to receive 30% of production after cost recovery and
Georgian Oil's priority allocation. The allocation of a share of production to
Georgian Oil, however, relieves Ninotsminda Oil Company of all obligations it
would otherwise have to pay the Republic of Georgia for taxes and similar levies
related to activities covered by the production sharing contract. Georgian Oil
and Ninotsminda Oil Company take their respective shares of production in kind,
and they market their oil independently.

Pursuant to the terms of CanArgo's PSC's in Georgia, including the Ninotsminda,
Manavi and West Rustavi production sharing contract, a Georgian not-for-profit
company must be appointed as field operator. Currently there are three such
field operating companies, relating to CanArgo's three PSC's: Georgian British
Oil Company Ninotsminda, Georgian British Oil Company Nazvrevi and Georgian
British Oil Company Norio, each of which is 50% owned by a company within the
CanArgo group with the remainder owned by Georgian Oil. The Ninotsminda
operating entity, Georgian British Oil Company Ninotsminda, is 50% owned by
Ninotsminda Oil Company. The second operating entity, Georgian British Oil
Company Nazvrevi, is 50% owned CanArgo (Nazvrevi) Ltd. The third operating
entity, Georgian British Oil Company Norio, is 50% owned by CanArgo Norio Ltd.
The field operator provides the operating personnel and is responsible for
day-to-day operations. CanArgo or a company within the CanArgo group pays the
operating company's expenses associated with the development of the fields, and
the operating company performs on a non-profit basis. Georgian British Oil
Company Ninotsminda currently has 114 full time employees, and substantially all
of its activities relate to the development of the Ninotsminda field. The use of
such Georgian companies as field operator gives CanArgo less control of
operations than it might have if it were conducting operations directly,
although CanArgo has board control of these field operating companies.

Ninotsminda field operations are determined by a governing body composed of
members designated by Georgian Oil and Ninotsminda Oil Company, with the
deciding vote on field development issues allocated to Ninotsminda Oil Company.
If Georgian Oil believes that action proposed by Ninotsminda Oil Company with
which Georgian Oil disagrees would result in permanent damage to a field or
reservoir or in a material reduction in production over the life of a field or
reservoir, it may refer the disagreement to a western independent expert for
binding resolution. Since CanArgo acquired its interest in Ninotsminda Oil
Company, there has been no such disagreement. Similar procedures apply to
CanArgo's other two Georgian PSC's.



                                      -23-


NINOTSMINDA FIELD DEVELOPMENT

When Ninotsminda Oil Company assumed developmental responsibility for the
Ninotsminda field in 1996, production was minimal. CanArgo believed that the
development and production obtainable from the Ninotsminda field had in the past
been hampered by, among other factors, a lack of funding, civil strife and
utilization of old technology and methods.

Ninotsminda Oil Company's initial approach to Ninotsminda field development was
to produce oil from one zone or underground formation, the Middle Eocene. This
development included repairing and adding perforations to existing wells,
obtaining additional seismic data and a limited drilling programme. The first
exploration well in search of a new reservoir was completed in October 1997 and
initially produced at the rate of 400 to 600 barrels of oil per day but is
currently shut-in. A second exploration well was completed in October 1998 and
has been producing at the rate of 160 barrels of oil per day.

A third oil exploration well commenced in October 1998 but drilling was
suspended in December 1998 at a depth of 700 meters as a result of undependable
electrical supply. Drilling of this well recommenced in July 2000 as a potential
gas exploration well but in October 2000, CanArgo announced that as a result of
difficult drilling conditions, the well could not be completed to the deeper
Cretaceous zone as originally planned but rather would be tested in the newly
discovered Sarmatian zone. While some work has been undertaken to identify the
reserve and production potential of this and a previously identified Upper
Eocene zone from which oil has been produced from one well, further work is
required. Such information may, however, also open up new potential in the upper
zones of other areas currently under license in Georgia. See "Other Georgian
Licenses".

While most of the exploration and development of the Ninotsminda field prior to
2000 focused on oil, a layer of gas above the oil or gas cap was known to exist
above the principal producing zone. In December 1999, Ninotsminda Oil Company
began commercial production of this gas cap following regulatory approval from
the Georgian government. This production was sold pursuant to a one year gas
contract with AES - Telasi, a subsidiary of AES Corporation, for delivery to the
Gardabani thermal power plant. Under terms of the gas contract, AES-Telasi had
agreed to purchase all the gas produced by Ninotsminda Oil Company in priority
to all other suppliers with no maximum or minimum volume. AES continued to
purchase gas from Ninotsminda Oil Company on similar contractual terms during
2000 and into 2001.

With increases in demand for natural gas produced in Georgia, in 2001
Ninotsminda Oil Company commenced the first and second wells of a three-well
exploration programme to explore and determine the future development potential
of gas prospects in the Ninotsminda field. In January 2002, the first of these
wells, N100, reached target depth and is currently undergoing testing to
determine if hydrocarbons are present in the well and if present, the possible
extent of the hydrocarbons. Drilling of the second well in the exploration
programme, M11, began in June 2001 is currently at a depth of 3,876 meters.

The gas exploration programme was initiated under a binding Participation
Agreement with AES Gardabani dated July 19, 2000 relating to the exploration and
potential future development of Sub Middle Eocene gas prospects on CanArgo's
Ninotsminda production sharing contract in Georgia. Under the agreement, AES
Gardabani was to earn a 50% interest in identified prospects at the Sub Middle
Eocene stratigraphic level (rock older than the Middle Eocene sequence) by
funding two thirds of the cost of a three-well exploration programme. Under
terms of the Participation Agreement, the exploration was and continues to be
implemented by CanArgo's existing operations unit in Georgia. However, prior to
completion of the exploration programme as defined in the Participation
Agreement, AES indicated in January 2002 that it wished to withdraw from the
Participation Agreement in order to focus on its core business. In 2002 the
Participation Agreement with AES was terminated without AES earning any rights
to any of the Ninotsminda field reservoirs. Under a separate Letter Agreement,
if gas from the Sub Middle Eocene is discovered and produced, AES will be
entitled to recover at the rate of 15% of future gas sales from the Sub Middle
Eocene, net of operating costs, their funding under the Participation Agreement.
AES also has an option to enter into a five year take or pay gas sales agreement
for a quantity up to 200 million cubic meters per year at an initial contract
price of $46.00 per one thousand cubic meters. Gas purchased by AES would likely
be supplied to the Gardabani thermal power plant.

CanArgo has not yet fully evaluated the reserves and economics of production
from the upper oil zones, the gas cap or from potential oil and gas zones below
the Middle Eocene. To fully evaluate these zones, further seismic,



                                      -24-


technical interpretation and drilling will be required. Drilling sites
tentatively selected by Ninotsminda Oil Company must be approved by Georgian
regulatory authorities before drilling may commence. With respect to gas
production, no gas supply contracts currently exist for production directly from
the gas cap.

Gas currently produced from the Middle Eocene and upper zones is subject to
market conditions and environmental constraints within Georgia and the ability
of Ninotsminda Oil Company to arrange short term gas supply agreements as
required.

OTHER FIELDS AND PROSPECTS UNDER NINOTSMINDA PRODUCTION SHARING CONTRACT

In addition to the Ninotsminda field, Ninotsminda Oil Company has under the 1996
production sharing contract rights to one other field, West Rustavi, and one
currently identified prospect, Manavi. As well as the producing Middle Eocene
horizon at Ninotsminda, the West Rustavi field has additional prospective
horizons at the Cretaceous/Paleocene levels.

The West Rustavi field is located some 40 km southeast of Ninotsminda. Ten wells
were drilled by Georgian Oil in the West Rustavi field area, two of which
produced oil. One of the ten wells was drilled to the deeper
Cretaceous/Paleocene horizon. This well was tested and produced 1 million cubic
feet of gas and 3,500 barrels of water per day. Further geo-technical work is
required on this horizon to determine its prospectivity.

The second well in the planned three-well Cretaceous drilling programme is being
drilled on the Manavi prospect located east of the Ninotsminda field. The well
was located on the Manavi prospect based on seismic data regarding the Manavi
prospect obtained by Ninotsminda Oil Company from work it commissioned and
earlier efforts by Georgian Oil. A previous attempt by Georgian Oil to drill in
the Manavi prospect was abandoned due to technical problems.

Seismic and well data are currently being interpreted to identify further
prospects in the Ninotsminda area at several different stratigraphic levels.

OIL AND GAS PRODUCTION

Production History

The Ninotsminda field was discovered and initial development began in 1979.
CanArgo is currently producing from the Ninotsminda field approximately 1,324
barrels of oil equivalent (BOE) per day, comprising approximately 1,039 barrels
of oil per day and 285 BOE of gas per day (1 BOE =6,000 cubic feet = 170 (m3)
gas) from thirteen wells. Gross production from the Ninotsminda field for the
past three years was as follows:



             YEAR ENDED
            DECEMBER 31,                        OIL - GROSS BARRELS
            ------------                        -------------------
                                            
                2001                                 413,724
                2000                                 478,999
                1999                                 415,390




                                      -25-


Productive Wells and Acreage

The following table summarizes as of December 31, 2001 Ninotsminda Oil Company's
number of productive oil and gas wells and Ninotsminda Oil Company's total
developed acreage for the Ninotsminda field. Such information has been presented
on a gross basis, representing the interest of Ninotsminda Oil Company, and on a
net basis, representing the interest of CanArgo based on its 100% interest in
Ninotsminda Oil Company.



                                        GROSS                                   NET
                            -----------------------------          -----------------------------
                            NUMBER OF WELLS       ACREAGE          NUMBER OF WELLS       ACREAGE
                            ---------------       -------          ---------------       -------
                                                                             
Ninotsminda field                  13              2,500                 13               2,500


On December 31, 2001, there were no productive wells or developed acreage on any
of CanArgo's other Georgian properties, except for one gross well on the West
Rustavi field which was shut-in at that date.

Reserves

The following table summarizes net hydrocarbon reserves for the Ninotsminda
field. This information is derived from a report dated as of January 1, 2002
prepared by Ashton Jenkins Mann, independent petroleum consultants. This report
is available for inspection at CanArgo's principal executive offices during
regular business hours. The reserve information in the table below has also been
filed with the Oslo Stock Exchange.



                                             OIL RESERVES -     PSC ENTITLEMENT
MILLION BARRELS                                  GROSS            VOLUMES (1)
                                            ---------------     ---------------
                                                          

         Proved Developed                               4.0                 2.9
         Proved Undeveloped                             1.1                 0.8
                                            ---------------     ---------------

         TOTAL PROVEN                                   5.1                 3.7
                                            ===============     ===============




                                             GAS RESERVES -     PSC ENTITLEMENT
BILLION CUBIC FEET                               GROSS            VOLUMES (1)
                                            ---------------     ---------------
                                                          
         Proved Developed                              12.9                 3.9
         Proved Undeveloped                             3.9                 1.1
                                            ---------------     ---------------

         TOTAL PROVEN                                  16.8                 5.0
                                            ===============     ===============


----------

         (1)      PSC Entitlement Volumes attributed to CanArgo using the
                  "economic interest method" applied to the terms of the
                  production sharing contract. PSC Entitlement Volumes are those
                  produced volumes which, through the production sharing
                  contract, accrue to the benefit of Ninotsminda Oil Company
                  after deduction of Georgian Oil's share which includes all
                  Georgian taxes, levies and duties. As a result of CanArgo's
                  interest in Ninotsminda Oil Company, these volumes accrue to
                  the benefit of CanArgo for the recovery of capital, repayment
                  of operating costs and share of profit. For PSC Entitlement
                  Volume calculations only, only oil volumes have been assumed
                  to be used to recover cumulative capital and operating costs.

Proved reserves are those reserves estimated as recoverable under current
technology and existing economic conditions from that portion of a reservoir
which can be reasonably evaluated as economically productive on the basis of
analysis of drilling, geological, geophysical and engineering data, including
the reserves to be obtained by enhanced recovery processes demonstrated to be
economically and technically successful in the subject reservoir. Proved
reserves include proved developed reserves (producing and non-producing
reserves) and proved undeveloped reserves.



                                      -26-


Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Proved
undeveloped reserves are reserves that are expected to be recovered from new
wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled acreage are
limited to those drilling units offsetting productive wells that are reasonably
certain of production when drilled.

Uncertainties exist in the interpretation and extrapolation of existing data for
the purposes of projecting the ultimate production of oil from underground
reservoirs and the corresponding future net cash flows associated with that
production. The estimating process requires educated decisions relating to the
evaluation of all available geological, engineering and economic data for each
reservoir. The amount and timing of cost recovery is a function of oil and gas
prices. The oil and gas price used in the report by Ashton Jenkins Mann as of
January 1, 2002 were $15.08 per barrel and $1.13 per mcf respectively. Having
considered the geological and engineering data in the interpretation process,
the Company believes with reasonable certainty that the stated proven reserves
represent the estimated quantities of oil and gas to be recoverable in future
years under existing operating and economic conditions.

No independent reserves have been assessed for the West Rustavi field, and
independent reserve estimates for other properties are described in the
appropriate part of the text in this document.

PROCESSING, SALES AND CUSTOMERS

Georgian Oil built a considerable amount of infrastructure in and adjacent to
the Ninotsminda field prior to entering into the production sharing contract
with Ninotsminda Oil Company. That infrastructure, including initial processing
equipment, is now used by Ninotsminda Oil Company.

The mixed oil, gas and water fluid produced from the Ninotsminda field wells
flows into a two-phase separator located at the Ninotsminda field, where gas
associated with the oil is separated. The oil and water mixture is then
transported eleven kilometres in a pipeline to Georgian Oil's central processing
facility at Sartichala for further treatment. The gas is transported to
Sartichala in a separate pipeline where some is used for fuel and the rest is
piped 34 kilometres to Rustavi where it is delivered to the Gardabani thermal
power plant or other industrial consumers.

At Sartichala, the water is separated from the oil. Ninotsminda Oil Company then
sells oil in this state to buyers at Sartichala for local consumption or
transfers it by pipeline 20 kilometres to a railhead at Gatchiani primarily for
export sales. At the railhead, the oil is loaded into railcars for transport to
the Black Sea port of Batumi, Georgia, where oil can be loaded onto tankers for
international shipment. Buyers transport the oil at their own risk and cost from
the delivery points.

Ninotsminda Oil Company sells its oil directly to local and international
buyers. In 2001, Ninotsminda Oil Company sold its oil production to three
customers.



                     CUSTOMER                         PERCENT OF OIL REVENUE
                     --------                         ----------------------
                                                   
         Caspian Trading                                       63.8%
         Georgian American Oil refinery (1)                    23.5%
         MS                                                    12.7%


In 2000, Ninotsminda Oil Company sold its oil production to three customers.



                     CUSTOMER                         PERCENT OF OIL REVENUE
                     --------                         ----------------------
                                                   
         Georgian American Oil Refinery (1)                    54.4%
         MS                                                    31.4%
         Caspian Trading                                       14.2%


In 1999, Ninotsminda Oil Company sold its production to five customers. Of these
customers, three customers represented sales greater than 10% of oil revenue:


                                      -27-




                     CUSTOMER                         PERCENT OF OIL REVENUE
                     --------                         ----------------------
                                                   
         Petrotrade                                            38.0%
         Georgian American Oil Refinery (1)                    34.0%
         Sinan Madenchilik                                     11.0%


----------

(1)      51% owned by CanArgo effective November 2000

Sales to both the domestic and international markets are based on the average of
a number of quotations for dated Brent Mediterranean with an appropriate
discount for transportation and other charges. Sales in 2001 were at an average
discount of $6.29 to Brent, although this discount has been reduced to $4.41 in
recent sales.

Prices for oil and natural gas are subject to wide fluctuations in response to a
number of factors including:

o        global changes in the supply and demand for oil and natural gas;

o        actions of the Organization of Petroleum Exporting Countries

o        weather conditions;

o        domestic and foreign governmental regulations;

o        the price and availability of alternative fuels;

o        political conditions in the Middle East and elsewhere; and

o        overall economic conditions.

OTHER GEORGIAN LICENSES

Nazvrevi/Block XIII

In February 1998, CanArgo entered into a second production sharing contract with
Georgian Oil and the State of Georgia. This contract covers the Nazvrevi and
Block XIII areas of East Georgia, a 2,008 square kilometre exploration area
adjacent to the Ninotsminda and West Rustavi fields and containing existing
infrastructure. The agreement extends for twenty-five years. CanArgo is required
to relinquish at least half of the area then covered by the production sharing
contract, but not any portions being actively developed, at five year intervals
commencing in 2003.

Under the production sharing contract, CanArgo pays all operating and capital
costs. CanArgo first recovers its cumulative operating costs from production.
After deducting production attributable to operating costs, 50% of the remaining
production, considered on an annual basis, is applied to reimburse CanArgo for
its cumulative capital costs. While cumulative capital costs remain unrecovered,
the other 50% of remaining production is allocated on a 50/50 basis between
Georgian Oil and CanArgo. After all cumulative capital costs have been recovered
by CanArgo, remaining production after deduction of operating costs is allocated
on a 70/30 basis between Georgian Oil and CanArgo respectively. Thus, while
CanArgo is responsible for all of the costs associated with development of the
Nazvrevi field, it is only entitled to receive 30% of production after cost
recovery. The allocation of a share of production to Georgian Oil, however,
relieves CanArgo of all obligations it would otherwise have to pay the Republic
of Georgia for taxes and similar levies related to activities covered by the
production sharing contract. Both Georgian Oil and CanArgo will take their
respective shares of production under this production sharing contract in kind.

The first phase of the preliminary work programme under the Nazvrevi/Block XIII
production sharing agreement involved primarily a seismic survey of a portion of
the exploration area and the processing and interpretation of the data
collected. The seismic survey has been completed, and the results of those
studies continue to be interpreted, with a view towards defining possible oil
and gas prospects and exploration drilling locations. The cost of the seismic
programme was approximately $1.5 million, and met the minimum obligatory work
commitment under the contract. The second phase of the preliminary work
programme under the Nazvrevi/Block XIII production sharing contract involves the
drilling of one well, unless CanArgo decides to terminate the contract. As the
Nazvrevi and Block XIII license is an exploration area and no discoveries have
been made on this license, it is not possible to estimate the expenditures
needed to discover and if discovered, produce commercial quantities of oil and
gas.



                                      -28-


Norio (Block XI(c)) and North Kumisi Blocks

In December 2000, CanArgo entered into a third PSC with the State of Georgia
represented by Georgian Oil and the State Agency for Regulation of Oil and Gas
Resources in Georgia. This agreement covers the Norio and North Kumisi blocks of
East Georgia, a 1,542 square kilometre exploration area adjacent to the
Ninotsminda, West Rustavi and Samgori fields. There are two existing oil fields
on the Norio block, Norio and Satskhenisi which are relatively shallow fields
and which have produced oil from the Miocene and Sarmatian sequences. The
commercial terms of the production sharing agreement are similar to those of the
Nazvrevi/Block XIII production sharing contract with the exception that after
all cumulative capital costs have been recovered by CanArgo, remaining
production after deduction of operating costs is allocated on a 60/40 basis
between Georgian Oil and CanArgo respectively. Thus, while CanArgo is
responsible for all of the costs associated with development of the Norio field,
it is only entitled to receive 40% of production after cost recovery. CanArgo
currently owns a 50% controlling interest in CanArgo Norio Limited with the
remainder held by Georgian and other private investors.

The first phase of the preliminary work programme under the Norio and North
Kumisi production sharing agreement involved primarily a seismic survey of a
portion of the exploration area and the processing and interpretation of the
data collected. The seismic survey has been completed, and the results of those
studies have and will continue to be interpreted. In addition to the existing
upper sequences, the potential of the blocks to produce from the Middle Eocene,
Cretaceous and Upper Eocene are being assessed. The cost of the seismic
programme was approximately $1.5 million.

The second phase of the preliminary work programme under the Norio and North
Kumisi production sharing agreement commenced in January 2002 with the first
exploration well at an estimated cost of up to $4.4 million of which CanArgo's
estimated share of costs is $3.2 million. The State Agency for Oil and Gas
Regulations in Georgia has confirmed that CanArgo has satisfied all drilling and
work obligations under the terms of the Norio and Kumisi production sharing
agreement. The well is currently suspended while CanArgo actively seeks partners
for funding to deepen the well to the target zone.

In November 2002, CanArgo reached agreement with the other shareholders in
CanArgo's subsidiary, CanArgo Norio Limited (Norio), on increasing CanArgo's
interest in Norio. Under the agreement CanArgo's interest increased from 50% to
64% in Norio and its existing Norio and North Kumisi production sharing
agreement.

The Norio production sharing agreement provides Georgian Oil with a one time
option to take up to a 15% participating interest in petroleum operations. The
option period begins on submission of the first development plan and must be
exercised within 180 days thereafter. To exercise the option, Georgian Oil must
pay their pro rata share of back costs, bear a pro rata share of all future
costs and expenses incurred from and after the date of submittal of the first
development plan in proportion to the participating interest which it acquired
through exercise of the option and execute a joint operating agreement.

The two shallow oilfields on the block (Norio and Satskhenisi) are currently
producing small amounts of oil. These oilfields are currently being operated by
Georgian Oil under permission from CanArgo, the licence holder. Georgian Oil
takes the production from these fields as full payment for any costs. CanArgo is
currently reviewing the potential for economic rehabilitation of these small
fields, and if CanArgo wishes to proceed it could take over field operations and
production forthwith. As the area in which CanArgo is currently drilling is an
exploration area with no discoveries, it is not possible to estimate the
expenditures needed to discover and if discovered, produce commercial quantities
of oil and gas.

Norio Block XI(G) (Tbilisi) and Block XI(H) (Rustavi)

In November 2002, CanArgo's subsidiary, CanArgo Norio Limited (Norio), won the
tender for the oil and gas exploration and production rights to Block XI(G)
(Tbilisi) and Block XI(H) (Rustavi) in Eastern Georgia. By successfully winning
the tender, under the tender conditions issued by the Georgian State Agency for
Regulation of Oil and Gas Resources, CanArgo should be awarded a licence for
these blocks following negotiation of a Production Sharing Agreement with the
Georgian State authorities.



                                      -29-


REFINING AND OTHER ACTIVITIES

CanArgo also engages in oil and gas, refining and other activities in Georgia.
Segment and geographical information including revenue from continuing
operations from external customers, operating profit (loss) from continuing
operations and total assets is incorporated herein by reference from note 15 to
the consolidated financial statements. See also the information appearing under
the section entitled "Segment Information" on page 33.

Georgian American Oil Refinery

In September 1998, CanArgo purchased for $1,000,000 a 12.9% equity interest in
Georgian American Oil Refinery, a company which owns a small refinery located at
Sartichala, Georgia. On November 12, 2000, CanArgo acquired a further 38.1% of
the common stock of Georgian American Oil Refinery for Common Stock
consideration valued at $1,666,575. On completion of the acquisition, CanArgo
holds 51% of the common stock of Georgian American Oil Refinery and Georgian
American Oil Refinery became a subsidiary of CanArgo. Under purchase accounting,
Georgian American Oil Refinery's results have been included in CanArgo's
consolidated financial statements since the date of acquisition.

The refinery, which utilizes primarily refurbished American equipment, began
operations in July 1998 and has a design capacity of approximately 4,000 barrels
per day. Operating as a straight-run distillation unit it produces naphtha,
diesel, fuel oil and kerosene. Further product expansion is possible with the
addition of additives and or a catalytic reformer.

For much of 2001 and to date, the refinery has not been operating. Since its
acquisition, sales from the refinery have been negatively impacted by the
imposition of restrictions and subsequent excise tax on feedstock and refined
products. Although in April 2001, new legislation addressing indigenous refining
activities was passed by the Republic of Georgia that removed or reduced excise
taxes on feedstock and refined product, the refinery has since experienced
unexpected product quality concerns which has effectively curtailed the
enhancement of the basic product stream into gasoline. As a result, the refinery
can only produce straight distillation products such as naptha, diesel and mazut
and not high octane gasoline as required by petrol stations. Due to the presence
of excise tax on naphtha, there is limited economic demand for the product in
Georgia, either as a feedstock for a separate refining company or for the
blending with higher octane gasoline to produce "normal" grade gasoline for the
local market.

Currently only naptha, diesel and mazut can be produced and of these products,
an excise tax on naptha sales remains in place. As a result of these taxes and
the local market for naptha in the Republic of Georgia, CanArgo deemed
production of naptha as commercially uneconomic and suspended refining activity
in the fourth quarter of 2001. In January 2002, GAOR entered into a short-term
lease of the refinery to a third party for nominal revenue. During the lease
period, all operating costs of the refinery were borne by the lessee. This lease
expired in May 2002 and has not been renewed. CanArgo continues to monitor
demand for products allowed to be produced by the refinery and is seeking
changes to the legislation in support of indigenous refining activities,
although no assurance can be given that such changes can be made. As a result of
the uncertainty as to the ultimate recoverability of the carrying value of the
refinery, CanArgo recorded in 2001 a write-down of the refinery's property,
plant and equipment of approximately $3.5 million. The refinery is now in a care
and maintenance condition.

In 2001, Ninotsminda Oil Company sold approximately 49,055 barrels of oil to the
refinery and in 2000 sold 136,400 barrels of oil to the refinery.

Drilling Rigs and Associated Equipment

CanArgo owns several items of drilling equipment, and other related machinery
which are primarily for use in its Georgian operations. These include three
drilling rigs, pumping equipment and ancillary machinery. In addition CanArgo
owns a mobile 3 megawatt duel fuel power plant. The rigs and related equipment
are used in CanArgo's Georgian operations, and from time to time have also been
leased out to other operators on a service basis.



                                      -30-


OTHER EASTERN EUROPEAN PROJECTS

Stynawske Field, Western Region, Ukraine

In November 1996, CanArgo entered into a joint venture arrangement with the
Ukrainian state oil company, Ukrnafta, for the development of the 24 square
kilometre Stynawske field, located in Western Ukraine near the town of Stryv.
CanArgo has a 45% interest in Boryslaw Oil Company, the joint venture entity,
with Ukrnafta holding the remaining 55% interest. Ukrnafta retains rights to
base production, representing a projection of what the Stynawske field would
produce in the future, based on the physical plant and technical processes in
use at the time of license grant, on a declining basis through 2001. The joint
venture will be entitled to all incremental production above that declining
base.

Under the terms of the license Boryslaw Oil Company holds in the Stynawske
field, field operations were to be transferred to Boryslaw Oil Company effective
January 1, 1999. While negotiations continued on the transfer of the field, by
the fall of 1999 it was apparent from the length and difficulty of the
negotiations that significant uncertainty existed as to CanArgo's ability to
raise funds for the project or enter into a satisfactory farm-out agreement on a
timely basis. As a result, CanArgo recorded in the year ended December 31, 1999
an impairment charge of $5,459,793 against its investment in and advances to
Boryslaw Oil Company. CanArgo's investment in the Stynawa field was the fourth
and last significant project that was being developed by Fountain Oil
Incorporated prior to the business combination between Fountain Oil Incorporated
and CanArgo Oil & Gas Inc.

In December 2000, CanArgo reached agreement with Ukrnafta on certain commercial
arrangements and for the transfer of field operations to Boryslaw Oil Company.
To commence a three well workover programme (the Pilot Development Scheme), a
$500,000 credit facility was established for Boryslaw Oil Company in 2001 and
$550,000 advanced as a deposit against the facility. In 2001 an agreement was
reached to undertake a limited investment and development program by June 2002
in respect of Boryslaw Oil Company to increase production and to meet certain
work commitments under the Stynawske field licence. These obligations have not
been fully met, however, Boryslaw Oil Company is seeking modifications to the
licence agreement to allow a proper assessment of the workovers and development
plans completed to date. A repayment schedule of CanArgo's advances to Boryslaw
Oil Company has also been agreed of which $250,000 was repaid by September 30,
2002. Boryslaw Oil Company has so far not been given notice by the Ukrainian
licensing body of early termination of the license. CanArgo is actively seeking
to farm-out part of its interest in Boryslaw Oil Company in return for finance
to carry out the work programme. If Boryslaw Oil Company does not proceed with
the Stynawske field development programme or if an extension to the current
licence cannot be obtained, it may be in breach of obligations it has with
regard to the field license. This could place Boryslaw Oil Company's rights to
the Stynawske field at risk and substantially reduce Boryslaw Oil Company's
ability to repay amounts advanced to it by CanArgo under the credit facility and
deposit.

The following table summarizes net hydrocarbon reserves for the Pilot
Development Scheme for the Stynawske field. This information is derived from a
report as of January 1, 2002 prepared by Ashton Jenkins Mann, independent
petroleum consultants. This report is available for inspection at CanArgo's
principal executive offices during regular business hours. The reserve
information in the table below has also been filed with the Oslo Stock Exchange.



                                             OIL RESERVES -      CANARGO SHARE
MILLION BARRELS                                  GROSS               (45%)
                                            ---------------     ---------------
                                                          

         Proved Developed                               0.7                 0.3
         Proved Undeveloped                              --                  --
                                            ---------------     ---------------
         TOTAL PROVEN                                   0.7                 0.3
                                            ===============     ===============




                                             GAS RESERVES -      CANARGO SHARE
BILLION CUBIC FEET                               GROSS               (45%)
                                            ---------------     ---------------
                                                          

         Proved Developed                               4.1                 1.8
         Proved Undeveloped                              --                  --
                                            ---------------     ---------------
         TOTAL PROVEN                                   4.1                 1.8
                                            ===============     ===============




                                      -31-


For information as to the definition of proved, proved producing and proved
undeveloped reserves and considerations with respect to estimations of proved
reserves, see the description of Ninotsminda reserves.

The oil and gas price used in the report by Ashton Jenkins Mann as of January 1,
2002 was $21.50 per barrel and $0.57 per mcf respectively. No assurance can be
given that the projections included in the report by Ashton Jenkins Mann will be
realized. The evaluation by Ashton Jenkins Mann represents the efforts of Ashton
Jenkins Mann to predict the performance of the oil recovery project using their
expertise and the available data at the effective date of their report.

CanArgo has contingent obligations and may incur additional obligations,
absolute and contingent, with respect to acquiring and developing oil and gas
properties and ventures. At December 31, 2001, CanArgo had the contingent
obligation to issue an aggregate of 187,500 shares of its common stock, subject
to the satisfaction of conditions related to the achievement of specified
performance standards by the Stynawske field project.

Bugruvativske Field, Ukraine

In April 2001, CanArgo acquired approximately 82% (77% on a fully diluted basis)
of the outstanding common shares of Lateral Vector Resources Inc. ("LVR")
pursuant to an unsolicited offer to purchase all of its outstanding common
shares. According to publicly available information at the time CanArgo made its
offer in March 2001, LVR negotiated and concluded with Ukrnafta a Joint
Investment Production Activity (JIPA) agreement in 1998 to develop the
Bugruvativske Field in Eastern Ukraine. In July 2001, CanArgo completed the
acquisition of the remaining outstanding common shares and LVR became a wholly
owned subsidiary of CanArgo.

In September 2002 CanArgo agreed terms with Ukrnafta, the Ukrainian State Oil
Company, on revisions to the existing Joint Investment Production Activity
agreement (JIPA) for the development of the Bugruvativske field in Ukraine and
reached an agreement with Gals-K Limited, an unaffiliated local Ukrainian oil
and gas company on the terms of a farm-in to the JIPA. The terms of the farm-in,
arrived at in arms-length negotiations, are that the local Ukrainian oil and gas
company will invest approximately $3 million in the Bugruvativske field over the
course of 12 months in order to drill two new wells and will bear the financial
risk under the JIPA during this period. CanArgo can match up to the amount
invested by the local Ukrainian oil and gas company, prior to December 31, 2003.
Additionally, agreement has been reached with Ukrnafta, on revisions to the
commercial terms of the JIPA. The revised JIPA provides that (assuming CanArgo
matches the local Ukrainian oil and gas company's initial expenditure) the
financing risk shall be shared between CanArgo and a subsidiary of the local
Ukrainian oil and gas company, IPEC. Ukrnafta shall be entitled to 25% of all
net profits distributed to the parties to the JIPA and the remainder shall be
shared between CanArgo and IPEC. Assuming that CanArgo matches the local
Ukrainian oil and gas company's initial expenditure, CanArgo will be entitled to
approximately 34.5% of net profits generated under the JIPA (or a proportionally
smaller amount if the amount invested is less than that invested by IPEC). In
the event that CanArgo decides not to invest in the project by December 31,
2003, it will receive an ongoing project fee of between 3-4% of the net profits
generated under the JIPA in recognition of its earlier involvement in the
project. To date, CanArgo has not made any investment in the Bugruvativske field
and subsequently, hydrocarbon reserves are classified as unproved until
CanArgo's investment is made.

Both the Bugruvativske field and the Stynawske field in Western Ukraine are in
the early stage of evaluation and development and are themselves relatively new
to CanArgo and additional financing will be required to fully develop and
exploit these fields. In addition, CanArgo is in the process of establishing its
own operational and finance infrastructure in Ukraine. Establishment of this
infrastructure may result in a diversion, temporary or otherwise, of time and
other resources from other operating activities.

Potential Caspian Exploration Project

In May 1998, CanArgo led a consortium which submitted a bid in a tender for two
large exploration blocks in the Caspian Sea, located off the shore of the
autonomous Russian republic of Dagestan. The consortium was the successful
bidder in the tender and was awarded the right to negotiate licenses for the
blocks. Following



                                      -32-


negotiations, licenses were issued in February 1999 to a majority-owned
subsidiary of CanArgo. During 1999 CanArgo concluded that it did not have the
resources to progress this project. Accordingly, in November 1999, CanArgo
reduced its interest to a 9.5% in exchange for $250,000 credit to CanArgo should
additional financing or an equity partner be found for the project. Subsequent
to this, a restructuring of interests in the project took place with CanArgo
increasing its interest slightly to 10%, and with Rosneft, the Russian State
owned oil company, becoming the majority owner of the project with 75.1%.
Seismic was acquired as part of this restructuring, with CanArgo utilising its
credit, and future plans include interpretation of this data and possible
drilling.

DISCONTINUED OPERATIONS

CanArgo Standard Oil Products

In December 2000, CanArgo expanded its downstream retail business in Georgia
through an agreement to acquire an interest in several existing petrol stations
and sites in Tbilisi. These stations and sites, together with several existing
CanArgo stations, operate under the name "CanArgo Standard Oil Products", a
Georgian company in which CanArgo owns a 50% controlling interest. Of the
remaining 50%, 41.65% is held by Standard Oil Products, an unrelated third party
entity, and 8.35% is held by an individual, Mr Levan Pkhakadze, who is one of
the founders of Standard Oil Products and is an officer and director of CanArgo
Standard Oil Products.

In September 2002, CanArgo approved a plan to sell CanArgo Standard Oil Products
to finance Georgian and Ukrainian development projects and in October 2002,
CanArgo agreed to sell its 50% holding to Westrade Alliance LLC, an unaffiliated
company, for $4 million in an arms-length transaction, with legal ownership
being transferred upon receipt of final payment due in August 2003. Discontinued
Operation activity is incorporated herein by reference from note 14 to the
consolidated financial statements.

CanArgo originally moved into the retail gasoline sector in Georgia in April
2000 with the formation of CanArgo Standard Oil Products. The original objective
of CanArgo was to create a premium chain of petroleum product outlets. In
February 2002, CanArgo Standard Oil Products had 14 sites in operation with five
further sites under construction. CanArgo Standard Oil Products has a total of
23 licences/sites in its portfolio and expects to have all locations in
operation by the end of 2002.

CanArgo Standard Oil Products sells several different grades of petrol to a
broad range of corporate and retail customers. No one customer purchases more
than 10% of total sales.

SEGMENT INFORMATION

During the year ended December 31, 1999 CanArgo operated through one business
segment, oil and gas exploration and production. In 2000, CanArgo expanded its
oil and gas exploration and production activities to include the refining of
crude oil and crude oil products. Operating revenues from continuing operations
for the years ended December 31, 2001, 2000 and 1999 by business segment and
geographical area were as follows:



                                      DECEMBER 31,      DECEMBER 31,     DECEMBER 31,
OPERATING REVENUES FROM CONTINUING    ------------      ------------     ------------
OPERATIONS:                               2001              2000             1999
                                      ------------      ------------     ------------
                                                                
OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION
  Eastern Europe                      $  4,873,623      $  6,108,779     $  2,274,524
  Canada                                        --                --          219,088
                                      ------------      ------------     ------------
                                         4,873,623         6,108,779        2,493,612
REFINING
  Eastern Europe                         2,595,763           535,865               --

INTERSEGMENT ELIMINATIONS                 (906,545)               --               --
                                      ------------      ------------     ------------
TOTAL                                 $  6,562,841      $  6,644,644     $  2,493,612
                                      ============      ============     ============




                                      -33-


In 2001, the Company sold its oil and gas production in Eastern Europe to five
(2000 - five, 1999 - five) customers. In 2001 sales to three third party
customers, Caspian Trading, MS and Rustavi Cement Plant represented 67%, 12% and
12% of oil and gas revenue respectively. In 2000 sales to three customers,
Georgian American Oil Refinery, MS and Caspian Trading represented 43%, 25% and
14% of oil and gas revenue respectively. In 1999 sales to three customers,
PetroTrade, Georgian American Oil Refinery and Sinan Madenchilik represented
38%, 34% and 11% of oil and gas revenue respectively.

Operating profit (loss) from continuing operations for the years ended December
31, 2001, 2000 and 1999 by business segment and geographical area were as
follows:



                                        DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
OPERATING PROFIT (LOSS) FROM            ------------      ------------      ------------
CONTINUING OPERATIONS:                      2001              2000              1999
                                        ------------      ------------      ------------
                                                                   
OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION
  Eastern Europe                        $ (6,630,886)     $    871,896      $ (6,154,404)
  Canada                                          --                --            (7,926)
                                        ------------      ------------      ------------
                                          (6,630,886)          871,896        (6,162,330)
REFINING AND MARKETING
  Eastern Europe                          (4,683,563)         (298,255)               --

CORPORATE AND OTHER EXPENSES              (4,793,047)       (2,974,791)       (1,957,020)
                                        ------------      ------------      ------------
TOTAL                                   $(16,107,496)     $ (2,401,150)     $ (8,119,350)
                                        ============      ============      ============


As a result of application of the ceiling test limitation, CanArgo recorded a
write-down in 2001 of oil and gas properties of $7,300,000. In 2001, refining
assets and generating equipment were written-down to their estimated net
realizable value by $3,359,795 and $500,000 respectively. The write-down of oil
and gas properties and generating equipment was recorded in operating profit
(loss) for oil and gas, exploration and production. The write-down of refining
assets was recorded in profit (loss) for refining and marketing activities.

Identifiable assets as of December 31, 2001 and 2000 by business segment and
geographical area were as follows:



                                                          DECEMBER 31,     DECEMBER 31,
                                                              2001             2000
                                                          ------------     ------------
                                                                     
         CORPORATE
           Eastern Europe                                 $  3,926,930     $    668,337
           Western Europe (principally cash)                 7,310,678       30,900,438
                                                          ------------     ------------
         TOTAL CORPORATE                                    11,237,608       31,568,775
                                                          ------------     ------------

         OIL AND GAS EXPLORATION,
         DEVELOPMENT AND PRODUCTION
           Eastern Europe                                   52,424,569       45,957,601

         REFINING AND MARKETING
           Eastern Europe                                      110,850        3,891,516

         DISCONTINUED OPERATIONS
            Eastern Europe                                   5,819,582          735,138

         OTHER ENERGY PROJECTS
           Eastern Europe                                      719,308          606,010
           Canada                                                   --           90,364
                                                          ------------     ------------
         TOTAL OTHER ENERGY PROJECTS                        70,311,917          696,374
                                                          ------------     ------------

         TOTAL IDENTIFIABLE ASSETS                        $ 70,311,917     $ 82,849,404
                                                          ============     ============



                                      -34-


COMPETITION

The oil and gas industry is highly competitive. CanArgo encounters competition
from other oil and gas companies in all phases of its operations, including:

o        the acquisition of producing properties;

o        obtaining scarce resources and services including oil field services;
         and

o        the sale of crude oil and refined products.

CanArgo's competitors include integrated oil and gas companies, independent oil
and gas companies, individuals and drilling and income programs. Many of these
competitors are large, well-established companies with substantially larger
operating staffs and greater capital resources than CanArgo and which, in many
instances, have been engaged in the energy business for a much longer time than
CanArgo. Such competitors may be able to outperform CanArgo on a number of
dimensions including:

o        development of information;

o        analysis of available information;

o        ability to pay for productive oil and gas properties and exploratory
         prospects;

o        commitment of resources to define, evaluate, bid for and purchase oil
         and gas properties and prospects;

o        ability to operate refining activities at a lower cost per unit of
         throughput and to guarantee supply of refined products

o        ability to source, transport and sell refined product at a lower cost
         per unit

In the competition to acquire oil and gas properties, CanArgo has and continues
to rely substantially on the relationships its officers and directors have
developed in the international oil and gas industry and in its areas of
operation and interest. CanArgo's management believes that CanArgo's relatively
small size has enabled it to consider projects that would be deemed to be too
small for consideration by many larger competitors.

With respect to marketing and refining activities, several small refineries are
believed to be in operation in Georgia which are not in compliance with Georgian
requirements to remit excise tax on naptha sales. In addition, both unrefined
and refined products are believed to be smuggled into Georgia which when
processed or sold compete for market share with products sold by CanArgo. At the
retail level, several large competitors such as Iber Company, Lukoil and
TransExpress Ltd. compete with CanArgo Standard Oil Products at several levels
including brand recognition, price and location.

GOVERNMENTAL AUTHORIZATIONS

CanArgo's business in Eastern Europe operates pursuant to licenses, concession
agreements or other authorizations granted by the local governmental
authorities. In the case of CanArgo's exploration and development activities,
the most significant requirement of each license is the drilling of at least one
well within a specified time in order to maintain the licence. These
authorizations also impose various other requirements upon CanArgo, either
directly or indirectly, however, they are not material and are usually
administrative in nature. The failure to satisfy the requirements of any
authorization could result in its termination or cancellation. In addition, as
sovereign agencies, the governmental authorities that have granted
authorizations may have greater power than private parties to terminate such
authorizations arbitrarily. Loss of such authorizations could have a material
adverse effect upon the financial condition, results of operations, cash flows
and prospects of CanArgo.

ENVIRONMENTAL AND REGULATORY MATTERS

Under the terms of its three PSC's in Georgia CanArgo is responsible for site
restoration and abandonment costs. The development of oil and gas fields and the
production of hydrocarbons inherently involve environmental risks.



                                      -35-


These risks can be minimized, but not eliminated, through use of various
engineering and other technological methods, and CanArgo intends to employ such
methods to industry standards. The potential environmental problems are enhanced
when the oil and gas development and production activities involve the
rehabilitation of fields where the practices and technologies employed in the
past have not embodied the highest standards then in effect, which has been the
case in the Eastern European oil fields in which CanArgo has commenced
operations.

Outside of the requirements of its three PSC's, the Petroleum Law is the primary
legislation affecting CanArgo's activities in Georgia, although the Petroleum
Law imposes no additional requirements above those already contained and adhered
to in each individual PSC. CanArgo is also subject to various other national,
provincial, state and local laws and regulations relating to the exploration for
and the development, production and transportation of oil, natural gas and
refined products, as well as environmental and safety matters. Many of these
laws and regulations have become more stringent in recent years, imposing
greater liability on a larger number of potentially responsible parties. In
addition, CanArgo expects the trend towards more burdensome regulation of its
business to result in increased costs and operational delays. CanArgo believes
it has complied in all material respects with these laws and regulations.
Because the requirements imposed by such laws and regulations are frequently
changed, CanArgo is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations. While CanArgo is currently not
subject to any specific statutes or regulations outside of the various national,
local and other laws and regulations to which it must comply, no assurance can
be given that special regulations will not be enacted which could have a
material effect on operations.

LEGAL PROCEEDINGS

CanArgo has contingent obligations and may incur additional obligations,
absolute and contingent, with respect to acquiring, developing and operating oil
and gas properties and ventures. From time to time CanArgo and its operating
subsidiaries may also be subject to legal proceedings in the ordinary course of
business. At this time CanArgo is not party to any such material proceedings and
no such proceedings are known by CanArgo to be contemplated by any governmental
authority.

FUTURE STOCK ISSUANCES AND THE PROVISIONS OF DELAWARE LAW

As of July 31, 2002, we had 150,000,000 shares of common stock and 5,000,000
shares of preferred stock authorized, of which 97,356,206 shares of common stock
were outstanding. Our Board of Directors may at any time issue additional shares
of preferred stock and common stock without any prior approval by the
stockholders, which might impair or impede a third party from making an offer to
acquire us. In addition, the Board of Directors may designate the rights and
privileges of a series of preferred stock, which rights and privileges may
impair or impede a third party takeover of CanArgo. Holders of outstanding
shares have no preemptive right to purchase a pro rata portion of additional
shares of common or preferred stock issued by us. In addition, the provisions of
Section 203 of the Delaware General Corporation Law, to which we are subject,
places certain restrictions on third parties who seek to effect a business
combination with a company opposed by the company's Board of Directors.

THE PRICE OF OUR COMMON STOCK MAY BE SUBJECT TO WIDE FLUCTUATIONS

The market price of our common stock could be subject to wide fluctuations in
response to quarterly variations in the Company's results of operations, changes
in earnings estimates by analysts, changing conditions in the oil and gas
industry or changes in general market or economic conditions.

DIVIDENDS

We have not paid any cash dividends to date on the common stock and there are no
plans for such dividend payments in the foreseeable future.

EMPLOYEES

As of December 31, 2001, CanArgo had 235 full time employees. Of its full time
employees, the entity acting as operator of the Ninotsminda oil field for
Ninotsminda Oil Company has 114 full time employees, and substantially



                                      -36-


all of that company's activities relate to the production and development of the
Ninotsminda field. CanArgo Standard Oil Products has 101 full time employees at
its office and petrol stations.






                                      -37-


           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

The following discussion should be read together with CanArgo's consolidated
financial statements, which appear in this prospectus.

LIQUIDITY AND CAPITAL RESOURCES

In November and December 2000 respectively, CanArgo expanded its oil and gas
exploration and development activities with the acquisition of a controlling
interest in a refinery for common share consideration in the amount of
$1,667,000 and investment in a chain of petrol stations all located in and
around Tbilisi, the capital of Georgia. In April 2001, CanArgo acquired Lateral
Vector Resources Inc. ("LVR") for total cash consideration of $3,421,000 which
according to publicly available information at the time had concluded with
Ukrnafta a Joint Investment Production Activity (JIPA) agreement to develop the
Bugruvativske Field in Eastern Ukraine. Funding for the LVR acquisition was
provided from existing cash resources.

As of December 31, 2001, CanArgo had working capital from continuing operations
of $9,948,000, compared to working capital from continuing operations of
$22,587,000 as of December 31, 2000. The $12,639,000 decrease in working capital
from continuing operations from December 31, 2000 to December 31, 2001 is
principally due to a reduction in cash as a result of cash used in operations,
capital and operating expenditures.

Cash used in continuing operations in 2001 was $12,364,000 compared to cash from
continuing operations in 2000 of $7,881,000 in 2000. Cash used in continuing
operations increased significantly due to the acquisition of LVR and the use of
cash received from AES related to CanArgo's exploration programme in Georgia.

On February 12, 2002, CanArgo completed a private placement of 5,210,000 common
shares at NOK 2.95 per share (approximately US$0.33 per share) to certain
institutions and qualified purchasers for gross proceeds of approximately
$1,719,000.

As of September 30, 2002, CanArgo had working capital from continuing operations
of $1,658,000 compared to working capital from continuing operations of
$9,948,000 as of December 31, 2001. The $8,290,000 decrease in working capital
from continuing operations from December 31, 2001 to September 30, 2002 is
principally due to a reduction in cash and prepayments related to capital
expenditures on the Ninotsminda, Manavi and Norio projects.

As a result of unexpected mechanical difficulties drilling exploration wells M11
and MK72 and delays in testing well N100, capital expenditures have exceeded
initial estimates and production volumes available for sale are less than
anticipated. These events have resulted in lower than expected cash resources
from which CanArgo can continue its development activities in Georgia. In order
to preserve available cash resources while still maintaining essential field
operations and development activities in Georgia, a significant cost reduction
plan is being implemented. Both direct project and general and administrative
costs are to be reduced. CanArgo's management believes that these reductions
together with a prepayment on the sale of crude oil, the selective sale of
certain non-core assets including CanArgo's generator and a portion or all of
CanArgo's drilling equipment should provide CanArgo the working capital
necessary to cover CanArgo's immediate and near term funding requirements with
respect to its activities in the Republic of Georgia. Provided funds are
available, immediate and near term development plans include the completion of
testing of well N100 and the continued drilling of wells M11 and Norio MK72, two
deep exploration wells. CanArgo has temporarily suspended further drilling of
well M11 below its current casing point at 4,182 metres in order to fully review
available technical data, and to estimate the cost to complete the well. Norio
MK72, has been cased at a depth of 2,932 metres in the Lower Sarmatian. Farm-in
partners are currently being sought to provide additional capital for completing
these wells.

In September 2002 CanArgo agreed terms with Ukrnafta, the Ukrainian State Oil
Company, on revisions to the existing Joint Investment Production Activity
agreement (JIPA) for the development of the Bugruvativske field in Ukraine and
reached an agreement with Gals-K Limited, an unaffiliated local Ukrainian oil
and gas company on the terms of a farm-in to the JIPA. The terms of the farm-in,
arrived at in arms-length negotiations, are that the local Ukrainian oil and gas
company will invest approximately $3 million in the Bugruvativske field over the
course of 12 months in order



                                      -38-


to drill two new wells and will bear the financial risk under the JIPA during
this period. CanArgo can match up to the amount invested by the local Ukrainian
oil and gas company, prior to December 31, 2003. Additionally, agreement has
been reached with Ukrnafta, on revisions to the commercial terms of the JIPA.
The revised JIPA provides that (assuming CanArgo matches the local Ukrainian oil
and gas company's initial expenditure) the financing risk shall be shared
between CanArgo and a subsidiary of the local Ukrainian oil and gas company,
IPEC. Ukrnafta shall be entitled to 25% of all net profits distributed to the
parties to the JIPA and the remainder shall be shared between CanArgo and IPEC.
Assuming that CanArgo matches the local Ukrainian oil and gas company's initial
expenditure, CanArgo will be entitled to approximately 34.5% of net profits
generated under the JIPA (or a proportionally smaller amount if the amount
invested is less than that invested by IPEC). In the event that CanArgo decides
not to invest in the project by December 31, 2003, it will receive an ongoing
project fee of between 3-4 % of the net profits generated under the JIPA in
recognition of its earlier involvement in the project.

In September 2002, CanArgo approved a plan to sell CanArgo Standard Oil Products
to finance Georgian and Ukrainian development projects and in October 2002,
CanArgo agreed to sell its 50% holding to Westrade Alliance LLC, an unaffiliated
company, for $4 million in an arms-length transaction, with legal ownership
being transferred upon receipt of final payment due in August 2003. The agreed
consideration to be exchanged does not result in an impairment of the carrying
value of assets held for sale.

In 2001 an agreement was reached to undertake a limited investment and
development program by June 2002 in respect of Boryslaw Oil Company to increase
production and to meet certain work commitments under the Stynawske field
licence. These obligations have not been fully met, however, Boryslaw Oil
Company is seeking modifications to the licence agreement to allow a proper
assessment of the workovers and development plans completed to date. A repayment
schedule of CanArgo's advances to Boryslaw Oil Company has also been agreed of
which $250,000 was repaid at September 30, 2002. Boryslaw Oil Company has so far
not been given notice by the Ukrainian licensing body of early termination of
the license. CanArgo is actively seeking to farm-out part of its interest in
Boryslaw Oil Company in return for financing to carry out the work programme. If
Boryslaw Oil Company does not proceed with the Stynawske field development
programme or if modifications to the current licence agreement cannot be
obtained, it may be in breach of obligations it has with regard to the field
license and an impairment charge against CanArgo's investment in and advances to
Boryslaw Oil Company may be required.

Despite limited funding an assessment of both the Bugruvativske and Stynawske
fields and preparation of a development program with Ukrnafta continues. Based
on its efforts to date and should funding be available, CanArgo plans to
significantly increase production from these fields by investing in both
remedial workover activity and potential infill drilling, horizontal drilling
and pressure maintenance utilising appropriate technologies.

While a considerable amount of infrastructure for the Ninotsminda, Bugruvativske
and Stynawske fields has already been put in place, CanArgo cannot provide
assurance that:

         o        for the Bugruvativske and Stynawske fields, an adequate
                  investment agreement and development plan can be put in place;

         o        funding of field development plans will be timely;

         o        that development plans will be successfully completed or will
                  increase production; or

         o        that field operating revenues after completion of the
                  development plan will exceed operating costs.

To pursue existing projects beyond CanArgo's immediate development plan and to
pursue new opportunities, CanArgo will require additional capital. While
expected to be substantial, without further exploration work and evaluation the
exact amount of funds needed to fully develop all of our oil and gas properties
cannot at present, be quantified. Potential sources of funds include additional
equity, project financing, debt financing and the participation of other oil and
gas entities in CanArgo's projects. Based on CanArgo's past history of raising
capital and continuing discussions including those with major stockholders,
investment bankers and other institutions, CanArgo believes that such required
funds may be available. However, there is no assurance that such funds will be
available, and if available, will be offered on attractive or acceptable terms.
Should such funding not be forthcoming and CanArgo be unable to sell some or all
of its non-core assets, further cost reductions will be required in order for
CanArgo to remain a going concern.



                                      -39-


Development of the oil and gas properties and ventures in which CanArgo has
interests involves multi-year efforts and substantial cash expenditures. Full
development of CanArgo's oil and gas properties and ventures will require the
availability of substantial additional financing from external sources. CanArgo
may also, where opportunities exist, seek to transfer portions of its interests
in oil and gas properties and ventures to entities in exchange for such
financing. CanArgo generally has the principal responsibility for arranging
financing for the oil and gas properties and ventures in which it has an
interest. There can be no assurance, however, that CanArgo or the entities that
are developing the oil and gas properties and ventures will be able to arrange
the financing necessary to develop the projects being undertaken or to support
the corporate and other activities of CanArgo. There can also be no assurance
that such financing as is available will be on terms that are attractive or
acceptable to or are deemed to be in the best interest of CanArgo, such entities
and their respective stockholders or participants.

Ultimate realization of the carrying value of CanArgo's oil and gas properties
and ventures will require production of oil and gas in sufficient quantities and
marketing such oil and gas at sufficient prices to provide positive cash flow to
CanArgo. Establishment of successful oil and gas operations is dependent upon,
among other factors, the following:

o        mobilization of equipment and personnel to implement effectively
         drilling, completion and production activities;

o        achieving significant production at costs that provide acceptable
         margins;

o        reasonable levels of taxation, or economic arrangements in lieu of
         taxation in host countries; and

o        the ability to market the oil and gas produced at or near world prices.

Subject to the raising of additional capital, above, CanArgo has plans to
mobilize resources and achieve levels of production and profits sufficient to
recover the carrying value of its oil and gas properties and ventures. However,
if unforeseen circumstances occur or one or more of the above factors, or other
factors, are different than anticipated, these plans may not be realized, and
CanArgo may not recover the carrying value of its oil and gas properties and
ventures. CanArgo should be entitled to distributions from the various
properties and ventures in which it participates in accordance with the
arrangements governing the respective properties and ventures.

STATEMENT OF CASH FLOWS

All balances represent results from continuing operations, unless disclosed
otherwise.

Cash and cash equivalents decreased $23,806,000 from $29,697,000 at December 31,
2000 to $5,891,000 at December 31, 2001. The decrease was primarily due to the
cost of the Cretaceous exploration programme currently underway in Georgia,
workovers, expansion of marketing activities and the acquisition of LVR. The
December 2000 closing cash position was high due to the timing of proceeds
received from the 2000 private placements.

Cash and cash equivalents decreased by $4,181,000 to $1,710,000 at September 30,
2002 from $5,891,000 at December 31, 2001. The decrease was primarily due to the
cost of the Manavi and Norio exploration programmes in Georgia.

Operating Activities

Net cash used in operating activities in the year ended December 31, 2001 was
$12,364,000 compared to net cash generated from operating activities in 2000 of
$7,881,000. Cash used in operating activities increased primarily due to the use
of cash received from AES Gardabani with respect to its participation in a three
well exploration programme, increases in accounts receivable and decreases in
accounts payable.

Net cash generated by operating activities in the nine month period ended
September 30, 2002 was $1,183,000 compared to net cash used in operating
activities in the nine month period ended September 30, 2001 of $9,996,000.



                                      -40-


Cash generated by operating activities increased primarily due to the use in
2001 of cash received from AES Gardabani with respect to its participation in a
three well exploration programme.

Accounts receivable increased from $317,000 at December 31, 2000 to $2,007,000
at December 31, 2001. The increase is primarily a result of accounts receivable
generated from oil, natural gas and refined product sales in 2001, rental income
due from the lease of one of CanArgo's drilling rigs to a third party and
$1,000,000 due from AES Gardabani relating to the announced termination of their
participation in a planned three well exploration programme in the Republic of
Georgia. Formal documentation, while completed, is not binding until such time
as payment of the $1,000,000 termination fee is made. Should AES Gardabani not
comply with the terms of the Termination Agreement, then CanArgo may at its sole
option seek further compensation from AES for the full amount of AES's share of
exploration costs under the original Participation Agreement. Prior to the
announcement of the termination of the Participation Agreement, AES owed
approximately $2,725,000 for its share of costs to January 31, 2002. The
residual balance of $1,725,000 has been classified within unproved oil and gas
properties.

Accounts receivable decreased by $1,386,000 to $621,000 at September 30, 2002
from $2,007,000 at December 31, 2001. The decrease is primarily a result of the
receipt of $1,000,000 from AES relating to the termination of AES's
participation in a three well exploration programme, and an increase in
allowance for a doubtful debt of $275,000, generated from gas sales to the
Rustavi Plant in Georgia in 2000.

Prepayments increased from $686,000 at December 31, 2000 to $2,236,000 at
December 31, 2001 primarily as a result of increased prepaid expenditures to
suppliers related to the Cretaceous and Norio exploration programmes.

Prepayments decreased by $1,789,000 to $447,000 at September 30, 2002 from
$2,236,000 at December 31, 2001 primarily as a result of receipt of materials
and services related to CanArgo's exploration activities transferred to capital
assets in the period. This decrease is included in the statement of cash flows
as an investing activity.

Other currents assets increased from $201,000 at December 31, 2000 to $698,000
at December 31, 2001 as a result of the reclassification of power generating
equipment held for resale as a current asset.

Inventory decreased from $668,000 at December 31, 2000 to $406,000 at December
31, 2001 primarily as result of the sale of refined product inventory following
the suspension of operations at Georgian American Oil Refinery. At December 31,
2001, the majority of inventory relates to approximately 77,000 barrels of oil
held in storage by Ninotsminda Oil Company at December 31, 2001 for sale to the
Georgian domestic, region or international market.

Inventory decreased by $208,000 to $198,000 at September 30, 2002 from $406,000
at December 31, 2001 primarily as result of the sale of oil by Ninotsminda Oil
Company from storage. Approximately 36,000 barrels of oil were held in storage
by Ninotsminda Oil Company at September 30, 2002 for sale to the Georgian
domestic, region or international market.

Accounts payable decreased to $828,000 at December 31, 2001 from $2,684,000 at
December 31, 2000 primarily as a result of payments in 2001 of liabilities at
December 31, 2000 related to the 2000 Norio seismic programme.

Accounts payable decreased to $780,000 at September 30, 2002 from $828,000 at
December 31, 2001 primarily due to an absolute fall in corporate payables.

Deferred revenue of $1,000,000 at September 30, 2002 relates to a 12 month crude
oil sales agreement for Ninotsminda Oil Company to sell its monthly share of oil
produced under the Ninotsminda production sharing contract. As security over
payment the buyer provided $1 million to be repaid by Ninotsminda Oil Company at
the end of the twelve month period through the delivery of crude oil equal to
the value of the security.

Accrued liabilities decreased to $400,000 at December 31, 2001 from $409,000 at
December 31, 2000 as identified in note 7 to the consolidated financial
statements.



                                      -41-


Accrued liabilities decreased by $177,000 to $223,000 at September 30, 2002 from
$400,000 at December 31, 2001 primarily due to a reduction in accrued
professional fees, and liabilities relating to the winding up of East Georgian
Pipeline Company.

Advances from joint venture partner decreased to nil at December 31, 2001
compared to $5,889,000 at December 31, 2000 as capital expenditures were
incurred under the proposed three well exploration programme with AES Gardabani
in the Republic of Georgia. In 2002 the Participation Agreement with AES
Gardabani was terminated and the agreed settlement amount of $1,000,000 is
included in accounts receivable at December 31, 2001.

Investing Activities

Net cash used in investing activities increased to $17,189,000 in the year ended
December 31, 2001 from $12,230,000 in the year ended December 31, 2000. The
increase in cash used in investing activities was primarily due to capital
expenditures related to the Ninotsminda field and the acquisition of LVR.

Net cash used in investing activities decreased to $8,066,000 in the nine month
period ended September 30, 2002 from $13,814,000 in the nine month period ended
September 30, 2001. The decrease in cash used in investing activities was
primarily due to a greater number of workovers in the first nine months of 2001
compared to 2002 and the acquisition in 2001 of LVR.

Capital assets, net increased from $49,849,000 at December 31, 2000 to
$52,535,000 at December 31, 2001, primarily as a result of investment of
$11,117,000 in capital assets including oil and gas properties and equipment,
principally related to the Ninotsminda field. Capital assets also increased as a
result of the acquisition of LVR and CanArgo Power in April 2001. During 2001,
CanArgo wrote down its oil and gas properties in the Ninotsminda field by an
aggregate $7,300,000 on application of the full cost ceiling test as a result of
a decline in Brent oil prices at December 31, 2001, lower reserve quantities
following production declines in 2001 and reduced development plans. If oil
prices or production levels further decline, CanArgo may experience additional
impairment of this property. As a result of both product stability and continued
difficulties addressing excise taxes on refined products, refinery and related
equipment was written-down by $3,360,000 to reflect, under current conditions,
the estimated net recoverable amount of the refinery. While efforts to change
the current excise tax regime as well other opportunities to utilize the
refinery are being pursued, no assurance can be given that these activities will
be successful. CanArgo further wrote-down during 2001, other oil and gas related
equipment by $500,000 following a decision to dispose of a power generating unit
which CanArgo has identified as surplus to its existing requirements. This
write-down is classified in the statement of operations within Impairment of
other assets.

Capital assets, net increased to $61,155,000 at September 30, 2002 from
$52,535,000 at December 31, 2001, primarily as a result of investment of
$10,055,000 in capital assets including oil and gas properties and equipment,
principally related to the Ninotsminda and Norio production sharing contracts.

Investments in and advances to oil and gas and other ventures, net increased
from $696,000 at December 31, 2000 to $719,000 at December 31, 2001. The
increase is primarily due to advances to Boryslaw Oil Company of $550,000
relating to a three well workover programme on the Stynawske field partially
offset by the sale in April 2001 of CanArgo's investment in Uentech and the
purchase of a 50% interest in CanArgo Power resulting in CanArgo Power becoming
a wholly owned subsidiary of CanArgo.

Investments in and advances to oil and gas and other ventures, net decreased to
$631,000 at September 30, 2002 from $719,000 at December 31, 2001. The decrease
reflects repayments by Boryslaw Oil Company of CanArgo's advances in 2001
partially offset by an increase in equity income related to CanArgo's investment
in Boryslaw Oil Company.

Financing Activities

Cash from financing activities decreased to $8,974,000 for the year ended
December 31, 2001 from $31,143,000 for the year ended December 31, 2000 due
primarily to fewer sales of common stock partially offset by an increase in
advances from minority shareholders.



                                      -42-


Cash from financing activities decreased to $3,003,000 for the nine month period
ended September 30, 2002 from $8,528,000 for the nine month period ended
September 30, 2001 due primarily to the proceeds from the sale of common stock
in 2001.

In July 2001, CanArgo closed a private placement of 16,057,765 new shares at NOK
4.25 per share (approximately US$0.45 per share) to certain institutions and
qualified purchasers. Gross proceeds from the placement were some NOK 68 million
(approximately US$7.2 million). From the net proceeds, CanArgo was required to
pay subscribers to the private placement a cash fee of 3.33% of the purchase
price of their shares for each full 30 day period after closing until a
registration statement registering such shares was declared effective by the
Securities and Exchange Commission. The cash fee paid was 3.33% of the purchase
price.

On February 12, 2002, CanArgo completed an offering of 5,210,000 common shares
at NOK 2.95 per share (approximately US$0.33 per share) to certain institutions
and qualified purchasers for gross proceeds of approximately $1,762,000 in
transactions intended to qualify for an exemption from registration under the
Securities Act of 1933 afforded by Regulation S promulgated thereunder.

On May 28, 2002, CanArgo completed an offering of 137,760 common shares at NOK
1.68 per share (approximately US$0.21 per share) to David Robson, CanArgo's
Chief Executive Officer, for gross proceeds of approximately $29,000 in
transactions intended to qualify for an exemption from registration under
Section 4(2) of the Securities Act of 1933 afforded by Regulation S promulgated
thereunder.. The shares have not been registered under the Securities Act of
1933 and are "restricted" as that term is defined in Rule 144 under the
Securities Act. The shares may not be offered for sale, sold or otherwise
transferred except pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from registration under the
Securities Act, the availability of which is to be established to the
satisfaction of CanArgo.

Minority shareholder advances as at December 31, 2001 related to the receipt of
convertible loans from new minority shareholders of CanArgo's subsidiary,
CanArgo Norio Limited (Norio). The cash amount received represented part of the
new minority shareholder's share of the cost of drilling an exploration well
under the Norio and North Kumisi production sharing agreement. In November 2002,
CanArgo reached agreement with the other shareholders in Norio on increasing
CanArgo's interest in Norio. Under the agreement CanArgo's interest increased
from 50% to 64% in Norio and its existing Norio and North Kumisi production
sharing agreement. Subsequently, the convertible loans have been reclassified as
minority interest on finalisation of respective equity shares.

Minority interest in continuing and discontinued subsidiaries increased to
$1,531,000 at December 31, 2001 compared to $1,394,000 at December 31, 2000
primarily as a result of CanArgo Standard Oil Products in Tbilisi, Georgia and
related investment of $1,932,000 by CanArgo's partners in this venture.

Minority interest in continuing and discontinued subsidiaries increased by
$1,826,000 to $3,357,000 at September 30, 2002 from $1,531,000 at December 31,
2001 due to the reclassification of $1,207,000 from minority shareholder
advances resulting from finalisation of CanArgo's equity interest from 50% to
64% in Norio and its existing Norio and North Kumisi production sharing
agreement, an increase of $444,000 resulting from CanArgo's adjusted interest in
its final share of the carrying net asset value of Norio, and minority interest
shareholder's share of income in the period.

Discontinued Operations

Assets of subsidiary held for sale, as a result of discontinued operations,
increased by $5,085,000 to $5,820,000 at December 30, 2001 from $735,000 at
December 31, 2000 primarily due to activity at CanArgo Standard Oil Products
relating to the addition of new petrol stations in Georgia.

Assets of subsidiary held for sale, of discontinued operations, increased by
$1,527,000 to $7,347,000 at September 30, 2002 from $5,820,000 at December 31,
2001 primarily due to activity at CanArgo Standard Oil Products relating to the
addition of new petrol stations in Georgia.



                                      -43-


Liabilities of subsidiaries held for sale, of discontinued operations, increased
by $1,170,000 to $1,177,000 at December 30, 2001 from $7,000 at December 31,
2000 primarily due to additional bank loans drawn by CanArgo Standard Oil
Products in Tbilisi at an effective interest rate of 18% per annum, in order to
fund the construction of new petrol stations in Georgia.

Liabilities of subsidiaries held for sale, of discontinued operations, increased
by $1,055,000 to $2,232,000 at September 30, 2002 from $1,177,000 at December
31, 2001 primarily due to additional bank loans drawn by CanArgo Standard Oil
Products in Tbilisi at an effective interest rate of 18% per annum, in order to
fund the construction of new petrol stations in Georgia.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL TERMS

Our principal business and assets are derived from production sharing contracts
in the Republic of Georgia. The legislative and procedural regimes governing
production sharing contracts and mineral use licenses in Georgia have undergone
a series of changes in recent years resulting in certain legal uncertainties.

Our production sharing contracts and mineral use licenses, entered into prior to
the introduction in 1999 of a new Petroleum Law governing such agreements have
not, as yet, been amended to reflect or ensure compliance with current
legislation. As a result, despite references in the current legislation
grandfathering the terms and conditions of our production sharing contracts,
conflicts between the interpretation of our production sharing contracts and
mineral use licenses and current legislation could arise. Such conflicts, if
they arose, could cause an adverse effect on our rights under the production
sharing contracts. However the Norio (Block XIc) and North Kumisi Production
Sharing Agreement was concluded after enactment of the Petroleum Law, and under
the terms and conditions of this legislation.

To confirm that the Ninotsminda production sharing contract and the mineral
usage license issued prior to the introduction in 1999 of the Petroleum Law were
validly issued, in connection with its preparation of the Convertible Loan
Agreement with us, the International Finance Corporation, an affiliate of the
World Bank received in November 1998 confirmation from the State of Georgia,
that among other things:

o        The State of Georgia recognizes and confirms the validity and
         enforceability of the production sharing contract and the license and
         all undertakings the State has covenanted with Ninotsminda Oil Company
         thereunder;

o        the license was duly authorized and executed by the State at the time
         of its issuance and remained in full force and effect throughout its
         term; and

o        the license constitutes a valid and duly authorized grant by the State,
         being and remaining in full force and effect as of the signing of this
         confirmation and the benefits of the license fully extend to
         Ninotsminda Oil Company by virtue of its interest in the license holder
         and the contractual rights under the production sharing contract.

Despite this confirmation and the grandfathering of the terms of our production
sharing contract in the Petroleum Law, subsequent legislative or other
governmental changes could conflict with, challenge our rights or otherwise
change current operations under the production sharing contract.

CanArgo has contingent obligations and may incur additional obligations,
absolute or contingent, with respect to the acquisition and development of oil
and gas properties and ventures in which it has interests that require or may
require CanArgo to expend funds and to issue shares of its Common Stock.

At September 30, 2002, CanArgo had a contingent obligation to issue 187,500
shares of common stock to a third party upon satisfaction of conditions relating
to the achievement of specified Stynawske field project performance standards.
As CanArgo develops current projects and undertakes other projects, it could
incur significant additional obligations.

Current drilling obligations with respect to CanArgo's oil and gas properties
include, under the third phase of the preliminary work programme for the
Nazvrevi/Block XIII production sharing contract, the drilling of one well,



                                      -44-


unless CanArgo decides to terminate the contract. There is no depth or financial
commitment relating to this well. The second phase of the preliminary work
programme under the Norio and North Kumisi production sharing agreement
commenced in January 2002 with the first exploration well at an estimated cost
of up to $4.4 million of which CanArgo's estimated share of costs is $3.2
million. The State Agency for Oil and Gas Regulations in Georgia has confirmed
that CanArgo has satisfied all drilling and work obligations under the terms of
the Norio and Kumisi production sharing agreement. The well is currently
suspended while CanArgo actively seeks partners for funding to deepen the well
to the target zone.

The shareholders agreement with the other shareholder of Norio calls for a bonus
payment of $800,000 to be paid by CanArgo should commercial production be
obtained from the Middle Eocene or older strata and a second bonus payment of
$800,000 should production from the Block from the Middle Eocene or older strata
exceed 250 tonnes of oil per day over any 90 day period.

In 2001 an agreement was reached to undertake a limited investment and
development program by June 2002 in respect of Boryslaw Oil Company to increase
production and to meet certain work commitments under the Stynawske field
licence. These obligations have not been fully met, however, Boryslaw Oil
Company is seeking modifications to the licence agreement to allow a proper
assessment of the workovers and development plans completed to date. A repayment
schedule of CanArgo's advances to Boryslaw Oil Company has also been agreed of
which $250,000 was repaid by September 30, 2002. Boryslaw Oil Company has so far
not been given notice by the Ukrainian licensing body of early termination of
the license. CanArgo is actively seeking to farm-out part of its interest in
Boryslaw Oil Company in return for finance to carry out the work programme. If
Boryslaw Oil Company does not proceed with the Stynawske field development
programme or if modifications to the current licence agreement cannot be
obtained, it may be in breach of obligations it has with regard to the field
license and an impairment charge against CanArgo's investment in and advances to
Boryslaw Oil Company may be required.

In August 2002, Ninotsminda Oil Company entered into a 12 month crude oil sales
agreement to sell its monthly share of oil produced under the Ninotsminda
production sharing contract. As security for payment the buyer has paid to
Ninotsminda Oil Company $1 million to be repaid at the end of the twelve month
period through the delivery of additional crude oil equal to the value of the
security. Under the agreement, crude oil will be sold at dated Brent less a
fixed discount per barrel depending on the Brent price. The discount ranges from
a minimum of $6.00 per barrel when dated price is less than $15.00 per barrel to
a maximum $7.50 per barrel when dated Brent is greater than $25.01 per barrel.

RESULTS OF CONTINUING OPERATIONS

Nine Month Period Ended September 30, 2002 Compared to Nine Month Period Ended
September 30, 2001

CanArgo recorded operating revenue from continuing operations of $4,558,000
during the nine month period ended September 30, 2002 compared with $5,801,000
for the nine month period ended September 30, 2001. The decrease is attributable
to declines in oil and gas and refining revenues offset by other revenue,
representing rental of CanArgo equipment in Georgia. No new equipment rental
contracts have been signed, although the company has established a well services
subsidiary, which will bid in local tenders for drilling contracts.

Ninotsminda Oil Company generated $3,160,000 of revenue in the nine month period
ended September 30, 2002 compared with $3,820,000 for the nine month period
ended September 30, 2001. Its net share of the 217,608 (797 barrels per day) of
gross oil production for sale from the Ninotsminda field in the period amounted
to 141,445 barrels. In the period 41,844 barrels of oil were removed from
storage and sold. For the nine month period ended September 30, 2001 Ninotsminda
Oil Company's net share of the 323,000 barrels (1,183 barrels per day) of gross
production was 193,689 barrels. The decline in production is due to limited
workover investment resulting in a natural reservoir rate of decline.

Ninotsminda Oil Company's entire share of production was sold locally in Georgia
under both national and international contracts. Net sale prices for Ninotsminda
oil sold during the first nine months of 2002 averaged $16.61 per barrel as
compared with an average of $19.79 per barrel in the first nine months of 2001.
Its net share of the 143,233 mcf of gas delivered was 93,101 mcf at an average
net sale price of $1.25 per mcf of gas. For the nine



                                      -45-


month period ended September 30, 2001, Ninotsminda Oil Company's net share of
the 951,688 mcf of gas delivered was 618,600 mcf at an average net sales price
of $1.14 per mcf of gas. Gas deliveries for the nine months ended September 30,
2002 declined significantly due to lower oil and gas production and the
temporary shutdown by AES of its thermal power generating station following an
accident at the facility. Although AES has now re-opened, its demand for gas is
too great for CanArgo to meet from current production.

Refining revenues for the nine month period ended September 30, 2001 related
solely to the refinery owned by Georgian American Oil Refinery. Currently only
naptha, diesel and mazut can be produced and of these products, an excise tax on
naptha sales remains in place. As a result of these taxes and the local market
for naptha in the Republic of Georgia, CanArgo deemed production of naptha as
commercially uneconomic and suspended refining activity in the fourth quarter of
2001. In 2002 CanArgo entered into a short-term lease of the refinery to a third
party for nominal revenue. During the lease period, all operating costs of the
refinery were borne by the lessee. This lease expired in May 2002 and has not
been renewed. CanArgo continues to monitor demand for product able to be
produced by the refinery and is seeking changes to the legislation in support of
indigenous refining activities, although no assurance can be given that such
changes can be made. The refinery is now in a care and maintenance condition.

Operating loss from continuing operations for the nine month period ended
September 30, 2002 was $2,049,000 compared with an operating loss of $3,089,000
for the corresponding period in 2001. The decrease in operating loss is
attributable primarily to refining activity, profit generated from rental of
CanArgo equipment and reduced depreciation, depletion and amortization in the
period.

Field operating expenses decreased to $1,141,000 for the nine month period ended
September 30, 2002 as compared to $1,566,000 for the nine month period ended
September 30, 2001. The decrease is primarily a result of decreased activity at
the Ninotsminda field offset partially by costs relating to sales of oil from
storage in the nine months of the year.

Purchases of crude oil and products and Refinery operating expenses for the nine
month period ended September 30, 2001 related solely to refining activity which
was suspended in the fourth quarter of 2001.

Direct project costs increased to $1,158,000 for the nine month period ended
September 30, 2002, from $937,000 for the nine month period ended September 30,
2001, reflecting additional costs associated with the rental by others of
CanArgo equipment.

General and administrative costs increased to $2,704,000 for the nine month
period ended September 30, 2002, from $2,689,000 for the nine month period ended
September 30, 2001 primarily as a result of additional corporate costs.

The decrease in depreciation, depletion and amortization expense to $1,601,000
for the nine month period ended September 30, 2002, from $2,524,000 for the nine
month period ended September 30, 2001 is attributable principally to lower
production, due to limited workover investment resulting in a natural reservoir
rate of decline, and lower sales from the Ninotsminda oil field.

CanArgo recorded net other expense of $556,000 for the nine months ended
September 30, 2002, as compared to other income of $760,000 during the nine
months ended September 30, 2001 primarily due to CanArgo's adjusted interest in
its share of the carrying net asset value of its subsidiary CanArgo Norio
Limited (Norio) giving rise to a non-operating loss of $444,000, in accordance
with the application of SAB 51, following agreement with the minority
shareholders on the finalization of respective equity interest in Norio, lower
cash balances in 2002, an allowance for doubtful accounts of $275,000 from
previous gas sales, and an allowance for doubtful accounts of $93,000 relating
to the rental of CanArgo equipment.

Equity income from investments increased to $136,000 for the nine month period
ended September 30, 2002 from $74,000 for the nine month period ended September
30, 2001 as a result of equity income from production and sales of crude oil by
Boryslaw Oil Company.



                                      -46-


The net loss from continuing operations of $2,432,000 or $0.03 per share for the
nine month period ended September 30, 2002 compares to a net loss of $2,017,000,
or $0.02 per share for the nine month period ended September 30, 2001. The
weighted average number of common shares outstanding was substantially higher
during the nine month period ended September 30, 2002 than during the nine month
period ended September 30, 2001, due in large part to private placements in July
2001, February and May 2002.

Three Month Period Ended September 30, 2002 Compared to Three Month Period Ended
September 30, 2001

CanArgo recorded operating revenue continuing operations of $696,000 during the
three month period ended September 30, 2002 compared with $2,095,000 for the
three month period ended September 30, 2001. The decrease is due to declines in
oil and gas and refining revenues.

Ninotsminda Oil Company generated $696,000 of revenue in the three month period
ended September 30, 2002. Its net share of the 74,924 barrels (814 barrels per
day) of gross oil production for sale from the Ninotsminda field in the period
amounted to 48,700 barrels. 17,438 barrels of oil were added to storage in the
period. For the three month period ended September 30, 2001, Ninotsminda Oil
Company's net share of the 90,800 barrels (987 barrels per day) of gross
production was 53,500 barrels. The decline in production is due to limited
workover investment resulting in a natural reservoir rate of decline.

Ninotsminda Oil Company's entire share of production in Georgia was sold under
both national and international contracts. Net sale prices for Ninotsminda oil
sold during the third quarter of 2002 averaged $20.28 per barrel as compared
with an average of $19.69 per barrel in the third quarter of 2001. Its net share
of the 74,797 mcf of gas delivered was 48,618 mcf at an average net sale price
of $1.27 per mcf of gas. For the three month period ended September 30, 2001,
Ninotsminda Oil Company's net share of the 588,303 mcf of gas delivered was
382,397 mcf at an average net sales price of $1.18 per mcf of gas. Gas
deliveries for the three months ended September 30, 2002 declined significantly
due to lower oil and gas production and the temporary shutdown by AES of its
thermal power generating station following an accident at the facility. Although
AES has now re-opened, its demand for gas is too great for CanArgo to meet from
current production.

Refining revenues for the three month period ended September 30, 2001 relate to
the refinery owned by Georgian American Oil Refinery. Currently only naptha,
diesel and mazut can be produced and of these products, an excise tax on naptha
sales remains in place. As a result of these taxes and the local market for
naptha in the Republic of Georgia, CanArgo deemed production of naptha as
commercially uneconomic and suspended refining activity in the fourth quarter of
2001. In 2002 CanArgo entered into a short-term lease of the refinery to a third
party for nominal revenue which expired in May 2002. During the lease period,
all operating costs of the refinery were borne by the lessee. This lease expired
in May 2002 and has not been renewed. CanArgo continues to monitor demand for
product able to be produced by the refinery and is seeking changes to the
legislation in support of indigenous refining activities, although no assurance
can be given that such changes can be made. The refinery is now in a care and
maintenance condition.

The operating loss from continuing operations for the three month period ended
September 30, 2002 amounted to $462,000 compared with an operating loss of
$877,000 for the corresponding period in 2001. The decrease in operating loss is
attributable a to reduced general and administrative costs and a reduced
depreciation, depletion and amortization charge in the period, partially offset
by a decline in refining income and oil and gas revenue.

Field operating expenses decreased to $261,000 for the three month period ended
September 30, 2002 as compared to $453,000 for the three month period ended
September 30, 2001. The decrease is primarily a result of decreased activity at
the Ninotsminda field.

Purchases of crude oil and products and Refinery operating expenses for the
three month period ended September 30, 2001 related solely to refining activity
which was suspended in the fourth quarter of 2001.



                                      -47-


Direct project costs decreased to $177,000 for the three month period ended
September 30, 2002, from $365,000 for the three month period ended September 30,
2001 reflecting additional costs associated with the rental by others of CanArgo
equipment.

General and administrative costs decreased to $403,000 for the three month
period ended September 30, 2002, from $866,000 for the three month period ended
September 30, 2001 principally due to the reclassification of an allowance for
doubtful accounts of $275,000 from previous gas sales to other expenses and the
reversal of a $125,000 severance provision from the previous quarter.

The decrease in depreciation, depletion and amortization expense to $317,000
from $578,000 for the three month period ended September 30, 2002 is
attributable principally to lower production, due to limited workover investment
resulting in a natural reservoir rate of decline, and lower sales from the
Ninotsminda field.

The equity income from investments at $45,000 for the three month period ended
September 30, 2002 reflected equity income from production and sales of crude
oil by Boryslaw Oil Company.

CanArgo recorded net other expense of $749,000 for the three months ended
September 30, 2002, as compared to other income of $197,000 during the three
months ended September 30, 2001. The principal reason for the decrease is due to
CanArgo's adjusted interest in its share of the carrying net asset value of its
subsidiary CanArgo Norio Limited (Norio) giving rise to a non-operating loss of
$444,000, in accordance with the application of SAB 51, following agreement with
the minority shareholders on the finalization of respective equity interest in
Norio, the reclassification of an allowance for doubtful accounts of $275,000
from previous gas sales previously recorded in general and administrative costs,
an allowance for doubtful accounts of $93,000 relating to the rental of CanArgo
equipment, and lower interest income on cash balances.

The net loss from continuing operations of $1,228,000 or $0.01 per share for the
three month period ended September 30, 2002 compares to a net loss of $487,000,
or $0.01 per share for the three month period ended September 30, 2001. The
weighted average number of common shares outstanding was higher during the three
month period ended September 30, 2002 than during the three month period ended
September 30, 2001, due in large part to a private placement in July 2001,
February and May 2002.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

CanArgo recorded operating revenue of $7,171,000 during the year ended December
31, 2001 compared with $7,010,000 for the year ended December 31, 2000. The
increase is primarily due to increased refining revenue from Georgian American
Oil Refinery and other revenue, representing rental of CanArgo equipment in
Georgia partially offset by lower oil and gas revenues.

Ninotsminda Oil Company generated $3,967,000 of oil and gas revenue in the year
ended December 31, 2001. Its net share of the 414,000 barrels (1,133 barrels per
day) of gross oil production for sale from the Ninotsminda field in the period
amounted to 247,179 barrels. In 2001, 38,731 barrels of oil were added to
storage. For the year ended December 31, 2000, Ninotsminda Oil Company's net
share of the 479,000 barrels (1,312 barrels per day) of gross oil production was
245,947 barrels.

Ninotsminda Oil Company's entire share of production was sold into the Georgian
local and regional market. Because lower transportation costs are involved,
CanArgo believes that sales of Ninotsminda oil to customers in the Georgian
local and regional market generally yield relatively higher net sales prices to
Ninotsminda Oil Company than sales to other customers. Net sale prices for
Ninotsminda oil sold during 2001 averaged $19.43 per barrel as compared with an
average of $20.14 per barrel in 2000. Its net share of the 1,110,390 thousand
cubic feet (mcf) of gas delivered was 721,754 mcf at an average net sale price
of $1.14 per mcf of gas. For the year ended December 31, 2000, Ninotsminda Oil
Company's net share of the 1,764,000 mcf of gas delivered was 1,146,000 mcf at
an average net sales price of $1.16 per mcf of gas.



                                      -48-


Refining revenue for the year ended December 31, 2001 relates solely to
operating activities of Georgian American Oil Refinery. In 2001, sales from the
refinery continued to be affected following the imposition of restrictions and
subsequent excise tax on feedstock and refined product. Although in April 2001
new legislation addressing indigenous refining activities was passed by the
Republic of Georgia that removed or reduced excise taxes on feedstock and
refined product, the refinery has since experienced unexpected technical
difficulties which have effectively curtailed the production of gasoline. As a
result, only naphtha, diesel and mazut can currently be produced by the refinery
and of these products, an excise tax on naphtha sales remains in place. Due to
these taxes, production of naphtha is currently commercially uneconomic and
refining activity has been suspended. CanArgo has initiated discussions with
authorities in the Republic of Georgia to remove or reduce the excise tax to a
level that would support the recommencement of refining operations. While
CanArgo believes from discussions to date that such changes are possible, no
assurance can be given that any such changes will be made. As a result, CanArgo
recorded a write-down of $3,360,000 to reflect, under current conditions, the
estimated net recoverable amount of the refinery.

CanArgo had revenue from equipment rentals in 2001 of $608,000 compared to other
revenue from equipment rentals of $365,000 for the year ended, December 31,
2000. In September 2001, CanArgo entered into an agreement to provide drilling
services to a third party using one of CanArgo's rigs. Commercial drilling
operations commenced in October 2001 and continued through February 2002.

The operating loss from continuing operations for the year ended December 31,
2001 amounted to $16,107,000 compared with an operating loss of $2,401,000 for
2000. The increase in operating loss is attributable primarily to the impairment
of oil and gas properties of $7,300,000, impairment of refinery assets of
$3,860,000, lower oil and gas revenue of $2,141,000 as a result of lower
production and significant increases in operating and corporate activity.

Field operating expenses increased to $1,568,000 ($4.27 per BOE) for the year
ended December 31, 2001 as compared to $1,287,000 ($2.95 per BOE) for 2000. The
increase is primarily a result of increased activity at the Ninotsminda field.
Operating costs per BOE increased as day to day field operations in Georgia
include a proportionately higher fixed to variable cost component combined with
lower production rates.

Purchases of crude oil and products and refinery operating expenses of
$1,451,000 and $791,000 respectively for the year ended December 31, 2001 relate
to operating activities of Georgian American Oil Refinery. The increase is due
to a full year of consolidation of activity in 2001.

Direct project costs increased to $1,300,000 for the year ended December 31,
2001, from $738,000 for the year ended December 31, 2000, reflecting project
cost associated with an agreement to provide drilling services to a third party
using CanArgo rig equipment, increased activity within Georgia, reestablishment
of activity with respect to the license Boryslaw Oil Company holds in the
Stynawske field, Ukraine and the acquisition of LVR.

LVR negotiated and concluded a Joint Investment Production Activity (JIPA)
agreement in 1998 to develop the Bugruvativske field in eastern Ukraine together
with Ukrnafta. CanArgo believes that under the terms of this JIPA, LVR has
certain rights to incremental production from the field. Ukrnafta and LVR are
required under the terms of the JIPA to make a total initial contribution of $2
million prior to December 31, 2000. LVR's portion of the initial contribution
was $960,000, which it failed to make. Furthermore, until such time as an
investment agreement and valuation of the assets to be contributed by Ukrnafta
is completed and accepted by LVR, LVR is not entitled to any of this production
and any sharing of future production is to be determined after consideration of
base oil. CanArgo is presently evaluating LVR's interest and obligations under
the JIPA and information regarding the field, and is in discussions with
Ukrnafta to resolve these and other open issues under the JIPA. There is no
assurance as to whether such discussions will be successfully completed or, if
completed, on what terms.

Selling, general and administrative costs increased to $3,742,000 for the year
ended December 31, 2001, from $3,050,000 for the year ended December 31, 2000.
The increase is primarily attributable to significant increased operating and
corporate activity, higher costs attributed to the London office following the
move of administrative and finance functions from Calgary to London in 2000, an
allowance for $200,000 against a potential bad debt and general and
administrative costs of $261,000 related to refining activity.



                                      -49-


The decrease in depreciation, depletion and amortization expense to $3,250,000
for the year ended December 31, 2001 from $3,876,000 for the year ended December
31, 2000 is attributable principally to lower depletion resulting from lower
sales of oil and gas during the year.

During 2001, CanArgo wrote down its oil and gas properties in the Ninotsminda
field by an aggregate $7,300,000 on application of the full cost ceiling test as
a result of a decline in Brent oil prices at December 31, 2001, lower reserve
quantities following production declines in 2001 and reduced development plans.
The write-down was a non-cash write-down. If oil prices or production levels
decline further, CanArgo may experience additional impairment of this property.

As a result of both product instability and continued difficulties addressing
excise taxes on refined products, refinery and related equipment was
written-down by $3,360,000 to reflect, under current conditions, the estimated
net recoverable amount of the refinery. During 2001, CanArgo further wrote down
other oil and gas related equipment by $500,000 following a decision to dispose
of a power generating unit which CanArgo has identified as surplus to its
existing requirements. This equipment is included in current assets as at
December 31, 2001.

CanArgo recorded net other income of $407,000 for the year ended December 31,
2001, as compared to net other income of $231,000 during the year ended December
31, 2000. The principal reason for the increase in net other income is a
decrease in loss from equity investments and higher cash balances in 2001.

Equity loss from investments primarily relate to expenses related to operation
by East Georgian Pipeline Company of the gas pipeline from Ninotsminda to the
Gardabani power station and Rustavi industrial complex. Equity loss from
investments decreased to $160,000 for the year ended December 31, 2001, from a
loss of $240,000 for the year ended December 31, 2000 as a result of equity
income from production and sales of crude oil by Boryslaw Oil Company and the
sale of CanArgo's small investment in Uentech International Corporation. No
material gain resulted from the sale of Uentech International Corporation.

The net loss from continuing operations of $13,562,000 or $0.16 per share for
the year ended December 31, 2001 compares to a net loss from continuing
operations of $2,143,000 or $0.04 per share for the year ended December 31 2000.
The weighted average number of common shares outstanding was substantially
higher during the year ended December 31, 2001 than during the year ended
December 31, 2000, due in large part to private placements in April, June and
August 2000 and July 2001.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

In November 2000, CanArgo acquired a 51% interest in Georgian American Oil
Refinery and Georgian American Oil Refinery became a subsidiary of CanArgo.
Under purchase accounting, Georgian American Oil Refinery's results have been
included in CanArgo's consolidated financial statements since the date of
acquisition.

CanArgo recorded operating revenue of $7,010,000 during the year ended December
31, 2000 compared with $2,783,000 for the year ended December 31, 1999. The
increase was primarily due to increases in crude oil and natural gas production
from the Ninotsminda field, higher crude oil prices, refining and marketing
revenue from Georgian American Oil Refinery and CanArgo Standard Oil Products
and service revenue from CanArgo's rig equipment.

Ninotsminda Oil Company generated $4,778,000 of oil revenue and $1,331,000 of
gas revenue in the year ended December 31, 2000 compared to $2,365,000 of oil
revenue and $129,000 gas revenue for the year ended December 31, 1999. Its net
share of the 479,000 barrels (1,312 barrels per day) of gross oil production
from the Ninotsminda field in the period amounted to 245,947 barrels. From
production, 8,735 barrels of oil were placed into storage in the year. For the
year ended December 31, 1999, Ninotsminda Oil Company's net share of the 415,400
barrels (1,138 barrels per day) of gross production was 142,900 barrels. During
the year ended December 31, 1999, 50,000 barrels of oil were removed from
storage and sold. Ninotsminda Oil Company's net share of the 1,764,000 thousand
cubic feet (mcf) of gas delivered in the year ended December 31, 2000 was
1,146,000 mcf. Oil production from the



                                      -50-


Sylvan Lake property in Alberta, Canada, a property sold in 1999, accounted for
$219,000 of revenue in the year ended December 31, 1999.

All of Ninotsminda Oil Company's share of production was sold into the Georgian
local and regional market. Because lower transportation costs are involved,
CanArgo believes that sales of Ninotsminda oil to customers in the Georgian
local and regional market generally yield relatively higher net sales prices to
Ninotsminda Oil Company than sales to other customers. The net oil sales price
for Ninotsminda oil sold during the year ended December 31, 2000 averaged $20.14
per barrel as compared with an average of $13.17 per barrel in the year ended
December 31, 1999. The net gas sales price during the year ended December 31,
2000 averaged $1.16 per mcf ($41.19 per thousand cubic meter). The net oil sales
price for oil sold from the Sylvan Lake property in Alberta, Canada, a property
sold in 1999, averaged $12.88 per barrel in the year ended December 31, 1999.

Refining revenue for the year ended December 31, 2000 relate solely to operating
activities of Georgian American Oil Refinery for November and December 2000. In
December 2000, sales from the refinery were nominal following the imposition of
restrictions and subsequent excise tax on feedstock. These issues are being
addressed with authorities in Georgia and it is expected that new legislation
addressing indigenous refining activities will be put forward in March 2001. No
assurance can be given, however, that new legislation will be put forward, that
such legislation will be passed or that if passed, it will sufficiently remove
existing restrictions and excise taxes on feedstock and refined product. See
Risks Associated with CanArgo's Oil and Gas Activities - Oil and Gas Operations
are Subject to Extensive Governmental Regulation.

CanArgo recorded in the year ended December 31, 2000 other revenue of $365,000
compared to $289,000 for the year ended December 31, 1999 attributable to rental
of CanArgo equipment in Georgia.

The operating loss from continuing operations for the year ended December 31,
2000 amounted to $2,401,000 compared with an operating loss of $8,119,000 for
the year ended December 31, 1999. The decrease in the operating loss is
attributable primarily to the impairment in 1999 of CanArgo's interest in the
Stynawske project, increased oil production and sales, higher oil prices and the
addition of gas sales in the year.

Field operating expenses increased to $1,287,000 ($2.95 per BOE ) for the year
ended December 31, 2000 as compared to $1,063,000 ($5.12 per BOE) for the year
ended December 31, 1999. The increase is primarily a result of increased oil and
gas production in the year. Field operating expenses per BOE decreased primarily
as net production increased as a proportion to gross production in the year.
Field operating expenses at Ninotsminda Oil Company and the Sylvan Lake property
in Alberta, Canada, a property sold in 1999, were $4.39 and $12.88 per BOE
respectively for the year ended December 31, 1999.

Purchases of crude oil and products and refinery operating expenses of $21,000
and $439,000 respectively for the year ended December 31, 2000 relate to solely
to operating activity of Georgian American Oil Refinery for November and
December 2000.

Direct project costs decreased to $738,000 for the year ended December 31, 2000,
from $766,000 for the year ended December 31, 1999, reflecting efforts initiated
in early 1999 to reduce Ninotsminda project expenses. Direct project costs are
expected to increase in 2001 as a result of a significant increase in
exploration and development activity in Georgia in the latter part of 2000 and
early part of 2001.

Selling, general and administrative costs increased to $3,050,000 for the year
ended December 31, 2000, from $2,193,000 for the year ended December 31, 1999.
The increase is primarily attributable to increased operating and corporate
activity in the latter part of 2000, costs related to the transition of
administrative and finance functions from Calgary to London in the third and
fourth quarters of 2000 and general and administrative costs of $184,000 related
to refining activity.

The increase in depreciation, depletion and amortization expense from $1,145,000
for the year ended December 31, 1999 to $3,876,000 for the year ended December
31, 2000 is attributable principally to higher oil and gas production from the
Ninotsminda field and depreciation of drilling equipment. In addition, CanArgo
recorded depreciation expenses of $190,000 with respect to refining and
marketing assets in 2000.



                                      -51-


CanArgo recorded net other income of $231,000 for the year ended December 31,
2000, as compared to net other expenses of $535,000 during the year ended
December 31, 1999. The principal reason for the increase is interest income
during the year ended December 31, 2000 on cash balances and the payment of
facility fees in the year ended December 31, 1999 related to Ninotsminda Oil
Company's Loan Agreement with the International Finance Corporation.

The net loss from continuing operations of $2,143,000 or $0.04 per share for the
year ended December 31, 2000 compares to a net loss from continuing operations
of $8,473,000, or $0.32 per share for the year ended December 31, 1999. The
weighted average number of common shares outstanding was substantially higher
during the year ended December 31, 2000 than during the year ended December 31,
1999, due in large part to private placements in April, June and August 2000.

RESULTS OF DISCONTINUED OPERATIONS

Nine Month Period Ended September 30, 2002 Compared to Nine Month Period Ended
September 30, 2001

The net income from discontinued operations, net of taxes and minority interest
for the nine month period ended September 30, 2002 amounted to $174,000 compared
with income of $129,000 for the corresponding period in 2001. The increase in
net income from discontinued operations, net of taxes and minority interest is
due to an increase in the number of operating petrol stations in Georgia and
relates entirely to the activities of CanArgo standard Oil Products.

Three Month Period Ended September 30, 2002 Compared to Three Month Period Ended
September 30, 2001

The net income from discontinued operations, net of taxes and minority interest
for the three month period ended September 30, 2002 amounted to $37,000 compared
with income of $80,000 for the corresponding period in 2001. The decrease in net
income from discontinued operations, net of taxes and minority interest relates
entirely to the activities of CanArgo standard Oil Products, and is due to more
competitive operating margins for the three month period end September 30, 2002
compared with the corresponding period in 2001 and interest on additional bank
loans drawn by CanArgo Standard Oil Products in Tblisi at an effective rate of
18% per annum, in order to fund the construction of new petrol stations in
Georgia.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

The net income from discontinued operations, net of taxes and minority interest
for the year ended December 31, 2001 amounted to $344,000 compared with a loss
of $8,000 for the corresponding period in 2000. The increase in net income from
discontinued operations, net of taxes and minority interest is due to additional
operating petrol stations in Georgia and relates entirely to the activities of
CanArgo standard Oil Products.

Year Ended December 31, 2000 Compared to Year Ended December 31,1999

The net loss from discontinued operations, net of taxes and minority interest
for the year ended December 31, 2000 amounted to $8,000 is due to operating
activities of CanArgo Standard Oil Products. CanArgo Standard Oil Products was
purchased in 2000 and operations were developed in 2001.

RELATED PARTY TRANSACTIONS

The majority of refined product purchased by CanArgo Standard Oil Products for
resale at its petrol stations is purchased from a company controlled by Standard
Oil Products who together with an individual shareholder own the 50% interest in
CanArgo Standard Oil Products not held by CanArgo. Total product purchases from
the related company in 2001 were $4,941,000. Certain equipment is provided to
Georgian British Oil Company Ninotsminda by a company owned by significant
employees of Georgian British Oil Company Ninotsminda. Total rental payments for
this equipment in 2001 were $124,078.



                                      -52-


J.F. Russell Hammond, a non-executive director of CanArgo, is also an investment
advisor to Provincial Securities who became a minority shareholder in the Norio
and North Kumisi Production Sharing Agreement through a farm-in agreement to the
Norio MK72 well.

In April 2001, CanArgo acquired from a wholly owned subsidiary of Terrenex
Acquisition Corporation, a former shareholder of CanArgo, the remaining 50%
interest it did not own in CanArgo Power for cash consideration of $425,000. In
a related but separate transaction, CanArgo sold in April 2001 all of its voting
and non-voting shares of Uentech International Corporation to a wholly owned
subsidiary of Terrenex Acquisition Corporation. Proceeds from the sale of
Uentech International Corporation were $125,000. On completion of the
acquisition, CanArgo Power became a wholly owned subsidiary of CanArgo. The
transactions were approved by an independent committee of the Board of
Directors. Two members of the Board of Directors of CanArgo, Messrs. Hammond and
Paus, who were also members of the Board of Directors of Terrenex Acquisition
Corporation abstained from voting on the transactions.

SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to establish accounting policies and
make estimates and assumptions that affect the reported amounts of assets and
liabilities. Such accounting policies include the method used to account for
capital assets such as oil and gas properties, property and equipment and
refining and marketing assets.

Capital assets are recorded at cost less accumulated provisions for
depreciation, depletion and amortization unless the carrying amount is viewed as
not recoverable in which case the carrying value of the assets is reduced to the
estimated recoverable amount. See "Impairment of Long-Lived Assets" below.
Expenditures for major renewals and betterments, which extend the original
estimated economic useful lives of applicable assets, are capitalized.
Expenditures for normal repairs and maintenance are charged to expenses as
incurred. The cost and related accumulated depreciation of assets sold or
retired are removed from the accounts and any gain or loss thereon is reflected
in operations.

Oil And Gas Properties - CanArgo and the unconsolidated entities for which it
accounts using the equity method account for oil and gas properties and
interests under the full cost method. Under this accounting method, costs,
including a portion of internal costs associated with property acquisition and
exploration for and development of oil and gas reserves, are capitalized within
cost centers established on a country-by-country basis. Capitalized costs within
a cost center, as well as the estimated future expenditures to develop proved
reserves and estimated net costs of dismantlement and abandonment, are amortized
using the unit-of-production method based on estimated proved oil and gas
reserves. All costs relating to production activities are charged to expenses as
incurred. Capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, are limited to an
amount (the ceiling limitation) equal to (a) the present value (discounted at
10%) of estimated future net revenues from the projected production of proved
oil and gas reserves, calculated at prices in effect as of the balance sheet
date (with consideration of price changes only to the extent provided by fixed
and determinable contractual arrangements), plus (b) the lower of cost or
estimated fair value of unproved and unevaluated properties, less (c) income tax
effects related to differences in the book and tax basis of the oil and gas
properties.

Estimated undiscounted future site restoration, dismantlement and abandonment
costs of $820,000 at December 31, 2001 are amortized on a unit of production
basis and reflected with accumulated depreciation, depletion and amortization.
CanArgo identifies and estimates such costs based upon its assessment of
applicable regulatory requirements, its operating experience and oil and gas
industry practice in the areas in which its properties are located. To date
CanArgo has not been required to expend any material amounts to satisfy such
obligations.

Property and Equipment - Depreciation of property and equipment is computed
using the straight-line method over the estimated useful lives of the assets
ranging from three to five years for office furniture and equipment to three to
fifteen years for oil and gas related equipment.



                                      -53-


Refining - The refinery and additions thereto are depreciated over the estimated
useful lives of the assets ranging from fifteen to twenty years.

Discontinued Operations - CanArgo Standard Oil Products petrol stations and
additions thereto were depreciated over the estimated useful lives of the assets
ranging from ten to fifteen years until operations were reclassified as
discontinued.

NEW ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, Business Combinations, and Statement No. 142, Goodwill and Other
Intangible Assets. Statement 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 as well as
all purchase method business combinations completed after June 30, 2001.
Statement 141 also specifies criteria, which must be met, for intangible assets
acquired in a purchase method business combination to be recognized and reported
apart from goodwill. Statement 142 requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values.

CanArgo has adopted the provisions of Statement 141 and Statement 142 effective
January 1, 2002. No adjustments were required as a result of such adoption.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination will
not be amortized, but will continue to be evaluated for impairment in accordance
with the appropriate pre-Statement 142 accounting literature.

In August 2001, FASB issued Statement No. 143 Accounting for Asset Retirement
Obligations. Statement 143 requires companies to record the fair value of a
liability for an asset retirement obligation in the period in which the
liability is incurred concurrent with an increase in the long-lived assets
carrying value. The increase and subsequent adjustments in the related
long-lived assets carrying value is amortised over its useful life. Upon
settlement of the liability a gain or loss is recorded for the difference
between the settled liability and the recorded amount. This standard will be
effective for CanArgo on January 1, 2003. We are in the process of assessing the
impact that the adoption of this standard will have on our financial position
and results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("FAS 146"). This standard will require
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. The standard replaces the existing guidance provided by EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The statement is effective for fiscal years beginning after
December 31, 2002. CanArgo does not expect the adoption of this standard to have
a material effect on its financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CanArgo's principal exposure to market risk is due to changes in oil and gas
prices and currency fluctuations. As indicated elsewhere in this Report, as a
producer of oil and gas CanArgo is exposed to changes in oil and gas prices as
well as changes in supply and demand which could affect its revenues. CanArgo
does not engage in any commodity hedging activities. Due to the ready market for
its production in the Republic of Georgia, CanArgo does not believe that any
current exposures from this risk will materially affect CanArgo's financial
position at this time, but there can be no assurance that changes in such market
will not affect CanArgo adversely in the future.

Also as indicated elsewhere in this Report, because all of CanArgo's operations
are being conducted in Eastern Europe, CanArgo is potentially exposed to the
market risk of fluctuations in the relative values of the currencies in areas in
which it operates. At present CanArgo does not engage in any currency hedging
operations since, to the extent it receives payments for its production,
refining and marketing activities in local currencies, it is utilizing such
currencies to pay for its local operations. In addition, it currently has
contracts to sell its production from the



                                      -54-


Ninotsminda field in the Republic of Georgia which provide for payment in
dollars, although we may not always be able to continue to receive payment in
U.S. dollars.

While CanArgo Standard Oil Products marketing revenue is denominated in Lari,
the local Georgian currency, and is used to pay Lari denominated operating
costs, its long term debt is denominated in dollars. As a result, changes in the
exchange rate could have a material adverse effect on its ability to pay off
non-Lari denominated indebtedness such as its existing credit facility. The
sensitivity to changes in exchange rates for CanArgo Standard Oil Products was
determined using current market pricing models. We estimate that a 10%
appreciation or devaluation in the foreign exchange rate of the Lari against the
dollar in 2002 would not have had a significant impact on operations.
No assurance can be given, however, that changes in exchange rates would be
limited to a 10% appreciation or devaluation in the foreign exchange rate.

CanArgo has not had and continues not to have any material interest in
investments subject to market risk during the nine months ended September 30,
2002 and from that date to the date hereof.



                                      -55-




                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS



NAME                       AGE       OFFICE OR OFFICES
----                       ---       -----------------
                               
David Robson(1)             44       Chairman of the Board, Managing Director
                                     and Chief Executive Officer
Russell Hammond(2)(3)       60       Director
Nils N. Trulsvik(2)(3)      53       Director
Murray Chancellor           49       Chief Operating Officer
Vincent McDonnell(4)        43       Chief Commercial Officer and Chief Financial
                                     Officer


----------

(1)  On November 11 2002, Roger Brittain resigned as non-executive Chairman of
     the Board and on November 21 2002, the Board appointed Mr. Robson Chairman
     and Chief Executive Officer of the Company

(2)  Member of Audit Committee

(3)  Member of Compensation Committee

(4)  On September 23 2002, the Board appointed Vincent McDonnell Chief
     Commercial Officer and Chief Financial Officer of the Company to replace
     Anthony J. Potter who resigned in September 2002 and who previously held
     the position of Chief Financial Officer.

DAVID ROBSON, a resident of Guernsey, was elected a Director, Chairman of the
Board and Chief Executive Officer of the Company on July 15, 1998 and
subsequently Managing Director and Chief Executive Officer. He has also served
as a Director, Chairman of the Board and Chief Executive Officer of the
Company's subsidiary, CanArgo Oil & Gas Inc., since July 1997, as President of
CanArgo Oil & Gas Inc.'s subsidiary, Ninotsminda Oil Company, since 1996, and as
Managing Director and sole owner of Vazon Energy Limited, a company which
provides consulting services to the energy industry, since March 1997. From
April 1992 until July 1993, Dr. Robson was General Manager of JP
Kenny/Intershelf Oil & Gas Resources, from July 1993 until December 1993,
Operations Director of JP Kenny Exploration and Production Limited ("JP Kenny"),
from December 1993 until November 1994, Managing Director, JP Kenny and from
November 1994 until March 1997, Dr. Robson was Chief Executive Officer of JKX
Oil &Gas plc . Prior to this he was employed in technical and commercial
positions in Britoil plc, Hamilton Oil and Mobil. He holds a B.Sc. (Hons) in
Geology and a Ph.D. in Geochemistry from the University of Newcastle upon Tyne,
and an MBA from the University of Strathclyde. Dr. Robson devotes substantially
all of his time to CanArgo.

RUSSELL HAMMOND, a resident of the UK, was elected a Director of the Company on
July 15, 1998. He has also served as a Director of the Company's subsidiary,
CanArgo Oil & Gas Inc., since June 1997. Although retired, Mr. Hammond has over
the past five years been an investment advisor to Provincial Securities Ltd., a
private investment company. Mr. Hammond has been Chairman of Terrenex
Acquisition Corporation, an oil and gas and joint venture company since 1992 and
a director of Cadiz Inc., a Nasdaq National Market listed company, from 1989 to
January 1999.

NILS N. TRULSVIK, a resident of the UK, was elected a Director of the Company on
August 17, 1994. He has served the Company as President and Chief Executive
Officer from February 4, 1997 to July 15, 1998 and from November 21, 1994 to
March 9, 1995; and as Executive Vice President from March 9, 1995 to February 4,
1997 and from September 8, 1994 until November 21, 1994. Since January 2, 1999
Mr. Trulsvik has served as the Chief Executive Officer of Force Petroleum. From
August 1998 Mr. Trulsvik has been a partner in a consulting company, The Bridge
Group, located in Norway. Mr. Trulsvik is a petroleum explorationist with
extensive experience in petroleum exploration and development throughout the
world. Prior to joining the Company, he held various positions with Nopec a.s. a
Norwegian petroleum consultant group of companies of which he was a founder,
including Managing Director from 1987 to 1993 and Special Advisor from 1993 to
August 1994.

Murray Chancellor, a resident of the UK, was elected Chief Operating Officer of
the Company on September 11, 2000. Mr. Chancellor joined the company from Aminex
PLC, a UK oil and gas exploration company, where he was most recently involved
as General Director of Russian Operations from April 1998 until September 2000.
From


                                      -56-



1996 until April 1998, Mr. Chancellor served as Deputy General Director and
Technical Director of Poltava Petroleum Company. Mr. Chancellor has an extensive
experience in the oil and gas sector having worked in the UK, Norway, Australia,
North America, the Middle East and the Former Soviet Union. An engineer by
profession, he has been involved in engineering and project management
activities both onshore and offshore. He has held senior management positions in
oil and gas development projects in both Russia and Ukraine, as well as having
extensive experience in the North Sea. Mr. Chancellor holds a Bachelor of
Engineering (Civil) degree.

Vincent McDonnell, a resident of the UK, was elected Chief Commercial Officer of
the Company on April 1, 2001. Prior thereto, he served CanArgo as Commercial
Manager from December 2000. Prior to joining the Company, he was an independent
oil and gas consultant from May 1998 until October 2000. From 1994 until April
1998, Mr. McDonnell served as Oil and Gas Exploration and Production Commercial
Manager of JKX Oil & Gas plc. Prior to 1994, Mr. McDonnell worked in various
business, commercial and technical roles with a number of companies, including
Mobil Oil and Britoil. He holds a Bachelor of Science (Hons.) degree in Geology,
a Master of Science degree in Geophysics together with a Master of Business
Administration (MBA) degree.

Directors hold office until the next annual meeting of stockholders and until
their successors are duly elected and qualified. Officers serve at the pleasure
of the Board of Directors.

INDEMNIFICATION AND INSURANCE

CanArgo's Bylaws require CanArgo to indemnify its officers and directors to the
full extent permitted by Delaware law. The Bylaws also require CanArgo to
advance payment of expenses to an indemnified party so long as he agrees to
repay the amount advanced if it is later determined that he is not entitled to
indemnification. CanArgo carries directors' and officers' liability insurance
covering losses arising from claims based on breaches of duty, negligence, error
and other wrongful acts.

INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS

CanArgo's Board of Directors held eight meetings during the year ended December
31, 2001. No director has attended less than 75% of all meetings of the Board
and those committees on which he served in 2001. The Board has two standing
committees: the Audit Committee and the Compensation Committee. The members of
the Audit Committee at the end of 2001 were Roger Brittain, Nils N. Trulsvik and
Russell Hammond. The members of the Compensation Committee at the end of 2001
were Roger Brittain, Nils N. Trulsvik and Russell Hammond. The Board of
Directors has not designated a nominating committee, the functions of such
committee being performed by the Board as a whole.

The Audit Committee of the Board of Directors is responsible for the review and
oversight of CanArgo's performance with respect to its financial
responsibilities and the integrity of CanArgo's accounting and reporting
practices. The Audit Committee also recommends to the Board of Directors the
selection of CanArgo's independent auditors. The Audit Committee is currently
composed of two non-employee directors and operates under a written charter.

Pursuant to the provisions of the Sarbanes-Oxley Act of 2002, which was enacted
into law on July 30, 2002, the SEC is required to adopt rules by January 26,
2003 requiring companies to disclose whether or not at least one member of the
audit committee is a "financial expert" as defined in such rules, and, if not,
why. The SEC has proposed such rules and neither Mr. Robson, nor Messrs. Hammond
nor Trulsvik, the current members of the Audit Committee, meet the criteria set
forth in such rules qualifying them as a "financial expert", which is basically
limited to those who have prepared or audited comparable public company
financial statements. While it might be possible to recruit a person who meets
these qualifications, the Board has determined that in order to fulfill all the
functions of our Board and our Audit Committee, each member of our Board and our
Audit and Compensation Committees should meet all the criteria that have been
established by our Board for Board membership, and it is not in the best
interests of our Company to nominate as a director someone who does not have all
the experience, attributes and qualifications we seek. Our Audit Committee
consists of two non-employee directors, each of whom has been selected for the
Audit Committee by the Board based on the Board's determination that they are
fully qualified to monitor the performance of management, the public disclosures
by the Company of its financial condition and


                                      -57-



performance, our internal accounting operations and our independent auditors. In
addition, the Audit Committee has the ability on its own to retain independent
accountants or other consultants whenever it deems appropriate.


COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Committee's Responsibilities

The Compensation Committee of the Board of Directors is composed entirely of
non-employee directors. The Compensation Committee is responsible for setting
and administering policies which govern CanArgo's executive compensation
programs. The purpose of this report is to summarize the compensation philosophy
and policies that the Compensation Committee applied in making executive
compensation decisions in 2001.

Compensation Philosophy

The Compensation Committee has approved compensation programs intended to:

     o    Attract and retain talented executive officers and key employees by
          providing total compensation competitive with that of other executives
          employed by companies of similar size, complexity and lines of
          business;

     o    Motivate executives and key employees to achieve strong financial and
          operational performance;

     o    Emphasize performance-based compensation, which balances rewards for
          short-term and long-term results;

     o    Reward individual performance;

     o    Link the interests of executives with shareholders by providing a
          significant portion of total pay in the form of stock incentives;

     o    Encourage long-term commitment to CanArgo.

The Compensation Committee held four meetings during fiscal 2001.

Stock Based Compensation Plan

     o    At December 31, 2001, stock options and warrants had been issued from
          the following stock based compensation plans: 1995 Long-Term Incentive
          Plan. Adopted by CanArgo in February 1996, this plan allows for
          7,500,000 shares of CanArgo's Common Stock to be issued to officers,
          directors, employees, consultants and advisors. As of December 31,
          2001, 4,065,334 options were outstanding.

     o    CAOG Plan. Adopted by CanArgo following the acquisition by CanArgo of
          CanArgo Oil & Gas Inc. in 1998, this plan allowed for 988,000 shares
          of CanArgo's Common Stock to be issued to employees, consultants and
          advisors. As of December 31, 2001, 806,667 options were outstanding.

     o    Special Stock Options and Warrants. Adopted by CanArgo in September
          2000, this plan was created to allow CanArgo to retain and provide
          incentives to existing executive officers and directors and to allow
          recruitment of new officers and directors following the Company's
          decision to relocate finance and administrative functions from
          Calgary, Canada to London, England. As of December 31, 2001, 2,220,000
          special stock options and warrants were outstanding.

Compensation Methodology

Each year the Compensation Committee reviews data from market surveys, proxy
statements issued by competitors and independent consultants to assess CanArgo's
competitive position with respect to the following three components of executive
compensation:


                                      -58-



     o    base salary;

     o    annual incentives; and

     o    long-term incentives.

The Compensation Committee also considers individual performance, level of
responsibility, and skills and experience in making compensation decisions for
each executive.

Components of Compensation

Base Salary: Base salaries for executives are determined based upon job
responsibilities, level of experience, individual performance, comparisons to
the salaries of executives in similar positions obtained from market surveys,
and competitive data obtained from consultants and staff research. The goal for
the base pay component is to compensate executives at a level which approximates
the median salaries of individuals in comparable positions with comparable
companies in the oil and gas industry. The Compensation Committee approves all
salary increases for executive officers. No base pay increases were approved in
2001 for executive officers of CanArgo.

Annual Incentives: Annual cash incentives have been developed in conjunction
with performance objectives for CanArgo Energy Corporation and the executive's
particular business unit. In 2000, the Compensation Committee approved an annual
cash incentive for the Chief Executive Officer and in 2001 approved an annual
cash incentive for other executives.

Long-Term Incentive Compensation: The Compensation Committee has structured
long-term incentive compensation to provide for an appropriate balance between
rewarding performance and encouraging employee retention. Long-term incentives
are granted primarily in the form of stock options. The purpose of stock options
is to align compensation directly with increases in shareholder value. The
number of options granted is determined by reviewing survey data to determine
the compensation made to other executives and management employees in comparable
positions with comparable companies in the oil and gas sector. In determining
the number of options to be awarded, the Compensation Committee also considers
the grant recipient's qualitative and quantitative performance, the size of
stock option awards in the past, and expectations of the grant recipient's
future performance.

In 2001, the Compensation Committee approved a series of new stock options to a
broad range of employees. The stock option awards were granted under the various
plans available in the company.

Compliance with Section 162(m) of the Internal Revenue Code

Under Section 162(m) of the Internal Revenue Code, CanArgo Energy Corporation
may not deduct annual compensation in excess of $1 million paid to certain
employees, generally its Chief Executive Officer and its four other most highly
compensated executive officers, unless that compensation qualifies as
performance-based compensation. While the Compensation Committee intends to
structure performance-related awards in a way that will preserve the maximum
deductibility of compensation awards, the Compensation Committee may from time
to time approve awards which would vest upon the passage of time or other
compensation which would not result in qualification of those awards as
performance-based compensation. It is not anticipated that compensation realized
by any executive officer under CanArgo Energy Corporation plans and programs now
in effect will result in a material loss of tax deductions.

Compensation of the Chief Executive Officer

The Compensation Committee reviews annually the compensation of the Chief
Executive Officer and recommends any adjustments to the Board of Directors for
approval. The Chief Executive Officer participates in the same programs and
receives compensation under the same programs as other executives. However, the
Chief Executive Officer's compensation reflects the greater policy and
decision-making authority that the Chief Executive Officer holds and the higher
level of responsibility he has with respect to the strategic direction of
CanArgo Energy Corporation and its financial and operating results. For 2001,
the components of Dr. Robson's compensation were:


                                      -59-



     o    Base Salary: After considering CanArgo's overall performance and
          competitive practices, and the signing of a 3 year contract, the
          Compensation Committee recommended, and the Board of Directors
          approved, a base salary of Pound Sterling 150,000 (approx $217,500)
          for Dr. Robson, effective July 1, 2000.

     o    Short-Term Incentives: In 2001, incentive compensation for Dr. Robson
          was based solely upon increase in cash flow per quarter. Based on 2001
          cash flow performance each quarter, Dr. Robson qualified for a
          quarterly bonus in 2001 of $15,075. The bonus is capped at one times
          salary for a given quarter.

     o    Long-Term Incentives: In 2001, Dr. Robson received 585,000 performance
          share awards all under the CanArgo Energy Corporation 1995 Long-Term
          Incentive Plan. The optioned shares have a term of five years, with
          438,750 currently vested and the remainder vesting on 30 June 2002.

In August 2000, the Compensation Committee elected to schedule its annual review
of Chief Executive Officer performance and compensation for April of each year,
to assure thorough consideration of year-end results. Actions taken by the Board
of Directors in April 2002 with respect to Dr. Robson's 2002 compensation will
be reflected in the proxy statement for the 2003 meeting of shareholders.

It is the Compensation Committee's intention that, when taken together, the
components of Dr. Robson's pay, including base salary, annual incentives,
short-term incentive opportunity and long-term incentives, will result in
compensation which approximates compensation paid by companies of similar size
and industry.

This report has been provided by the Compensation Committee.

Nils N. Trulsvik, Chairman
Roger Brittain
Russell Hammond

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 2001, CanArgo's Compensation Committee consisted of Messrs. Trulsvik,
Brittain, Hammond and to June 7, 2001 Mr. Peder Paus, a former director, all of
whom are or were non-employee directors. See the section entitled "Certain
Relationships and Related Transactions".

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table shows all compensation paid or accrued by CanArgo and its
subsidiaries during the years ended December 31, 2001, 2000 and 1999 to certain
executive officers of CanArgo (the "Named Officers").



                                                            LONG-TERM
                                  ANNUAL COMPENSATION     COMPENSATION
                                  -------------------     ------------
                                                           SECURITIES
                                                           UNDERLYING     ALL OTHER
NAME AND                 YEAR                             OPTIONS/SARS   COMPENSATION
PRINCIPAL POSITION      ENDED    SALARY($)     BONUS($)       (#)           ($)(5)
------------------      -----    ---------     --------   ------------   ------------
                                                          

David Robson(1)         12/01     217,500       15,075        585,000        19,575
                        12/00     197,420       37,500      1,295,000         9,941
                        12/99     144,000           --      1,000,000            --
Murray Chancellor(2)    12/01     174,000           --        200,000        15,660
                        12/00      50,750           --        250,000         4,568
Vincent McDonnell(3)    12/01     137,750           --        100,000        12,398
Anthony J. Potter(4)    12/01     210,000           --        100,000            --
                        12/00     120,116           --        117,000         1,333
                        12/99      60,152        6,667        125,000         1,600



                                      -60-



(1)  Mr. Robson has served as Chief Executive Officer since July 15, 1998 and
     provides services to CanArgo through Vazon Energy Limited.

(2)  Mr. Chancellor has served as Chief Operating Officer since September 12,
     2000.

(3)  Mr. McDonnell has served as Chief Commercial Officer since April 1, 2001.
     Prior thereto he served as Commercial Manager from December 1, 2000.
     In September 2002 he was appointed Chief Financial Officer of the Company.

(4)  Mr. Potter served as Chief Financial Officer from September 2000 until
     September 2002. Prior thereto he served as Vice-President Finance and Group
     Controller from July 15, 1998.

(5)  Primarily CanArgo's contributions to or accruals with respect to individual
     retirement and pension plans.


OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 2001

The following table sets forth information concerning options granted to the
Named Officers who were employed during the year ended December 31, 2001.



                         NUMBER OF     % OF TOTAL
                        SECURITIES       OPTIONS                                   GRANT DATE
                        UNDERLYING     GRANTED TO                               PRESENT VALUE(5)
                         OPTIONS      EMPLOYEES IN   EXERCISE    EXPIRATION      PER
NAME                     GRANTED         2001          PRICE        DATE        SHARE      TOTAL
----                    ----------    ------------   --------    ----------    -------    -------
                                                                        
David Robson(1)          585,000           30%        $0.687     08/07/2006    $0.1378    $80,613
Murray Chancellor(2)     200,000           10%        $0.687     08/07/2006    $0.2224    $44,480
Vincent McDonnell(3)     100,000            5%        $0.687     08/07/2006    $0.2224    $22,240
Anthony Potter(4)        100,000            5%        $0.687     08/07/2006    $0.2224    $22,240


(1)  The options were granted at an exercise price in excess of the fair market
     value of CanArgo's Common Stock on the date of grant. The options vest 3/4
     on 09/07/2001 and 1/4 on 30/06/2002.

(2)  The options were granted at an exercise price in excess of the fair market
     value of CanArgo's Common Stock on the date of grant. The options vest 1/3
     on 30/06/2002, 1/3 on 30/06/2003 and 1/3 on 30/06/2004.

(3)  The options were granted at an exercise price in excess of the fair market
     value of CanArgo's Common Stock on the date of grant. The options vest 1/3
     on 30/06/2002, 1/3 on 30/06/2003 and 1/3 on 30/06/2004.

(4)  The options were granted at an exercise price in excess of the fair market
     value of CanArgo's Common Stock on the date of grant. The options vest 1/3
     on 30/06/2002, 1/3 on 30/06/2003 and 1/3 on 30/06/2004.

(5)  These values were derived using the Black-Scholes option pricing model
     applying the following assumptions:



                                                     RISK-FREE
                                                      INTEREST
EXERCISE PRICE     DIVIDEND YIELD     VOLATILITY        RATE      EXPECTED TERM
--------------     --------------     ----------     ---------    -------------
                                                      
     $0.687              0%             75.15%         4.61%        3.37 years


Pursuant to the terms of CanArgo's various stock option plans, the Compensation
Committee may, subject to each plan's limits, modify the terms of outstanding
options, including the exercise price and vesting schedule thereof. These values
are not intended to forecast future appreciation of CanArgo's stock price. The
actual value, if any, that an executive officer may realize from his options
(assuming that they are exercised) will depend solely on the increase in the
market price of the shares acquired through option exercises over the exercise
price, measured when the shares are sold.

OPTION VALUES AT DECEMBER 31, 2001

The following table sets forth information concerning option exercises and the
number and hypothetical value of stock options held by the Named Officers at
December 31, 2001.


                                      -61-





                                                 NUMBER OF SHARES
                    NUMBER                    UNDERLYING UNEXERCISED     VALUE OF UNEXERCISED IN-THE-
                   OF SHARES               OPTIONS HELD AT FISCAL YEAR     MONEY OPTIONS AT FISCAL
                   ACQUIRED     VALUE                 END(2)                    YEAR END($)(3)
                      ON       REALIZED   ----------------------------   ----------------------------
NAME               EXERCISE     ($)(1)    EXERCISABLE    UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
-----------        ---------   --------   -----------    -------------   -----------    -------------
                                                                      
David Robson          --          --       1,640,416        1,026,251             150             150
Murray Chancellor     --          --          83,333          366,667              --              --
Vincent McDonnell     --          --          33,333          200,000              --              --
Anthony Potter        --          --          64,500          152,500              --              --


----------

(1)  The amounts in this column have been calculated based upon the difference
     between the quoted market price of the securities underlying each stock
     option on the date of exercise and its exercise price.

(2)  The exercise of stock options is not dependent on performance criteria and
     may be exercised in full when vested.

(3)  The amounts in this column have been calculated based upon the difference
     between the quoted market price of CanArgo's common stock on December 31,
     2001 and the exercise price per share.

COMPENSATION OF DIRECTORS

In 2001 CanArgo paid directors' fees on a quarterly basis at a rate of $36,000
per year plus Pound Sterling 1,000 for each meeting of the Audit Committee and
Compensation Committee that they attend. CanArgo also reimburses ordinary
out-of-pocket expenses for attending Board and Committee meetings. The Chairman
of the Board of Directors is paid Pound Sterling 35,000 per year payable on a
quarterly basis.

The following table shows the compensation paid to all persons who were
non-employee directors, including their respective affiliates, during the year
ended December 31, 2001:



                        DIRECTORS FEES AND      CONSULTING         OPTIONS AND
NAME                    OTHER COMPENSATION       PAYMENTS       WARRANTS GRANTED
----                    ------------------      ----------      ----------------
                                                       

Roger Brittain             $  59,450               $  --               --
Russell Hammond               37,450                  --               --
Peder Paus                    21,276                  --               --
Nils N. Trulsvik              44,700                  --               --


STOCK OPTION PLANS

CanArgo has adopted the 1995 Long-Term Incentive Plan pursuant to which it has
awarded and may in the future award stock options, including re-load options,
and stock appreciation rights, to employees, directors, consultants and advisors
of CanArgo or any subsidiary of CanArgo. On June 7, 2001, shareholders approved
an increase in the number of shares that may be issued under the 1995 Long
Incentive Plan from 4,000,000 shares to 7,500,000 shares of CanArgo common
stock. Under the 1995 Plan, 4,065,334 options were outstanding at December 31,
2001.

In connection with the July 1998 combination with CanArgo Oil and Gas Inc.,
CanArgo assumed the CanArgo Oil and Gas Inc. Stock Option Plan ("CAOG Plan")
under which 988,000 shares may be issued. Persons who are eligible to receive
options under this stock option plan are full time employees and consultants of
CanArgo or any 50% or more owned subsidiary of CanArgo (including a director of
any subsidiary) who are not officers or directors of CanArgo. Under the CAOG
Plan, 806,667 options were outstanding at December 31, 2001.

The Compensation Committee of the Board of Directors administers CanArgo's stock
option plans. The exercise price and vesting schedule of awards under these
plans are determined by the Compensation Committee when the award is granted,
provided that the option price for any incentive stock option or any option
granted under the


                                      -62-



CanArgo Oil and Gas Inc. stock option plan may not be less than 100% of the fair
market value of CanArgo common stock on the date of grant. The term of options
granted under these plans may not exceed ten years from the date of grant. In
the case of an incentive option granted to a person who owns 10% or more of
CanArgo's common stock, the exercise price of the option may not be less than
110% of the fair market value on the date of grant and the term of the option
may not exceed five years.

The Compensation Committee may modify or amend the terms of outstanding awards,
including a change or acceleration of the vesting of an award, and it may
exchange, cancel or substitute awards, subject to the consent of the holders of
the awards.

Unless a surviving or acquiring entity agrees to assume the outstanding awards,
each outstanding award under these plans will terminate on the date of:

     o    CanArgo's liquidation or dissolution,
     o    a reorganization, merger or consolidation in which CanArgo is not the
          survivor,
     o    the sale of substantially all of the assets of CanArgo, or
     o    the sale of more than 80% of the then outstanding stock of CanArgo to
          another corporation or entity.

No awards may be granted under the incentive plan after November 2005. The Board
of Directors may discontinue either plan at any time and may amend either plan
without stockholder approval unless the amendment would increase the total
number of shares issuable under that plan or, with respect to the CanArgo Oil
and Gas Inc. stock option plan, would change the manner of determining the
minimum exercise price of options.

Under Section 162(m) of the Internal Revenue Code of 1986, CanArgo may be
precluded from claiming a federal income tax deduction for total remuneration in
excess of $1,000,000 for its chief executive officer or any of its other four
highest paid officers. Based on the current market price of CanArgo's common
stock and the number of options held by such persons, CanArgo does not believe
that any compensation derived from the exercise of awards granted under these
plans, together with other compensation to CanArgo's executive officers, will
exceed $1,000,000 in any year for any such officer. Neither of the stock option
plans, however, meets the requirements of an exception from Section 162(m) for
"performance-based compensation."




                                      -63-



                              RELATED TRANSACTIONS

Of the 50% of CanArgo Standard Oil Products not held by CanArgo, 41.65% is held
by Standard Oil Products, an unrelated third party entity, and 8.35% is held by
an individual, Mr Levan Pkhakadze, who is one of the founders of Standard Oil
Products and is an officer and director of CanArgo Standard Oil Products. The
majority of refined product purchased by CanArgo Standard Oil Products for
resale at its petrol stations is purchased from a company controlled by Standard
Oil Products who together with and an individual shareholder, own the 50%
interest in CanArgo Standard Oil Products not held by CanArgo. Total product
purchases from the related company in 2001 were $4,941,000. Certain equipment is
provided to Georgian British Oil Company Ninotsminda by a company owned by
significant employees of Georgian British Oil Company Ninotsminda. Total rental
payments for this equipment in 2001 were $124,078.

In April 2001, CanArgo acquired from a wholly owned subsidiary of Terrenex
Acquisition Corporation the remaining 50% interest it did not own in CanArgo
Power for cash consideration of $425,000. In a related but separate transaction,
CanArgo sold in April 2001 all of its voting and non-voting shares of Uentech
International Corporation to a wholly owned subsidiary of Terrenex Acquisition
Corporation. Proceeds from the sale of Uentech International Corporation were
$125,000. On completion of the acquisition, CanArgo Power became a wholly owned
subsidiary of CanArgo. The transactions were approved by an independent
committee of the Board of Directors. Two members of the Board of Directors of
CanArgo who were also members of the Board of Directors of Terrenex Acquisition
Corporation, Messrs. Hammond and Paus, abstained from voting on the
transactions.

Dr. David Robson, Chief Executive Officer, provides all of his services to
CanArgo through Vazon Energy Limited of which he is the Managing Director.

J.F. Russell Hammond, a non-executive director of CanArgo, is also an investment
advisor to Provincial Securities who became a minority shareholder in the Norio
and North Kumisi Production Sharing Agreement through a farm-in agreement to the
Norio MK72 well.

Transactions with affiliates or other related parties including management of
affiliates are to be undertaken on the same basis as third party arms-length
transactions. Transactions with affiliates are reviewed and voted on solely by
non-interested directors.

                         OWNERSHIP OF VOTING SECURITIES

DESCRIPTION OF VOTING SECURITIES

The voting securities of CanArgo consist solely of common stock. The common
stock is voted as a single class on all matters. The common stock is entitled to
one vote per share.

SECURITY OWNERSHIP BY MANAGEMENT

The following table sets forth information as of October 30, 2002 with respect
to aggregate beneficial ownership of outstanding shares of Common Stock by each
person known by CanArgo to be the beneficial owner of more than 5% of the
aggregate of such shares, by each Director and Named Officer of CanArgo and by
all Directors and executive officers of CanArgo as a group.


                                      -64-





                                     AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER             BENEFICIAL OWNERSHIP       PERCENT OF CLASS
------------------------             --------------------       ----------------
                                                          

Roger Brittain                            166,667(1)(9)              *
David Robson                            2,556,093(2)               2.6%
Nils N. Trulsvik                          419,700(3)                 *
Russell Hammond                           321,250(4)                 *
Murray Chancellor                         300,000(5)                 *
Vincent McDonnell                         116,667(6)                 *
Anthony Potter                            183,667(7)(9)              *
All Directors and executive
officers as a group (7 persons)         4,064,044(8)               4.2%


----------
* Less than 1%.

(1)  Includes 166,667 shares underlying presently exercisable options.

(2)  Includes 2,298,333 shares underlying presently exercisable options.

(3)  Includes 346,250 shares underlying presently exercisable options.

(4)  Includes 321,250 shares underlying presently exercisable options.

(5)  Includes 300,000 shares underlying presently exercisable options.

(6)  Includes 116,667 shares underlying presently exercisable options.

(7)  Includes 183,667 shares underlying presently exercisable options.

(8)  Includes 3,732,834 shares underlying presently exercisable options held by
     directors and executive officers as a group.

(9)  At October 30, 2002 Roger Brittain and Anthony Potter were no longer
     serving the Company, but their exercisable options had not expired.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

At October 30, 2002, the following registered holders held over 5% of the
outstanding CanArgo common stock:



                                          AMOUNT AND NATURE OF
     NAME OF BENEFICIAL OWNER             BENEFICIAL OWNERSHIP   PERCENT OF CLASS
---------------------------------------   --------------------   ----------------
                                                           

Morgan Stanley & Co. Intl. Ltd.
25 Cabot Sq., London, E14 4QA UK             5,010,000                5.1%

Caldwell Associates
PO Box 198,Valley House
Hirzel Street, St. Peter Port, Guernsey
GY1 4HU                                      7,751,950(1)             8.0%


----------

(1)  Held on behalf of several clients.



                                      -65-



                          DESCRIPTION OF CAPITAL STOCK

CanArgo's current authorized share capital consists of 150,000,000 shares of
common stock having a par value of US $0.10 each and 5,000,000 shares of
preferred stock having a par value of US $0.10 each.

COMMON STOCK

Holders of common stock have no preferences or preemptive, conversion or
exchange rights. Subject to any preferential rights of any shares of preferred
stock which may be outstanding, holders of common stock are entitled to receive
dividends approved by the Board of Directors and to share ratably in CanArgo's
assets legally available for distribution to its stockholders in the event of
its liquidation, dissolution or winding-up.

Holders of common stock are entitled to one vote per share on all matters voted
on generally by the stockholders, including the election of directors.
Cumulative voting for the election of directors is not permitted. Except as
otherwise required by law or except as any series or class of preferred stock,
the holders of common stock possess all voting power.

Annual meetings of stockholders are held at such dates as are determined by the
Board of Directors of CanArgo, but in any case must be held within thirteen (13)
months after the date of the prior annual meeting. Special meetings of the
stockholders for any purpose may be called by the Chairman of the Board, the
President or the Secretary of CanArgo, and must be called by the Chairman of the
Board, the President or the Secretary of CanArgo at the request in writing of a
majority of the Board of Directors, or at the request in writing of stockholders
owning 10% or more of the issued and outstanding voting capital stock of
CanArgo, which request must state the purposes of the proposed meeting. The
holders of a majority of the stock issued and outstanding and entitled to vote,
present in person or represented by proxy, will constitute a quorum at all
meetings of the stockholders except as otherwise may be provided by statute.

The shares of common stock, which may be sold by the selling stockholders in
this offering, have been validly issued, fully paid and are non-assessable.

PREFERRED STOCK

The Board of Directors is authorized to issue, without stockholder approval,
shares of preferred stock in one or more classes or series. The Board of
Directors may set the terms and provisions of each class or series by
resolution, including provisions regarding voting, liquidation preference,
redemption, conversion and the right to receive dividends. The Board of
Directors has no present plans to issue any shares of preferred stock.

The ability to issue preferred stock provides CanArgo with flexibility in
connection with possible acquisitions, financings and other corporate
transactions. The issuance of preferred stock may also, however, have the effect
of discouraging, delaying or preventing a change in control of CanArgo. For
example, the Board of Directors can create a series of preferred stock with
disproportionate voting power or with the right to vote separately as a class on
important corporate matters, like mergers or the election of directors. The
preferred stock could also be convertible into a large number of shares of
common stock or have other terms which could make it more difficult or costly
for a third party to acquire a significant interest in CanArgo. Also, shares of
preferred stock could be privately placed with purchasers who might side with
the management of CanArgo in opposing a hostile tender offer or other attempt to
obtain control. As a result, the issuance of preferred stock as an anti-takeover
device might preclude stockholders from taking advantage of a situation, which
might be favorable to their interests.

SPECIAL VOTING STOCK

In connection with the July 1998 business combination with CanArgo Oil & Gas Inc
(CAOG)., the Board of Directors authorized a class of preferred stock, "Series
Voting Preferred Stock," referred to as "special voting stock",


                                      -66-



consisting of 100 shares. The shares of special voting stock were issued to
Montreal Trust Company of Canada, which held the shares as trustee for the
benefit of the holders of the Exchangeable Shares described below. Except as
otherwise required by law or CanArgo's Certificate of Incorporation, each share
of special voting stock was entitled to a number of votes equal to the quotient
(rounded down to the nearest whole number) obtained by dividing the number of
outstanding Exchangeable Shares by the number of outstanding shares of special
voting stock. The special voting stock could be voted in the election of
directors and on all other matters submitted to a vote of stockholders of
CanArgo. The holders of common stock and the holder of the special voting stock
voted together as a single class on all matters, except to the extent voting as
a separate class was required by applicable law or CanArgo's Certificate of
Incorporation.

In the event of any liquidation, dissolution or winding up of CanArgo, the
holder of the special voting stock would have been entitled to receive the sum
of $1.00 per share ($148,826 in aggregate) of special voting stock from any
assets of CanArgo available for distribution to its stockholders. The holder of
the special voting stock was not entitled to receive dividends. CanArgo redeemed
the special voting stock for a price of $1.00 per share in connection with the
redemption of the Exchangeable Shares effective in May 2002.


EXCHANGEABLE SHARES

In connection with the July 1998 business combination, the outstanding common
shares of CAOG were exchanged for Exchangeable Shares issued by that
corporation. The holders of the Exchangeable Shares could exchange them at any
time for CanArgo common stock on a share-for-share basis. The following is a
summary of the principal terms and rights of the Exchangeable Shares.

o    Dividends - Holders of Exchangeable Shares are entitled to receive
     dividends equal to the dividends paid by CanArgo on shares of its common
     stock.

o    Voting Rights - The holders of Exchangeable Shares were entitled to provide
     directions to the holder of the special voting stock as to the manner in
     which the special voting stock should be voted with respect to any matter
     on which holders of the common stock are entitled to vote, as described
     under "Special Voting Stock" above.

o    Exchange Events - Exchangeable Shares were required to be exchanged for
     shares of common stock on a share-for-share basis, plus an amount equal to
     all declared and unpaid dividends on the Exchangeable Shares, whenever:

     -    The holder requests CAOG to redeem his Exchangeable Shares;

     -    CAOG was liquidated, dissolved or wound-up;

     -    Requested by the holder of the special voting stock, in the event CAOG
          became insolvent or bankrupt, had a receiver appointed or similar
          event occurred;

     -    CanArgo Energy Corporation became involved in voluntary or involuntary
          liquidation, dissolution or winding-up proceedings;

     -    Either CAOG or CanArgo Energy Corporation elected to redeem all of the
          Exchangeable Shares, provided the election was made after January 30,
          2004 or at the time of the election the number of outstanding
          Exchangeable Shares was less than 853,071; or

     -    A holder of Exchangeable Shares instructed the holder of the special
          voting stock to require CanArgo to purchase his Exchangeable Shares.

o    Protection Rights - Without the prior approval of CAOG and the holders of
     the Exchangeable Shares, CanArgo could not (1) distribute additional shares
     of its common stock, subscription rights or other property or assets to all
     or substantially all holders of its common stock, or (2) subdivide,
     combine, reclassify or otherwise change the common stock, unless the same
     or an economically equivalent action was taken with respect to the
     Exchangeable Shares. The CAOG Board of Directors was entitled to decide in
     its sole discretion whether the Exchangeable Shares were being treated on
     an economically equivalent basis with the common stock. In the


                                      -67-



     event of any proposed tender offer, share exchange offer, issuer bid,
     take-over bid or similar transaction affecting the common stock, CanArgo
     was required to use reasonable efforts to enable holders of Exchangeable
     Shares to be treated the same as the holders of the common stock. CanArgo
     also agreed to protect the rights of the holders of the Exchangeable Shares
     to receive the same dividends as were paid on the common stock and to
     exchange shares of common stock for Exchangeable Shares.

On January 24, 2002 CanArgo announced that it had established May 24, 2002 as
the redemption date for all of the Exchangeable Shares of CAOG since the number
of outstanding Exchangeable Shares had fallen below the minimum 853,071 share
threshold. Each Exchangeable Share was purchased by CanArgo for shares of
CanArgo Common Stock on a share-for-share basis resulting from the issuance of
an aggregate of 148,826 shares of common stock. No cash consideration was issued
by CanArgo and the purchase did not increase the total number of shares of
Common Stock of CanArgo deemed issued and issuable.

AMENDMENT TO GOVERNING DOCUMENTS

General Corporation Law of the State of Delaware generally requires a vote of
the corporation's board of directors followed by the affirmative vote of a
majority of the outstanding stock entitled to vote for any amendment to the
certificate of incorporation, unless a greater level of approval is required by
the certificate of incorporation. The CanArgo Certificate of Incorporation does
not require a greater level of approval for amendments. If an amendment would
have the effect of altering the powers, preferences or special rights of a
particular class or series of stock, the class or series must be given the power
to vote as a class notwithstanding the absence of any specifically enumerated
power in the certificate of incorporation. General Corporation Law of the State
of Delaware also states that stockholders entitled to vote have the power to
adopt, amend or repeal the bylaws of a corporation unless the corporation in its
certificate of incorporation confers such power on its board of directors. The
CanArgo Certificate of Incorporation expressly authorizes the CanArgo Board and
its stockholders to adopt, amend or repeal the CanArgo Bylaws.

VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS

General Corporation Law of the State of Delaware generally requires the
affirmative vote of a majority of the outstanding stock entitled to vote thereon
to authorize any merger, consolidation, dissolution or sale of substantially all
of the assets of a corporation. No authorizing stockholder vote is required of a
corporation surviving a merger if such corporation's certificate of
incorporation is not amended by the merger, each share of stock of such
corporation will be an identical share of the surviving corporation after the
merger, and the number of shares to be issued in the merger does not exceed 20%
of such corporation's outstanding common stock immediately prior to the
Effective Date of the merger. Additionally, no authorizing stockholder vote is
required of a corporation to authorize a merger with or into a single direct or
indirect wholly-owned subsidiary of such corporation unless required by its
certificate of incorporation (provided certain other limited circumstances
apply). The CanArgo Certificate of Incorporation does not require a greater
percentage vote for such actions. Finally, General Corporation Law of the State
of Delaware does not require stockholder approval for mergers or consolidations
in which a parent corporation merges or consolidates with a subsidiary of which
it owns at least 90% of the outstanding shares of each class of stock.

DISSENTERS' RIGHTS

Under General Corporation Law of the State of Delaware, holders of shares of any
class or series have the right in certain circumstances to dissent from a merger
or consolidation by demanding payment in cash for their shares equal to the fair
value (excluding any appreciation or depreciation as a consequence or in
expectation of the transaction) of such shares, as determined by agreement with
the corporation or by an independent appraiser appointed by a court in an action
timely brought by the corporation or the dissenters. General Corporation Law of
the State of Delaware grants dissenters' appraisal rights only in the case of
mergers or consolidations and not in the case of a sale or transfer of assets, a
purchase of assets for stock, or any other stock issuance, such as in connection
with the Transaction, regardless of the number of shares being issued. Further,
no appraisal rights are available for shares of any class or series listed on a
national securities exchange or NASDAQ or held of record by more than 2,000
stockholders, unless the agreement of merger or consolidation converts such
shares into anything other than some combination of stock of the surviving
corporation, stock of another corporation which is either listed on a national


                                      -68-



securities exchange or NASDAQ or held of record by more than 2,000 stockholders
or cash in lieu of fractional shares.

DERIVATIVE ACTION

Derivative actions may be brought in Delaware by a stockholder on behalf of, and
for the benefit of, the corporation. General Corporation Law of the State of
Delaware provides that a stockholder must assert in the complaint that he or she
was a stockholder of the corporation at the time of the transaction of which he
or she complains. A stockholder may not sue derivatively unless he or she first
makes demand on the corporation that it bring suit and such demand has been
refused unless it is shown that such demand would have been futile.

LIMITATION ON LIABILITY

CanArgo's Certificate of Incorporation limits or eliminates the liability of
CanArgo's directors or officers to CanArgo or its stockholders for monetary
damages to the fullest extent permitted by the Delaware General Corporation Law.
Delaware law provides that a director of CanArgo will not be personally liable
to CanArgo or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except for liability: (1) for any breach of the director's
duty of loyalty; (2) for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law; (3) for the payment of
unlawful dividends and some other actions prohibited by Delaware corporate law;
and (4) for any transaction resulting in receipt by the director of an improper
personal benefit.

SECTION 203 OF DELAWARE GENERAL CORPORATION LAW

Section 203 of the Delaware General Corporation Law, which is applicable to
CanArgo as a Delaware corporation, prohibits various business combinations
between a Delaware corporation and an "interested stockholder," that is, anyone
who beneficially owns, alone or with other related parties, at least 15% of the
outstanding voting shares of a Delaware corporation. Business combinations
subject to Section 203 include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and some transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation. Section 203 prohibits this type of business combination for three
years after a person becomes an interested stockholder, unless:

-    the business combination is approved by the corporation's board of
     directors prior to the date the person becomes an interest stockholder;
-    the interested stockholder acquired at least 85% of the voting stock of the
     corporation, other than stock held by directors who are also officers or by
     specified employee stock plans, in the transaction in which it becomes an
     interested stockholder; or
-    the business combination is approved by a majority of the board of
     directors and by the affirmative vote of two-thirds of the outstanding
     voting stock that is not owned by the interested stockholder.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is Signature Stock
Transfer, Inc., Dallas, Texas, and the Norwegian sub-registrar for the common
stock is Den norske Bank ASA, Oslo, Norway.




                                      -69-



                        SHARES ELIGIBLE FOR FUTURE RESALE

As of October 30, 2002, CanArgo has 97,356,206 shares of common stock issued and
issuable. The current authorized number of common shares that may be issued
without shareholder approval is 150,000,000. Should CanArgo issue additional
shares up to the maximum number of shares authorized, existing shareholders
would be subject to a 35% dilution in their interest.

The only material restriction on the approximately 232,250 shares of common
stock outstanding held by affiliates is the limitation on the number of shares
that may be sold in any three-month period under Rule 144. In general, under
Rule 144, a person who has beneficially owned restricted shares for at least one
year, including persons who are affiliates, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:

-    1% of the then outstanding shares of our common stock, approximately
     970,000 shares; or

-    the reported average weekly trading volumes of our common stock during the
     four calender weeks preceding a sale by such person.

Sales under Rule 144 are also subject to manner-of-sale provisions, notice
requirements and the availability of current public information.

Under Rule 144(k), a person who has not been one of our affiliates during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, is free to sell such shares without regard to the
volume, manner-of-sale or certain other limitations contained in Rule 144.

We can make no prediction as to the effect, if any, that sales of shares of
common stock or the availability of shares for sale will have on the market
price of our common stock. Nevertheless, sales of significant amounts of our
common stock could adversely affect the prevailing market price of the common
stock, as well as impair our ability to raise capital through the issuance of
additional equity securities.

An "affiliate" is generally considered to be an executive officer, director or
holder of enough of the equity securities of a company to be able to influence
the policies of that company.

In addition to the outstanding shares, at October 30, 2002 CanArgo had reserved
the following shares for possible future issuance:

-    6,970,751 shares issuable upon exercise of outstanding stock options;

-    2,332,585 shares that may be issued upon exercise of options available for
     future grant under CanArgo's stock option plans;

-    187,500 shares issuable in connection with an oil and gas project.

Of the foregoing shares, all but 187,500 shares will be freely tradeable without
restriction or further registration under the Securities Act, except for shares
which may be acquired by affiliates of CanArgo which would be subject to Rule
144 as described above.


                                      -70-



              CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
                    NON-UNITED STATES HOLDERS OF COMMON STOCK

The following is a general discussion of the material U.S. federal income and
estate tax consequences of the ownership and disposition of our common stock by
a non-U.S. holder. In general, a non-U.S. holder is:

     o    an individual who is neither a citizen nor a resident of the U.S. (as
          determined for U.S. federal income tax purposes);
     o    a corporation or other entity taxed as a corporation organized or
          created under non-U.S. law;
     o    an estate that is not taxable in the U.S. on its worldwide income; or
     o    a trust that is either not subject to primary supervision by a U.S.
          court or not subject to the control of a U.S. person with respect to
          substantial trust decisions.

If a partnership holds common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner of a partnership holding common stock, we
suggest that you consult your tax advisor.

If you are an individual, you may, in many cases, be deemed to be a resident of
the U.S. by virtue of being present in the United States for at least 31 days in
the calendar year and for an aggregate of at least 183 days during a three-year
period ending in the current calendar year (counting for such purposes all of
the days present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year). Resident aliens are subject to U.S. federal income tax as if
they were U.S. citizens.

This discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code") and administrative interpretations of the Code as of the date of this
prospectus, all of which are subject to change, including changes with
retroactive effect.

This discussion does not address all aspects of U.S. federal taxation or other
tax considerations that may be relevant to you, and in particular is limited in
the ways that follow:

     o    The discussion assumes that you hold your common stock as a capital
          asset and that you do not have a special tax status.
     o    The discussion does not consider tax consequences that depend upon
          your particular tax situation in addition to your ownership of the
          common stock.
     o    The discussion does not consider special tax provisions that may be
          applicable to you if you have relinquished U.S. citizenship or
          residence.
     o    The discussion does not cover state, local or foreign law.
     o    We have not requested a ruling from the Internal Revenue Service
          ("IRS") on the tax consequences of owning the common stock. As a
          result, the IRS could disagree with portions of this discussion.

Each prospective purchaser of common stock is advised to consult a tax advisor
with respect to current and possible future tax consequences of purchasing,
owning and disposing of our common stock as well as any tax consequences that
may arise under the laws of any United States state, municipality or other
taxing jurisdiction.

DISTRIBUTIONS

Distributions paid on the shares of common stock generally will constitute
dividends for U.S. federal income tax purposes to the extent paid from our
current or accumulated earnings and profits, as determined under U.S. federal
income tax principles. To the extent that the amount of any distribution exceeds
our current and accumulated earnings and profits for a taxable year, the
distribution will be treated first as a tax-free return of your basis in the


                                      -71-



shares of common stock, causing a reduction in the adjusted basis of the common
stock, and the balance in excess of adjusted basis will be treated as capital
gain recognized on a disposition of the common stock (as discussed below).

As discussed under "Dividend Policy," CanArgo does not currently expect to pay
dividends. In the event that CanArgo does pay dividends, subject to the
discussion below, dividends paid to a non-U.S. holder of common stock generally
will be subject to withholding tax at a 30% rate or a reduced rate specified by
an applicable income tax treaty. A non-U.S. holder generally must file IRS Form
W-8BEN to certify its entitlement to the benefit of a reduced rate of
withholding under an income tax treaty. If common stock is held through a
foreign partnership or a foreign intermediary, the partnership or intermediary,
as well as the partners or beneficial owners, may need to meet certification
requirements.

The withholding tax does not apply to dividends paid to a non-U.S. holder that
provides a Form W-8ECI certifying that the dividends are effectively connected
with the non-U.S. holder's conduct of a trade or business within the United
States. Instead, the effectively connected dividends generally will be subject
to regular U.S. income tax as if the non-U.S. holder were a U.S. resident. If
the non-U.S. holder is eligible for the benefits of a tax treaty between the
U.S. and the holder's country of residence, any effectively connected income
generally will be subject to U.S. federal income tax only if it is attributable
to a permanent establishment in the U.S. maintained by the holder and such
treaty-based tax position is disclosed to the IRS. A non-U.S. corporation
receiving effectively connected dividends also may be subject to an additional
"branch profits tax" imposed at a rate of 30% (or a lower treaty rate) on an
earnings amount that is net of the regular tax.

You may obtain a refund of any excess amounts withheld by filing an appropriate
claim for refund along with the required information with the IRS.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax on
gain realized on a sale or other disposition of common stock unless:

     o    the gain is effectively connected with a trade or business of the
          non-U.S. holder in the United States and, if certain tax treaties
          apply, is attributable to a permanent establishment in the U.S.
          maintained by such holder;
     o    in the case of a non-resident alien individual who holds the common
          stock as a capital asset, the individual is present in the United
          States for 183 or more days in the taxable year of the disposition and
          certain conditions are met; or
     o    unless an exception applies, CanArgo is or has been a U.S. real
          property holding corporation at any time within the five-year period
          preceding the disposition or during the non-U.S. holder's holding
          period, whichever period is shorter.

The tax relating to stock in a U.S. real property holding corporation does not
apply to a non-U.S. holder whose holdings, actual and constructive, at all times
during the applicable period, amount to 5% or less of the common stock of a U.S.
real property holding corporation, provided that the common stock is regularly
traded on an established securities market. Generally, a corporation is a U.S.
real property holding corporation if the fair market value of its U.S. real
property interests, as defined in the Code and applicable regulations, equals or
exceeds 50% of the aggregate fair market value of its worldwide real property
interests and its other assets used or held for use in a trade or business.
CanArgo may be, or prior to a non-U.S. holder's disposition of common stock may
become, a U.S. real property holding corporation.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

CanArgo must report annually to the IRS the amount of dividends paid, the name
and address of the recipient, and the amount of any tax withheld. A similar
report is sent to the non-U.S. holder. Under tax treaties or other agreements,
the IRS may make its reports available to tax authorities in the recipient's
country of residence. A non-U.S. holder will generally be required to certify
its non-U.S. status in order to avoid backup withholding on dividends (although,
as noted above, such dividends distributed to a non-U.S. holder may be subject
to the regular withholding rules).


                                      -72-



U.S. information reporting and backup withholding generally will not apply to a
payment of proceeds of a disposition of common stock where the transaction is
effected outside the United States through a non-U.S. office of a non-U.S.
broker. However, information reporting requirements, but not backup withholding,
generally will apply to such a payment if the broker is:

     o    a U.S. person;
     o    a foreign person that derives 50% or more of its gross income for
          certain periods from the conduct of a trade or business in the U.S.;
     o    a controlled foreign corporation as defined in the Code; or
     o    a foreign partnership with certain U.S. connections.

Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that the holder is a non-U.S.
holder and certain conditions are met or the holder otherwise establishes an
exemption.

A non-U.S. holder will be required to certify its non-U.S. status, in order to
avoid information reporting and backup withholding on disposition proceeds,
where the transaction is effected by or through a U.S. office of a broker.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. When withholding results in an overpayment of taxes, a refund may be
obtained if the required information is furnished to the IRS.

FEDERAL ESTATE TAX

An individual non-U.S. holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the common stock will be required
to include the value of the stock in his gross estate for U.S. federal estate
tax purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.

THE FOREGOING DISCUSSION IS ONLY A SUMMARY OF CERTAIN U.S. FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF COMMON
STOCK BY NON-U.S. HOLDERS. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR WITH
RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF OWNERSHIP AND DISPOSITION
OF COMMON STOCK, INCLUDING THE EFFECT OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS, AND ANY APPLICABLE INCOME OR ESTATE TAX TREATIES.


                  LIMITATION OF LIABILITY AND INDEMNIFICATION

LIMITATION OF LIABILITY

Our Certificate of Incorporation limits or eliminates the liability of our
directors or officers to us or our stockholders for monetary damages to the
fullest extent permitted by the Delaware General Corporation Law. Delaware law
provides that a director of CanArgo will not be personally liable to CanArgo or
our stockholders for monetary damages for a breach of fiduciary duty as a
director, except for liability: (1) for any breach of the director's duty of
loyalty; (2) for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law; (3) for the payment of unlawful
dividends and some other actions prohibited by Delaware corporate law; and (4)
for any transaction resulting in receipt by the director of an improper personal
benefit.

INDEMNIFICATION

Delaware General Corporation Law provides that a corporation may indemnify our
present and former directors, officers, employees and agents (each, an
"indemnitee") against all reasonable expenses (including attorneys' fees)
judgments, fines and amounts paid in settlement incurred in an action, suit or
proceeding, other than in actions initiated by or in the right of the
corporation, to which the indemnitee is made a party by reason of service as a
director, officer, employee or agent, if such individual acted in good faith and
in a manner which he or she


                                      -73-



reasonably believed to be in, or not opposed to, the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful. A Delaware corporation shall
indemnify an indemnitee to the extent that he or she is successful on the merits
or otherwise in the defense of any claim, issue or matter associated with an
action, suit or proceeding, including one initiated by or in the right of the
corporation. Our Bylaws provide for indemnification of directors and officers to
the fullest extent permitted by Delaware General Corporation Law.

Delaware General Corporation Law allows and our Bylaws provide for the advance
payment of an indemnity for expenses prior to the final disposition of an
action, provided that the indemnitee undertakes to repay any such amount
advanced if it is later determined that the indemnitee is not entitled to
indemnification with regard to the action for which the expenses were advanced.

Our directors and officers are insured, under policies of insurance maintained
by us, within the limits and subject to the limitations of the policies, against
certain expenses in connection with the defense of actions, suits or
proceedings, to which they are parties by reason of being or having been such
directors or officers.

Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons who may control us pursuant to
the foregoing provisions, we have been informed that in the opinion of the SEC
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.


                                 LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will be
passed upon for us by Satterlee Stephens Burke & Burke LLP, New York, New York.


                                    EXPERTS

The consolidated financial statements of CanArgo Energy Corporation as of
December 31, 2001 and 2000 and for each of three years in the period ended
December 31,2001 included in this Prospectus have been so included in reliance
on the report of PricewaterhouseCoopers, independent auditors, given on the
authority of said firm as experts in accounting and auditing.

Information from a report prepared by Ashton Jenkins Mann, a firm of independent
petroleum consultants, has been included in this prospectus in reliance on the
fact that Ashton Jenkins Mann is an expert in the evaluation of oil and gas
reserves.


                             AVAILABLE INFORMATION

This prospectus is part of a registration statement on Form S-1 (file no.
333-85116) filed by CanArgo with the SEC. This prospectus does not contain all
of the information set forth in the registration statement. Additional
information about CanArgo and its common stock is contained in the registration
statement and its exhibits. This prospectus contains summary descriptions of
some of the documents that are filed as exhibits to the registration statement.
Such descriptions are materially complete; however we urge you tod read the
entire document filed as an exhibit and not rely solely on the summaries in this
prospectus.

CanArgo files reports with the SEC such as annual and quarterly reports, proxy
and information statements, and other information. The public may read and copy
any materials CanArgo files with the SEC, including the registration statement
and its exhibits, at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers, such as CanArgo, that file
electronically with the SEC. The address of that site is: http:// www.sec.gov.
From the SEC home page, click on "Search Edgar Archives", then "Quick Forms
Lookup."



                                      -74-



                          INDEX TO FINANCIAL STATEMENTS


                                                                          
CANARGO ENERGY CORPORATION:
     Consolidated Balance Sheets as at December 31, 2001 and 2000            F-3
     Consolidated Statement of Operations for the years ended December 31,
           2001, 2000 and 1999                                               F-4
     Consolidated Statement of Cash Flows for the years ended December 31,
           2001, 2000 and 1999                                               F-5
     Consolidated Statement of Stockholders' Equity for the years ended
           December 31, 2001, 2000 and 1999                                  F-6
     Notes to Consolidated Financial Statements                              F-8
     Supplemental Financial Information: Quarterly Results of Operations -
           Unaudited                                                         F-26
     Supplemental Financial Information: Supplemental Oil and Gas
           Disclosures - Unaudited                                           F-27
     Consolidated Condensed Balance Sheets as at September 30, 2002 and
           December 31, 2001 (Unaudited)                                     F-33
     Consolidated Condensed Statement of Operations for the nine months
           ended September 30, 2002 and September 30, 2001 (Unaudited)       F-34
     Consolidated Condensed Statement of Cash Flows for the nine months
           ended September 30, 2002 and September 30, 2001 (Unaudited)       F-35
     Notes to Unaudited Consolidated Condensed Financial Statements for the
           nine months ended September 30, 2002 and September 30, 2001       F-36



                                      F-1



                        REPORT OF INDEPENDENT ACCOUNTANTS


REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Shareholders of CanArgo Energy Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of CanArgo
Energy Corporation and its subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and 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. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


                                               /s/ PricewaterhouseCoopers
                                               PricewaterhouseCoopers
                                               Chartered Accountants


London, England
March 18, 2002, except for Note 14, Discontinued Operations, which is as of 30
October 2002.


                                      F-2



                           CANARGO ENERGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2001 AND 2000
                      (EXPRESSED IN UNITED STATES DOLLARS)




                                                  DECEMBER 31,      December 31,
                                                     2001               2000
                                                 --------------    --------------
                                                             
ASSETS

Cash and cash equivalents                        $    5,891,038    $   29,696,654
Accounts receivable                                   2,007,112           316,730
Inventory                                               405,918           668,337
Prepayments                                           2,235,712           685,991
Other current assets                                    697,827           201,063
                                                 --------------    --------------
        Total current assets                     $   11,237,607    $   31,568,775

Capital assets, net (including
unevaluated amounts of
$24,570,886 and $13,897,096,                         52,535,420        49,849,117
respectively)
Investments in and advances to oil and
  gas and other ventures - net                          719,308           696,374
Assets of subsidiary held for sale                    5,819,582           735,138
                                                 --------------    --------------
TOTAL ASSETS                                     $   70,311,917    $   82,849,404
                                                 ==============    ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable                                 $      828,461    $    2,684,384
Advances from joint venture partner                          --         5,888,573
Income taxes payable                                     61,000                --
Accrued liabilities                                     400,221           409,144
                                                 --------------    --------------
        Total current liabilities                $    1,289,682    $    8,982,101

Provision for future site restoration                    64,290            40,990
Liabilities of subsidiary held for sale               1,177,174             6,734

Minority shareholder advances                           450,000                --
Minority interest in subsidiaries                     1,531,191         1,393,915
Commitments and contingencies (Note 9)

Stockholders' equity:
    Preferred stock, par value $0.10 per share               --                --
    Common stock, par value $0.10 per share           9,200,845         7,595,069
    Capital in excess of par value                  144,057,517       139,071,031
    Accumulated deficit                             (87,458,782)      (74,240,436)
                                                 --------------    --------------
        Total stockholders' equity               $   65,799,580    $   72,425,664
                                                 --------------    --------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $   70,311,917    $   82,849,404
                                                 ==============    ==============



         The accompanying notes are an integral part of the consolidated
                              financial statements


                                      F-3



                           CANARGO ENERGY CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                      (EXPRESSED IN UNITED STATES DOLLARS)




                                                         DECEMBER 31,    December 31,    December 31,
                                                             2001            2000           1999
                                                         ------------    ------------    ------------
                                                                                

Operating Revenues from Continuing Operations:
    Oil and gas sales                                    $  3,967,078    $  6,108,779    $  2,493,612
    Refining                                                2,595,763         535,865              --
    Other                                                     608,032         364,900         289,321
                                                         ------------    ------------    ------------
                                                            7,170,873       7,009,544       2,782,933
                                                         ------------    ------------    ------------

Operating Expenses:
    Field operating expenses                                1,568,011       1,287,035       1,062,610
    Purchases of crude oil and products                     1,451,083          20,520              --
    Refinery operating expenses                               791,139         439,037              --
    Direct project costs                                    1,300,423         737,731         766,424
    Selling, general and administrative                     3,741,826       3,050,383       2,192,728
    Depreciation, depletion and amortization                3,249,962       3,875,988       1,145,029
    Impairment of oil and gas properties                    7,300,000              --         233,957
    Impairment of oil and gas ventures                             --              --       5,459,793
    Impairment of other assets                              3,859,795              --              --
    Loss on disposition of assets                              16,130                          41,742
                                                         ------------    ------------    ------------
                                                           23,278,369       9,410,694      10,902,283
                                                         ------------    ------------    ------------

OPERATING LOSS FROM CONTINUING OPERATIONS                 (16,107,496)     (2,401,150)     (8,119,350)
                                                         ------------    ------------    ------------

Other Income (Expense):
    Interest, net                                             642,216         549,749        (199,604)
    Other                                                     (74,796)        (78,774)        (74,172)
    Equity income (loss) from investments                    (160,000)       (240,070)       (261,234)
                                                         ------------    ------------    ------------
TOTAL OTHER INCOME (EXPENSE)                                  407,420         230,905        (535,010)
                                                         ------------    ------------    ------------

NET LOSS BEFORE MINORITY INTEREST                         (15,700,076)     (2,170,245)     (8,654,360)

Minority interest in loss of consolidated subsidiaries      2,138,163          26,939         181,500
                                                         ------------    ------------    ------------

NET LOSS FROM CONTINUING OPERATIONS                      $(13,561,912)   $ (2,143,306)   $ (8,472,860)
                                                         ============    ============    ============
NET INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES
AND MINORITY INTEREST                                    $    343,566    $     (8,298)   $         --
                                                         ------------    ------------    ------------
NET AND COMPREHENSIVE LOSS                               $(13,218,346)   $ (2,151,604)   $ (8,472,860)
                                                         ============    ============    ============

    Weighted average number of
      common shares outstanding                            83,869,579      54,950,630      26,370,235
                                                         ------------    ------------    ------------

NET LOSS PER COMMON SHARE - BASIC AND DILUTED
    - from continuing operations                         $      (0.16)   $      (0.04)   $      (0.32)
    - from discontinued operations                       $       0.00    $      (0.00)   $         --
                                                         ------------    ------------    ------------

NET LOSS PER COMMON SHARE - DILUTED                      $      (0.16)   $      (0.04)   $      (0.32)
                                                         ------------    ------------    ------------



         The accompanying notes are an integral part of the consolidated
                              financial statements


                                      F-4



                           CANARGO ENERGY CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                      (EXPRESSED IN UNITED STATES DOLLARS)




                                                               DECEMBER 31,    December 31,    December 31,
                                                                   2001            2000            1999
                                                               ------------    ------------    ------------
                                                                                      

Operating activities:
    Net loss from continuing operations                        $(13,561,912)   $ (2,143,306)   $ (8,472,860)
    Depreciation, depletion and amortization                      3,249,962       3,875,988       1,145,029
    Impairment of oil and gas properties                          7,300,000              --         233,957
    Impairment of other assets                                    3,859,795              --       5,459,793
    Issuance of common stock for services                                --         112,700         298,872
    Equity loss (income) from investments                           160,000         240,070         261,234
    Loss (gain) on disposition of assets                             16,130              --          41,742
    Allowance for doubtful accounts                                 200,000         100,000          76,921
    Minority interest in loss of consolidated subsidiaries       (2,138,163)        (26,939)       (181,500)
    Changes in assets and liabilities:
        Accounts receivable                                      (1,623,866)        300,405        (121,429)
        Inventory                                                   262,419          46,828         (18,095)
        Prepayments                                                (130,300)       (628,853)        277,539
        Other current assets                                       (496,764)       (144,222)        271,442
        Accounts payable                                         (3,352,399)        197,889         322,536
        Income taxes payable                                         61,000              --              --
        Accrued liabilities                                        (281,318)         62,225        (805,053)
        Receipt (use of) advances from joint venture partner     (5,888,573)      5,888,573              --
                                                               ------------    ------------    ------------
NET CASH GENERATED BY (USED IN) OPERATING ACTIVITIES            (12,363,989)      7,881,358      (1,209,872)
                                                               ------------    ------------    ------------

Investing activities:
    Capital expenditures                                        (11,116,538)    (11,857,279)     (3,504,840)
    Proceeds from disposition of assets                              19,383          13,408       1,166,234
    Acquisitions, net of cash acquired                           (4,044,973)             --              --
    Proceeds from disposition of investment                         125,000              --              --
    Investments in and advances to oil and gas and other
        ventures                                                   (831,403)       (236,074)       (649,603)
    Change in non working capital items                          (1,340,359)       (150,000)        150,000
                                                               ------------    ------------    ------------
NET CASH USED IN INVESTING ACTIVITIES                           (17,188,890)    (12,229,945)     (2,838,209)
                                                               ------------    ------------    ------------

Financing Activities:
    Proceeds from sales of common stock                           7,235,337      33,283,873       6,392,739
    Share issue costs                                              (643,075)     (2,848,505)       (828,300)
    Minority shareholder advances                                   450,000              --              --
    Advances from minority interest                               1,931,874         500,000              --
    Cash acquired                                                        --         207,470              --
                                                               ------------    ------------    ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                         8,974,136      31,142,838       5,564,439
                                                               ------------    ------------    ------------

NET CASH FLOWS FROM SUBSIARY HELD FOR SALE                       (3,226,873)       (744,999)             --

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            (23,805,616)     26,049,251       1,516,358
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                   29,696,654       3,647,403       2,131,045
                                                               ------------    ------------    ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                       $  5,891,038    $ 29,696,654    $  3,647,403
                                                               ------------    ------------    ------------



         The accompanying notes are an integral part of the consolidated
                              financial statements


                                      F-5



                           CANARGO ENERGY CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
               FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AN 1999
                      (EXPRESSED IN UNITED STATES DOLLARS)




                                               COMMON STOCK
                                     ------------------------------
                                       NUMBER OF
                                         SHARES                          ADDITIONAL                         TOTAL
                                       ISSUED AND                         PAID-IN        ACCUMULATED     STOCKHOLDERS'
                                        ISSUABLE        PAR VALUE         CAPITAL          DEFICIT          EQUITY
                                     -------------    -------------    -------------    -------------    -------------
                                                                                          

BALANCE, DECEMBER 31, 1998              15,157,868        1,515,786       90,549,249      (63,615,972)      28,449,063

Shares issuable upon exchange of
CanArgo Oil & Gas Inc.
Exchangeable Shares without
receipt of further consideration         5,856,775          585,678       10,996,692               --       11,582,370
                                     -------------    -------------    -------------    -------------    -------------
TOTAL, DECEMBER 31, 1998                21,014,643        2,101,464      101,545,941      (63,615,972)      40,031,433
                                     -------------    -------------    -------------    -------------    -------------
Less shares issuable at
beginning of year                       (5,856,775)        (585,678)     (10,996,692)              --      (11,582,370)

Issuance of common stock upon
exchange of CanArgo Oil & Gas
Inc. Exchangeable Shares                 5,327,016          532,702       10,002,014               --       10,534,716

Issuance of common stock in
connection with acquisition of oil
and gas properties                         650,000           65,000          375,740               --          440,740

Issuance of common stock for
services                                   537,917           53,792          245,080               --          298,872

Issuance of common stock
pursuant to registration statement      11,850,362        1,185,036        2,370,073               --        3,555,109

Issuance of common stock
pursuant to private placement            3,300,000          330,000        2,507,630               --        2,837,630

Share issue costs                               --               --         (828,300)              --         (828,300)

Net loss                                        --               --               --       (8,472,860)      (8,472,860)
                                     -------------    -------------    -------------    -------------    -------------
BALANCE, DECEMBER 31, 1999              36,823,163    $   3,682,316    $ 105,221,486    $ (72,088,832)   $  36,814,970
                                     -------------    -------------    -------------    -------------    -------------

Shares issuable upon exchange of
CanArgo Oil & Gas Inc.
Exchangeable Shares without
receipt of further consideration           529,759           52,976          994,678               --        1,047,654
                                     -------------    -------------    -------------    -------------    -------------
TOTAL, DECEMBER 31, 1999                37,352,922    $   3,735,292    $ 106,216,164    $ (72,088,832)   $  37,862,624
                                     -------------    -------------    -------------    -------------    -------------



         The accompanying notes are an integral part of the consolidated
                              financial statements


                                      F-6



                           CANARGO ENERGY CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
               FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AN 1999
                      (EXPRESSED IN UNITED STATES DOLLARS)




                                              COMMON STOCK
                                     ------------------------------
                                       NUMBER OF
                                         SHARES                          ADDITIONAL                          TOTAL
                                       ISSUED AND                         PAID-IN        ACCUMULATED     STOCKHOLDERS'
                                        ISSUABLE        PAR VALUE         CAPITAL          DEFICIT          EQUITY
                                     -------------    -------------    -------------    -------------    -------------
                                                                                          

TOTAL, DECEMBER 31, 1999                37,352,922    $   3,735,292    $ 106,216,164    $ (72,088,832)   $  37,862,624

Less shares issuable at
beginning of year                         (529,759)         (52,976)        (994,678)              --       (1,047,654)

Issuance of common stock upon
exchange of CanArgo Oil & Gas
Inc. Exchangeable Shares                   105,968           10,597          198,966               --          209,563

Issuance of common stock
for services                               140,000           14,000           98,700               --          112,700

Issuance of common stock
to purchase minority shareholder's
interest in subsidiary                   4,054,054          405,406        4,094,594               --        4,500,000

Exercise of stock options                1,504,664          150,466          431,939               --          582,405

Issuance of common stock
pursuant to private placements          31,355,916        3,135,592       29,565,876               --       32,701,468

Issuance of common stock
to purchase controlling interest
in refinery                              1,543,125          154,313        1,512,263               --        1,666,576

Share issue costs                               --               --       (2,848,505)              --       (2,848,505)

Net loss                                        --               --               --       (2,151,604)      (2,151,604)
                                     -------------    -------------    -------------    -------------    -------------
BALANCE, DECEMBER 31, 2000              75,526,890    $   7,552,690    $ 138,275,319    $ (74,240,436)   $  71,587,573
                                     -------------    -------------    -------------    -------------    -------------

Shares issuable upon exchange
of CanArgo Oil & Gas Inc.
Exchangeable Shares without
receipt of further consideration           423,791           42,379          795,712               --          838,091
                                     -------------    -------------    -------------    -------------    -------------
TOTAL, DECEMBER 31, 2000                75,950,681    $   7,595,069    $ 139,071,031    $ (74,240,436)   $  72,425,664
                                     -------------    -------------    -------------    -------------    -------------

Less shares issuable at
beginning of year                         (423,791)         (42,379)        (795,712)              --         (838,091)

Issuance of common stock upon
exchange of CanArgo Oil & Gas
Inc. Exchangeable Shares                   274,965           27,497          516,276               --          543,772

Issuance of common stock
pursuant to private placement           16,057,765        1,605,776        5,629,561               --        7,235,337

Share issue costs                               --               --         (643,075)              --         (643,075)

Net loss                                        --               --               --      (13,218,346)     (13,218,346)
                                     -------------    -------------    -------------    -------------    -------------
BALANCE, DECEMBER 31, 2001              91,859,620    $   9,185,962    $ 143,778,081    $ (87,458,782)   $  65,505,261
                                     -------------    -------------    -------------    -------------    -------------

Shares issuable upon exchange
of CanArgo Oil & Gas Inc.
Exchangeable Shares without
receipt of further consideration           148,826           14,883          279,436               --          294,319
                                     -------------    -------------    -------------    -------------    -------------

TOTAL, DECEMBER 31, 2001                92,008,446    $   9,200,845    $ 144,057,517    $ (87,458,782)   $  65,799,580
                                     =============    =============    =============    =============    =============



         The accompanying notes are an integral part of the consolidated
                              financial statements


                                      F-7



                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   NATURE OF OPERATIONS

     CanArgo Energy Corporation and its consolidated subsidiaries (collectively
     "CanArgo"), is an integrated oil and gas company operating predominately
     within the Republic of Georgia. Historically the principal activity of
     CanArgo has been the acquisition of interests in and development of crude
     oil and natural gas fields with a productive history that indicate the
     potential for increased production through rehabilitation and utilization
     of modern production techniques and enhanced oil recovery processes. In
     2000, this activity was expanded to include the refining and marketing of
     crude oil and crude oil products.

     Certain activities in which CanArgo has interests are conducted through
     unconsolidated entities. CanArgo owns majority and less than majority
     interests in entities developing or seeking to develop oil and gas
     properties in Eastern Europe including the Russian Federation.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION - The consolidated financial statements and notes
     thereto are prepared in accordance with U.S. generally accepted accounting
     principles. All amounts are in U.S. dollars.

     CanArgo has incurred recurring operating losses, and its current operations
     are not generating positive cash flows. The ability of CanArgo to continue
     as a going concern and to pursue its principal activities of acquiring
     interests in and developing oil and gas fields is dependent upon CanArgo
     reducing costs, generating funds from internal sources including the sale
     of certain non-core assets, external sources and, ultimately, achieving
     sufficient positive cash flows from operating activities.

     In order to preserve available cash resources while still maintaining
     essential field operations and development activities in Georgia, a
     significant cost reduction plan is being implemented. External sources of
     funding are also being pursued. Should such funding not be forthcoming and
     CanArgo be unable to sell some or all of its non-core assets, further cost
     reductions will be required in order for CanArgo to remain a going concern.

     Development of the oil and gas properties and ventures in which CanArgo has
     interests involves multi-year efforts and substantial cash expenditures.
     Full development of these properties will require the availability of
     substantial funds from external sources. CanArgo believes that it will be
     able to generate funds from external sources including quasi-governmental
     financing agencies, conventional lenders, equity investors and other oil
     and gas companies that may desire to participate in CanArgo's oil and gas
     projects, although no firm funding commitments have been received.

     In September 2002, CanArgo approved a plan to sell CanArgo Standard Oil
     Products to finance Georgian and Ukrainian development projects and in
     October 2002, CanArgo agreed to sell its 50% holding for $4 million with
     legal ownership being transferred upon receipt of final payment due in
     August 2003. The agreed consideration to be exchanged does not result in an
     impairment of the carrying value of assets held for sale. The assets and
     liabilities of CanArgo Standard Oil Products have been classified as
     "Assets of subsidiary held for sale" and "Liabilities of subsidiary held
     for sale" for all periods presented. The results of operations of CanArgo
     Standard Oil Products have been classified as discontinued for all periods
     presented. The minority interest related to CanArgo Standard Oil Products
     has not been reclassified for any of the periods presented, however net
     income from discontinued operations is disclosed net of taxes and minority
     interest.

     CONSOLIDATION - The consolidated financial statements include the accounts
     of CanArgo Energy Corporation and its majority owned subsidiaries. All
     significant intercompany transactions and accounts have been eliminated.
     Investments in less than majority owned corporations and corporate like
     entities in which the Company exercises significant influence are accounted
     for using the equity method. Entities in which the Company does not have
     significant influence are accounted for using the cost method.


                                      F-8



                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
     preparation of financial statements in conformity with generally accepted
     accounting principles requires management to make estimates and assumptions
     that affect the reported amounts of assets and liabilities and disclosure
     of contingent assets and liabilities at the date of the financial
     statements and the reported amounts of revenues and expenses during the
     reporting period. Actual results could differ from those estimates.

     CASH AND CASH EQUIVALENTS - Cash and cash equivalents includes
     term-deposits with original maturity terms not exceeding 90 days.

     FAIR VALUE OF FINANCIAL INSTRUMENTS - CanArgo considers all liquid
     investments with an original maturity of three months or less to be cash
     equivalents. The carrying amount of cash and other current assets and
     liabilities approximates fair value because of the short term maturity of
     these items. CanArgo does not hold or issue financial instruments for
     trading purposes.

     RECLASSIFICATION - Certain items in the consolidated financial statements
     have been reclassified to conform to the current year presentation. There
     was no effect on net loss as a result of these reclassifications.

     INVENTORIES - Inventories of crude oil, refined products and supplies are
     valued at the lower of average cost and net realizable value.

     CAPITAL ASSETS - Capital assets are recorded at cost less accumulated
     provisions for depreciation, depletion and amortization unless the carrying
     amount is viewed as not recoverable in which case the carrying value of the
     assets is reduced to the estimated recoverable amount. See "Impairment of
     Long-Lived Assets" below. Expenditures for major renewals and betterments,
     which extend the original estimated economic useful lives of applicable
     assets, are capitalized. Expenditures for normal repairs and maintenance
     are charged to expense as incurred. The cost and related accumulated
     depreciation of assets sold or retired are removed from the accounts and
     any gain or loss thereon is reflected in operations.

     Oil And Gas Properties - CanArgo and the unconsolidated entities for which
     it accounts using the equity method account for oil and gas properties and
     interests under the full cost method. Under this accounting method, costs,
     including a portion of internal costs associated with property acquisition
     and exploration for and development of oil and gas reserves, are
     capitalized within cost centers established on a country-by-country basis.
     Capitalized costs within a cost center, as well as the estimated future
     expenditures to develop proved reserves and estimated net costs of
     dismantlement and abandonment, are amortized using the unit-of-production
     method based on estimated proved oil and gas reserves. All costs relating
     to production activities are charged to expense as incurred. All other
     costs directly attributable to a project are expensed as incurred as direct
     project costs when such costs are considered recurring in nature.

     Capitalized oil and gas property costs, less accumulated depreciation,
     depletion and amortization and related deferred income taxes, are limited
     to an amount (the ceiling limitation) equal to (a) the present value
     (discounted at 10%) of estimated future net revenues from the projected
     production of proved oil and gas reserves, calculated at prices in effect
     as of the balance sheet date (with consideration of price changes only to
     the extent provided by fixed and determinable contractual arrangements),
     plus (b) the lower of cost or estimated fair value of unproved and
     unevaluated properties, less (c) income tax effects related to differences
     in the book and tax basis of the oil and gas properties.

     Estimated undiscounted future site restoration, dismantlement and
     abandonment costs of $820,000 at December 31, 2001 are amortized on a unit
     of production basis and reflected with accumulated depreciation, depletion
     and amortization. CanArgo identifies and estimates such costs based upon
     its assessment of applicable regulatory requirements, its operating
     experience and oil and gas industry practice in the areas in which its
     properties are located. To date CanArgo has not been required to expend any
     material amounts to satisfy such obligations.


                                       F-9



                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Property and Equipment - Depreciation of property and equipment is computed
     using the straight-line method over the estimated useful lives of the
     assets ranging from three to five years for office furniture and equipment
     to three to fifteen years for oil and gas related equipment.

     Refining - The refinery and additions thereto are depreciated over the
     estimated useful lives of the assets ranging from fifteen to twenty years.

     Discontinued Operations - CanArgo Standard Oil Products petrol stations and
     additions thereto were depreciated over the estimated useful lives of the
     assets ranging from ten to fifteen years until operations were reclassified
     as discontinued.

     REVENUE RECOGNITION - CanArgo recognizes revenues when goods have been
     delivered, when services have been performed, or when hydrocarbons have
     been produced and delivered and payment is reasonably assured. Where crude
     oil or natural gas production is sold to or used for internal consumption
     by the refinery, on consolidation revenues from these sales are eliminated
     from sales and other operating revenues and operating expenses.

     ADVANCES - Advances received by CanArgo from joint venture partners, which
     are to be spent by CanArgo on behalf of the joint venture partners, are
     classified within operating inflows on the basis they do not meet the
     definition of finance or investing activities. When the cash advances are
     spent, the payable is reduced accordingly. These advances do not contribute
     to CanArgo's operating profits and are accounted for/disclosed as balance
     sheet entries only ie. within cash and payable to joint venture partner.

     FOREIGN OPERATIONS - CanArgo's future operations and earnings will depend
     upon the results of CanArgo's operations in the Republic of Georgia. There
     can be no assurance that CanArgo will be able to successfully conduct such
     operations, and a failure to do so would have a material adverse effect on
     the CanArgo's financial position, results of operations and cash flows.
     Also, the success of CanArgo's operations will be subject to numerous
     contingencies, some of which are beyond management control. These
     contingencies include general and regional economic conditions, prices for
     crude oil and natural gas, competition and changes in regulation. Since
     CanArgo is dependent on international operations, specifically those in the
     Republic of Georgia, CanArgo will be subject to various additional
     political, economic and other uncertainties. Among other risks, CanArgo's
     operations may be subject to the risks and restrictions on transfer of
     funds, import and export duties, quotas and embargoes, domestic and
     international customs and tariffs, and changing taxation policies, foreign
     exchange restrictions, political conditions and regulations.

     FOREIGN CURRENCY TRANSLATION - The U.S. dollar is the functional currency
     for CanArgo's upstream and refining operations and the Lari is the
     functional currency for marketing operations. All monetary assets and
     liabilities denominated in foreign currency are translated into U.S.
     dollars at the rate of exchange in effect at the balance sheet date and the
     resulting unrealized translation gains or losses are reflected in
     operations. Non-monetary assets are translated at historical exchange
     rates. Revenue and expense items (excluding depreciation and amortization
     which are translated at the same rates as the related assets) are
     translated at the average rate of exchange for the year. Foreign currency
     translation amounts recorded in operations for years ended December 31,
     2001, 2000 and 1999 were not material.

     INCOME TAXES - CanArgo recognizes deferred tax liabilities and assets for
     the expected future tax consequences of events that have been included in
     the financial statements or tax returns. Deferred tax liabilities and
     assets are determined based on the difference between the financial
     statement and the tax bases of assets and liabilities using enacted rates
     in effect for the years in which the differences are expected to reverse.
     Valuation allowances are established, when appropriate, to reduce deferred
     tax assets to the amount expected to be realized.

     IMPAIRMENT OF LONG-LIVED ASSETS - CanArgo reviews all of its long-lived
     assets except its oil and gas assets, for impairment in accordance with
     SFAS No. 121 Accounting for the Impairment of Long-Lived


                                      F-10



                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Assets and Assets to be Disposed Of. CanArgo evaluates its oil and gas
     properties and its carrying value of investments in unconsolidated entities
     conducting oil and gas operations in accordance with the full cost method
     of accounting. See Capital Assets, Oil and Gas Properties above.

     STOCK-BASED COMPENSATION PLANS - CanArgo has adopted only the disclosure
     requirements of SFAS No. 123, Accounting for Stock-Based Compensation, and
     has elected to continue to record stock-based compensation expense using
     the intrinsic-value approach prescribed by Accounting Principles Board
     ("APB") Opinion 25. The application of APB Opinion 25 has further been
     clarified by Financial Accounting Standards Board ("FASB") Interpretation
     No. 44, "Accounting for Certain Transactions involving Stock Compensation".
     Accordingly, CanArgo computes compensation cost for each employee stock
     option granted as the amount by which the quoted market price of the
     CanArgo's Common Stock on the date of grant exceeds the amount the employee
     must pay to acquire the stock. The amount of compensation costs, if any, is
     charged to operations over the vesting period.

     RECENTLY ISSUED PRONOUNCEMENTS - In July 2001, FASB issued Statement No.
     141, Business Combinations, and Statement No. 142, Goodwill and Other
     Intangible Assets. Statement 141 requires that the purchase method of
     accounting be used for all business combinations initiated after June 30,
     2001 as well as all purchase method business combinations completed after
     June 30, 2001. Statement 141 also specifies criteria, which must be met,
     for intangible assets acquired in a purchase method business combination to
     be recognized and reported apart from goodwill. Statement 142 will require
     that goodwill and intangible assets with indefinite useful lives no longer
     be amortized, but instead tested for impairment at least annually in
     accordance with the provisions of Statement 142. Statement 142 will also
     require that intangible assets with definite useful lives be amortized over
     their respective estimated useful lives to their estimated residual values.

     CanArgo has adopted the provisions of Statement 141 and Statement 142
     effective January 1, 2002. No adjustments were required as a result of
     adoption.

     In August 2001, FASB issued Statement No. 143 Accounting for Asset
     Retirement Obligations. Statement 143 requires companies to record the fair
     value of a liability for an asset retirement obligation in the period in
     which the liability is incurred concurrent with an increase in the
     long-lived assets carrying value. The increase and subsequent adjustments
     in the related long-lived assets carrying value is amortised over its
     useful life. Upon settlement of the liability, a gain or loss is recorded
     for the difference between the settled liability and the recorded amount.
     This standard will be effective for CanArgo on January 1, 2003. We are in
     the process of assessing the impact that the adoption of this standard will
     have on our financial position and results of operations.

     In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
     Associated with Exit or Disposal Activities" ("FAS 146"). This standard
     will require companies to recognize costs associated with exit or disposal
     activities when they are incurred rather than at the date of a commitment
     to an exit or disposal plan. The standard replaces the existing guidance
     provided by EITF Issue No. 94-3, "Liability Recognition for Certain
     Employee Termination Benefits and Other Costs to Exit an Activity
     (including Certain Costs Incurred in a Restructuring)." The statement is
     effective for fiscal years beginning after December 31, 2002. CanArgo does
     not expect the adoption of this standard to have a material effect on its
     financial statements.

3.   BUSINESS COMBINATION

     On November 12, 2000, CanArgo acquired 38.1% of the common stock of
     Georgian American Oil Refinery ("GAOR") for Common Stock consideration
     valued at $1,666,576. On completion of the acquisition, CanArgo held 51% of
     the common stock of GAOR and GAOR became a subsidiary of the Company. Under
     purchase accounting, GAOR's results have been included in the Company's
     consolidated financial statements since the date of acquisition.


                                      F-11



                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The purchase price was allocated to the net assets of GAOR as follows:


                                                         
Cash                                                        $      207,470
Other Current Assets                                               762,733
Refining and Marketing                                           3,040,910
Current Liabilities                                             (1,281,197)
Minority Interest                                               (1,063,340)
                                                            --------------
Consideration Given - Common Shares                         $    1,666,576
                                                            ==============


     In July 2000, CanArgo acquired the minority shareholder's 21.2% interest in
     Ninotsminda Oil Company for Common Stock consideration valued at
     $4,500,000. The purchase price was allocated to the net assets of
     Ninotsminda Oil Company based on their fair value which approximated net
     book value. On completion of this transaction, Ninotsminda Oil Company
     became a wholly owned subsidiary of CanArgo.

4.   INVENTORY

     Inventory at December 31, 2001 consisted of the following:



                                                  DECEMBER 31,   December 31,
                                                      2001           2000
                                                  ------------   ------------
                                                           

Crude oil                                         $    373,818   $    186,685
Refined products                                        32,100        481,652
                                                  ------------   ------------
                                                  $    405,918   $    668,337
                                                  ============   ============


5.   CAPITAL ASSETS

     Capital assets, net of accumulated depreciation and impairment, at December
     31, 2001 include the following:



                                                     ACCUMULATED
                                                     DEPRECIATION        NET
                                         COST       AND IMPAIRMENT  CAPITAL ASSETS
                                     ------------   --------------  --------------
                                                           
OIL AND GAS PROPERTIES
  Proved properties                  $ 31,900,462    $(15,230,771)   $ 16,669,691
  Unproved properties                  24,570,886              --      24,570,886
                                       56,471,348     (15,230,771)     41,240,577

PROPERTY AND EQUIPMENT
  Oil and gas related equipment        13,928,639      (3,306,868)     10,621,771
  Office furniture, fixtures and
   equipment and other                  1,038,451        (476,230)        562,221
                                       14,967,090      (3,783,098)     11,183,992

REFINING AND MARKETING                  4,165,067      (4,054,216)        100,851

                                     $ 75,603,505    $(23,068,085)   $ 52,535,420



                                      F-12



                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Capital assets, net of accumulated depreciation and impairment, at December
     31, 2000 include the following:



                                                     ACCUMULATED
                                                     DEPRECIATION        NET
                                         COST       AND IMPAIRMENT  CAPITAL ASSETS
                                     ------------   --------------  --------------
                                                           
OIL AND GAS PROPERTIES
  Proved properties                  $ 29,768,241    $ (5,597,509)   $ 24,170,732
  Unproved properties                  13,897,096              --      13,897,096
                                     ------------    ------------    ------------
                                       43,665,337      (5,597,509)     38,067,828

PROPERTY AND EQUIPMENT
  Oil and gas related equipment        10,394,139      (2,966,868)      7,427,271
  Office furniture, fixtures and
   equipment and other                    884,162        (421,660)        462,502
                                     ------------    ------------    ------------
                                       11,278,301      (3,388,528)      7,889,773

REFINING AND MARKETING                  4,081,983        (190,467)      3,891,516
                                     ------------    ------------    ------------

                                     $ 59,025,621    $ (9,176,504)   $ 49,849,117
                                     ============    ============    ============


     OIL AND GAS PROPERTIES

     Ultimate realization of the carrying value of CanArgo's oil and gas
     properties will require production of oil and gas in sufficient quantities
     and marketing such oil and gas at sufficient prices to provide positive
     cash flow to CanArgo, which is dependent upon, among other factors,
     achieving significant production at costs that provide acceptable margins,
     reasonable levels of taxation from local authorities, and the ability to
     market the oil and gas produced at or near world prices. In addition,
     CanArgo must mobilize drilling equipment and personnel to initiate
     drilling, completion and production activities. If one or more of the above
     factors, or other factors, are different than anticipated, CanArgo may not
     recover its carrying value.

     As a result of application of the ceiling test limitation, CanArgo recorded
     a write-down in 2001 of oil and gas properties of $7,300,000. In 2001,
     refining assets and generating equipment were written-down to their
     estimated net realizable value by $3,359,795 and $500,000 respectively.
     CanArgo generally has the principal responsibility for arranging financing
     for the oil and gas properties and ventures in which it has an interest,
     including the Bugruvativske field. There can be no assurance, however, that
     CanArgo or the entities that are developing the oil and gas properties and
     ventures will be able to arrange the financing necessary to develop the
     projects being undertaken or to support the corporate and other activities
     of CanArgo or that such financing as is available will be on terms that are
     attractive or acceptable to or are deemed to be in the best interests of
     CanArgo, such entities or their respective stockholders or participants.

     The consolidated financial statements of CanArgo do not give effect to any
     additional impairment in the value of CanArgo's investment in oil and gas
     properties and ventures or other adjustments that would be necessary if
     financing cannot be arranged for the development of such properties and
     ventures or if they are unable to achieve profitable operations. Failure to
     arrange such financing on reasonable terms or failure of such properties
     and ventures to achieve profitability would have a material adverse effect
     on the financial position, including realization of assets, results of
     operations, cash flows and prospects of CanArgo.

     PROPERTY AND EQUIPMENT

     Oil and gas related equipment includes drilling rigs and related equipment
     currently in use by CanArgo in the development of the Ninotsminda field.


                                      F-13


                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.   INVESTMENT IN AND ADVANCES TO OIL AND GAS AND OTHER VENTURES

     CanArgo has acquired interests in oil and gas and other ventures through
     less than majority interests in corporate and corporate-like entities. A
     summary of CanArgo's net investment in and advances to oil and gas and
     other ventures at December 31, 2001 and 2000 is set out below:



                                                                    DECEMBER 31,      December 31,
INVESTMENTS IN AND ADVANCES TO OIL AND GAS AND OTHER VENTURES           2001              2000
                                                                   --------------    --------------
                                                                               
Ukraine - Stynawske Field, Boryslaw
    Through 45% ownership of Boryslaw Oil Company                  $    6,698,062    $    6,086,254
Republic of Georgia - Ninotsminda
    Through 50.0% effective ownership CanArgo Power  Corporation               --           676,583
Republic of Georgia - Ninotsminda
    Through an effective 50% ownership of East Georgian
Pipeline Co.                                                              192,500            90,500
Uentech International Corporation
    Through an effective 45% voting interest                                   --           304,943
Other Investments                                                          75,000            75,001
                                                                   --------------    --------------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND GAS
AND OTHER VENTURES                                                 $    6,965,562    $    7,233,281
                                                                   --------------    --------------

EQUITY IN PROFIT (LOSS) OF OIL AND GAS AND OTHER VENTURES

Ukraine - Stynawske Field, Boryslaw                                      (593,961)         (626,461)
Republic of Georgia - CanArgo Power Corporation                                --          (186,074)
Republic of Georgia - East Georgian Pipeline Co.                         (192,500)          (50,000)
Uentech International Corporation                                              --          (214,579)
                                                                   --------------    --------------
CUMULATIVE EQUITY IN PROFIT (LOSS) OF OIL AND GAS
AND OTHER VENTURES                                                 $     (786,461)   $   (1,077,114)
IMPAIRMENT - STYNAWSKE FIELD                                           (5,459,793)       (5,459,793)
                                                                   --------------    --------------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND GAS
AND OTHER VENTURES, NET OF EQUITY LOSS AND IMPAIRMENT              $      719,308    $      696,374
                                                                   ==============    ==============


     In April 2001, CanArgo acquired from a wholly owned subsidiary of Terrenex
     Acquisition Corporation the remaining 50% interest it did not own in
     CanArgo Power for cash consideration of $425,000. In a related but separate
     transaction, CanArgo sold in April 2001 all of its voting and non-voting
     shares of Uentech International Corporation to a wholly owned subsidiary of
     Terrenex Acquisition Corporation. Proceeds from the sale of Uentech
     International Corporation were $125,000. On completion of the acquisition,
     CanArgo Power became a wholly owned subsidiary of CanArgo. The transactions
     were approved by an independent committee of the Board of Directors.

     Under the terms of the license Boryslaw Oil Company holds in the Stynawske
     field, field operations were to be transferred to Boryslaw Oil Company
     effective January 1, 1999. As a result of prolonged negotiations which
     created significant uncertainty as to CanArgo's ability to raise funds for
     the project or enter into a satisfactory farm-out agreement on a timely
     basis, CanArgo recorded in the third quarter of 1999 an impairment charge
     of $5,459,793 against its investment in and advances to Boryslaw Oil
     Company. At present, certain obligations must be met by June 2002 in order
     for Boryslaw Oil Company to retain the field licence including the drilling
     of one new well. CanArgo is currently seeking an extension to the licence
     to allow a proper assessment of the workovers and development plans. If
     Boryslaw Oil Company does not proceed with the Stynawske field development
     programme or if an extension to the current licence cannot be obtained, it
     may be in breach of obligations it has with regard to the field license and
     an impairment charge against CanArgo's investment in and advances to
     Boryslaw Oil Company may be required.


                                      F-14



                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Other investments include CanArgo's 10% interest in a potential Caspian Sea
     exploration project.

     CanArgo's ventures are in the development stage. Accordingly, realization
     of these investments is dependent upon successful development of and
     ultimately cash flows from operations of the ventures.

7.   ACCRUED LIABILITIES

     Accrued liabilities at December 31, 2001 and 2000 include the following:



                                               DECEMBER 31,   DECEMBER 31,
                                                   2001           2000
                                               ------------   ------------
                                                        
Professional fees                              $    150,000   $    175,000
Office relocation                                        --        126,666
Operating costs                                      90,000             --
Other                                               160,221        107,448
                                               ------------   ------------
                                               $    400,221   $    409,114
                                               ============   ============


8.   MINORITY SHAREHOLDER ADVANCES

     In 2001 CanArgo received $450,000 on issuance of convertible loans from the
     other 50% shareholders of CanArgo's subsidiary, CanArgo Norio Limited
     ("Norio"). The cash amount received represents part of their share of the
     cost of drilling an exploration well under the Norio and North Kumisi
     production sharing agreement. CanArgo anticipates increasing its interest
     to over 60% in CanArgo Norio Limited through an increased level of funding
     of this well.

     The convertible loans are non interest bearing and will convert into
     ordinary share capital of CanArgo Norio Limited 30 days after the final
     cost of the well is known. It is at this point when the final ownership
     interest in CanArgo Norio Limited will be determined and consequently the
     $450,000 and any subsequent advances from the other 50% shareholders
     towards the cost of the well will be reclassified as minority interest.

9.   COMMITMENTS AND CONTINGENCIES

     OIL AND GAS PROPERTIES AND INVESTMENTS IN OIL AND GAS VENTURES

     CanArgo has contingent obligations and may incur additional obligations,
     absolute and contingent, with respect to acquiring and developing oil and
     gas properties and ventures. At December 31, 2001, CanArgo had the
     contingent obligation to issue an aggregate of 187,500 shares of its common
     stock, subject to the satisfaction of conditions related to the achievement
     of specified performance standards by the Stynawske field project. In
     December 2000, CanArgo announced that a preliminary development plan had
     been reached with the joint venture partner.

     LEASE COMMITMENTS - CanArgo leases office space under non-cancellable
     operating lease agreements. Rental expense for the years ended December 31,
     2001, 2000 and 1999 was $353,594, $178,745 and $115,425 respectively.
     Future minimum rental payments over the next five years for the Company's
     lease obligations as of December 31, 2001, are as follows:


                                                        
    2002                                                   $    250,000
    2003                                                   $    250,000
    2004                                                   $    250,000
    2005                                                   $    220,000
    2006                                                   $    220,000



                                      F-15


                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.  CONCENTRATIONS OF CREDIT RISK

     CanArgo's financial instruments that are exposed to concentrations of
     credit risk consist primarily of cash and cash equivalents, accounts
     receivable and advances to oil and gas and other ventures. CanArgo places
     its temporary cash investments with high credit quality financial
     institutions. Accounts receivable relates primarily to entities active in
     the energy and manufacturing sectors. The concentration of credit risk
     associated with accounts receivable is reduced as CanArgo's debtors are
     spread across several countries and industries.

11.  STOCKHOLDERS' EQUITY

     On July 8, 1998, at a Special Meeting of Stockholders, the stockholders of
     CanArgo approved the acquisition of all of the common stock of CAOG for
     Common Stock of the Company pursuant to the terms of an Amended and
     Restated Combination Agreement between those two companies (the
     "Combination Agreement"). Upon completion of the acquisition on July 15,
     1998, CAOG became a subsidiary of CanArgo, and each previously outstanding
     share of CAOG common stock was converted into the right to receive 0.8
     shares (the "Exchangeable Shares") of CAOG which are exchangeable generally
     at the option of the holders for shares of CanArgo's Common Stock on a
     share-for-share basis.

     On January 24, 2002 CanArgo announced that it has established May 24, 2002
     as the redemption date for all of the Exchangeable Shares of CAOG. Each
     Exchangeable Share will be purchased by CanArgo for shares of CanArgo
     Common Stock on a share-for-share basis. No cash consideration will be
     issued by CanArgo and the purchase will not increase the total number of
     shares of Common Stock of CanArgo issued and issuable.

     As of December 31, 2001, 91,859,620 shares of Common Stock, 148,826
     Exchangeable Shares and 100 shares of Voting Preferred Shares were issued
     and outstanding. No other shares of the Company's preferred stock have been
     issued.

     During the years ended December 31, 2001, 2000 and 1999, the following
     transactions regarding CanArgo's Common Stock were consummated pursuant to
     authorization by CanArgo's Board of Directors or duly constituted
     committees thereof.

     YEAR ENDED DECEMBER 31, 2001

     o    In 2001, CanArgo issued 274,965 shares upon exchange by holders of
          Exchangeable Shares.

     o    In July 2001, CanArgo issued 16,057,765 shares at $0.41 per share upon
          completion of a private placement.

     YEAR ENDED DECEMBER 31, 2000

     o    In 2000, CanArgo issued 105,968 shares upon exchange by holders of
          Exchangeable Shares.

     o    In February and March 2000, CanArgo issued 140,000 shares at $0.805
          per share in connection with services performed by third parties.

     o    In April 2000, CanArgo issued 3,695,000 shares at $0.862 per share for
          gross proceeds of $3,184,166 upon completion of a private placement.


                                      F-16


                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     o    In June 2000, CanArgo issued 4,054,054 shares at $1.11 per share for
          gross proceeds of $4,500,000 to acquire the minority interest
          shareholders interest in Ninotsminda Oil Company.

     o    In 2000, CanArgo issued 1,504,664 shares at $0.387 per share pursuant
          to exercised stock options. o In June 2000, CanArgo issued 15,550,916
          shares at $0.98 per share upon completion of a private placement.

     o    In August 2000, CanArgo issued 12,000,000 shares at $1.18 per share
          upon completion of a private placement.

     o    In November 2000, CanArgo issued 1,543,125 shares at $1.08 per share
          to acquire controlling interest in a refinery.

     YEAR ENDED DECEMBER 31, 1999

     o    In 1999, CanArgo issued 5,327,016 shares upon exchange by holders of
          Exchangeable Shares.

     o    In 1999, CanArgo issued 650,000 shares at $0.678 per share in
          connection with the acquisition of net profits interests related to
          the Ninotsminda oil field in the Republic of Georgia.

     o    In 1999, CanArgo issued 537,917 shares at $0.555 per share in
          connection with services performed by third parties.

     o    In August 1999, CanArgo issued 11,850,362 shares at $0.30 per share
          for gross proceeds of $3,555,109 upon completion of the Company's
          registered public offering.

     o    In December 1999, CanArgo issued 3,300,000 shares at $0.86 per share
          for gross proceeds of $2,837,630 upon completion of a private
          placement.

12.  NET LOSS PER COMMON SHARE

     Basic and diluted net loss per common share for the years ended December
     31, 2001, 2000 and 1999 were based on the weighted average number of common
     shares outstanding during those periods. The weighted average number of
     shares used was 83,869,579, 54,950,630 and 26,370,235 respectively. Options
     to purchase CanArgo's Common Stock were outstanding during the years ended
     December 31, 2001, 2000 and 1999 but were not included in the computation
     of diluted net loss per common share because the effect of such inclusion
     would have been anti-dilutive.

13.  INCOME TAXES

     CanArgo and its domestic subsidiaries file U.S. consolidated income tax
     returns. No benefit for U.S. income taxes has been recorded in these
     consolidated financial statements because of CanArgo's inability to
     recognize deferred tax assets under provisions of SFAS 109. Due to the
     implementation of the quasi-reorganization as of October 31, 1988, future
     reductions of the valuation allowance relating to those deferred tax assets
     existing at the date of the quasi-reorganization, if any, will be allocated
     to capital in excess of par value. A reconciliation of the differences
     between income taxes computed at the U.S. federal statutory rate (34%) and
     CanArgo's reported provision for income taxes is as follows:



                                         YEAR ENDED           YEAR ENDED         YEAR ENDED
                                      DECEMBER 31, 2001   DECEMBER 31, 2000   DECEMBER 31, 1999
                                      -----------------   -----------------   -----------------
                                                                     

Income tax benefit at statutory rate    $ (4,494,238)        $   (731,545)       $ (2,880,772)
Benefit of losses not recognized           4,494,238              731,545           2,880,772
Other, net                                        --                   --                 --
                                        ------------         ------------        ------------
Provision for income taxes              $         --         $         --        $         --
                                        ============         ============        ============

Effective tax rate                                 0%                   0%                  0%
                                        ------------         ------------        ------------



                                      F-17


                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The components of deferred tax assets as of December 31, 2001 and 2000 were
     as follows:



                                                        DECEMBER 31,    DECEMBER 31,
                                                        ------------    ------------
                                                            2001            2000
                                                        ------------    ------------
                                                                  
Net operating loss carryforwards                        $ 11,256,000    $ 13,172,000

Foreign net operating loss carryforwards                   4,844,000       6,268,000
Net timing differences on impairments and accelerated
  capital allowances                                       8,981,000       8,388,000
                                                        ------------    ------------
                                                          25,081,000      27,828,000

Valuation allowance                                      (25,081,000)    (27,828,000)
                                                        ------------    ------------
Net deferred tax asset recognized in balance sheet      $         --    $         --
                                                        ============    ============


     On August 1, 1991, August 17, 1994, July 15, 1998 and June 28, 2000 CanArgo
     experienced changes in the CanArgo's ownership as defined in Section 382 of
     the Internal Revenue Code ("IRC"). The effect of these changes in ownership
     is to limit the utilization of certain existing net operating loss
     carryforwards for income tax purposes to approximately $413,000 per year on
     a cumulative basis. As of December 31, 2001, total U.S. net operating loss
     carryforwards were approximately $33,107,000. Of that amount, approximately
     $322,000 was incurred subsequent to the ownership change in 2000,
     $32,785,000 was incurred prior to 2000 and therefore is subject to the IRC
     Section 382 limitation. See Note 1 of Notes to Consolidated Financial
     Statements.

     The net operating loss carryforwards expire from 2002 to 2021 The net
     operating loss carryforwards limited under the separate return limitation
     rules may only be offset against the separate income of the respective
     subsidiaries. CanArgo has also generated approximately $14,247,000 of
     foreign net operating loss carryforwards. A significant portion of the
     foreign net operating loss carryforwards are subject to limitations similar
     to IRC Section 382.

     CanArgo's available net operating loss carryforwards may be used to offset
     future taxable income, if any, prior to their expiration. CanArgo may
     experience further limitations on the utilization of net operating loss
     carryforwards and other tax benefits as a result of additional changes in
     ownership.



14.  DISCONTINUED OPERATIONS

     In September 2002, CanArgo approved a plan to sell CanArgo Standard Oil
     Products to finance Georgian and Ukrainian development projects and in
     October 2002, CanArgo agreed to sell its 50% holding to Westrade Alliance
     LLC, an unaffiliated company, for $4 million in an arms-length transaction,
     with legal ownership being transferred upon receipt of final payment due in
     August 2003. The agreed consideration to be exchanged does not result in an
     impairment of the carrying value of assets held for sale. The assets and
     liabilities of CanArgo Standard Oil Products have been classified as
     "Assets of subsidiary held for sale" and "Liabilities of subsidiary held
     for sale" for all periods presented. The results of operations of CanArgo
     Standard Oil


                                      F-18


                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Products have been classified as discontinued for all periods presented.
     The minority interest related to CanArgo Standard Oil Products has not been
     reclassified for any of the periods presented, however net income from
     discontinued operations is disclosed net of taxes and minority interest.

     The results of discontinued operations at December 30, 2001, December 30,
     2000 and December 30, 1999 consisted of the following:



                                        DECEMBER 31,    December 31,    December 31,
                                            2001            2000            1999
                                        ------------    ------------    ------------
                                                               

Operating Revenues                         7,607,489         126,014              --
Income (Loss) Before Income taxes and
Minority Interest                            733,335         (16,596)             --
Income Taxes                                  46,203              --              --
Minority Interest in Income                 (343,566)          8,298              --
                                        ------------    ------------    ------------
Net Income (Loss) from Discontinued
Operation                               $    343,566    $     (8,298)   $         --
                                        ============    ============    ============


     Gross consolidated assets and liabilities of subsidiary held for sale at
     December 30, 2001 and December 30, 2000 consisted of the following:



                                               DECEMBER 31,   December 31,
                                                   2001           2000
                                               ------------   ------------
                                                        
Assets held for sale:
Cash and cash equivalents                               254            613
Accounts receivable                                  90,108         78,726
Inventory                                           177,931         27,572
Other current assets                                 35,384             --
Capital assets, net                               5,149,291        628,227
Investment in other ventures, net                   366,614             --
                                               ------------   ------------
                                               $  5,819,582   $    735,138
                                               ============   ============
Liabilities held for sale:
Accounts payable                                    240,958          6,734
Current portion of long term debt                   392,408             --
Income taxes payable                                 29,456             --
Long term debt                                      514,352             --
                                               ------------   ------------
                                               $  1,177,174   $      6,734
                                               ============   ============


     Other investments include two petrol station sites in Tbilisi, Georgia in
     which CanArgo has a 50% non-controlling interest. CanArgo accounts for its
     interest in the two petrol station sites using the equity method.

     In November 2001, CanArgo Standard Oil Products Limited entered into a $1
     million credit facility agreement with a commercial lender in Georgia to
     fund further expansion of its petrol station network. In 2001, the full
     amount of the facility was drawn of which $906,760 was outstanding as at
     December 31, 2001. The loan bears interest at 18% per annum and is secured
     by the assets of three petrol stations. The full amount of the loan is to
     be repaid by December 2003. No parent company guarantees have been provided
     by CanArgo with respect to this loan.

     The remaining 50% interest in CanArgo Standard Oil Products is held by
     Standard Oil Products of Georgia and an individual, Mr. Levan Pkhakazde,
     who is one of the founders of Standard Oil Products and the General
     Director of CanArgo Standard Oil Products.


                                      F-19



                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.      SEGMENT AND GEOGRAPHICAL DATA

         During the year ended December 31, 1999 CanArgo operated through one
         business segment, oil and gas exploration and production. In 2000,
         CanArgo expanded its oil and gas exploration and production activities
         to include the refining and marketing of crude oil and crude oil
         products.

         Operating revenues from continuing operations for the years ended
         December 31, 2001, 2000 and 1999 by business segment and geographical
         area were as follows:



                                         DECEMBER 31,       DECEMBER 31,      DECEMBER 31,
                                             2001               2000              1999
                                         ------------       ------------      ------------
                                                                     
OPERATING REVENUES FROM CONTINUING
OPERATIONS:
OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION
  Eastern Europe                         $ 4,873,623        $ 6,108,779       $ 2,274,524
  Canada                                          --                 --           219,088
                                         -----------        -----------       -----------
                                           4,873,623          6,108,779         2,493,612
REFINING
  Eastern Europe                           2,595,763            535,865                --

INTERSEGMENT ELIMINATIONS                   (906,545)                --                --
                                         -----------        -----------       -----------
TOTAL                                    $ 6,562,841        $ 6,644,644       $ 2,493,612
                                         ===========        ===========       ===========


         In 2001, the Company sold its oil and gas production in Eastern Europe
         to five (2000 - five, 1999 - five) customers. In 2001 sales to three
         third party customers represented 67%, 12% and 12% of oil and gas
         revenue respectively. In 2000 sales to three customers represented 43%,
         25% and 14% of oil and gas revenue respectively. In 1999 sales to three
         customers represented 38%, 34% and 11% of oil and gas revenue
         respectively.

         Operating profit (loss) from continuing operations for the years ended
         December 31, 2001, 2000 and 1999 by business segment and geographical
         area were as follows:



                                   DECEMBER 31,        DECEMBER 31,        DECEMBER 31,
                                       2001                2000                1999
                                   ------------        ------------        ------------
                                                                  
OPERATING PROFIT (LOSS) FROM
CONTINUING OPERATIONS :
OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION
  Eastern Europe                   $ (6,630,886)       $    871,896        $ (6,154,404)
  Canada                                     --                  --              (7,926)
                                   ------------        ------------        ------------
                                     (6,630,886)            871,896          (6,162,330)
REFINING
  Eastern Europe                     (4,683,563)           (298,255)                 --

CORPORATE AND OTHER EXPENSES         (4,793,047)         (2,974,791)         (1,957,020)
                                   ------------        ------------        ------------
TOTAL                              $(16,107,496)       $ (2,401,150)       $ (8,119,350)
                                   ============        ============        ============


         As a result of application of the ceiling test limitation, CanArgo
         recorded a write-down in 2001 of oil and gas properties of $7,300,000.
         In 2001, refining assets and generating equipment were written-down to
         their estimated net realizable value by $3,359,795 and $500,000
         respectively. The write-down of oil and gas properties and generating
         equipment was recorded in operating profit (loss) for oil and gas,
         exploration and


                                      F-20



                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         production. The write-down of refining assets was recorded in profit
         (loss) for refining and marketing activities.


         Identifiable assets as of December 31, 2001 and 2000 by business
         segment and geographical area were as follows:



                                          DECEMBER 31,      DECEMBER 31,
                                             2001              2000
                                          ------------      ------------
                                                      
CORPORATE
  Eastern Europe                          $ 3,926,930       $   668,337
  Western Europe (principally cash)         7,310,678        30,900,438
                                          -----------       -----------
TOTAL CORPORATE                            11,237,608        31,568,775
                                          -----------       -----------
 OIL AND GAS EXPLORATION,
 DEVELOPMENT AND PRODUCTION
  Eastern Europe                           52,424,569        45,957,601

REFINING AND MARKETING
  Eastern Europe                              110,850         3,891,516

DISCONTINUED OPERATIONS
   Eastern Europe                           5,819,582           735,138

OTHER ENERGY PROJECTS
  Eastern Europe                              719,308           606,010
  Canada                                           --            90,364
                                          -----------       -----------
TOTAL OTHER ENERGY PROJECTS                70,311,917           696,374
                                          -----------       -----------
TOTAL IDENTIFIABLE ASSETS                 $70,311,917       $82,849,404
                                          ===========       ===========




16.      SUPPLEMENTAL CASH FLOW INFORMATION AND
         NONMONETARY TRANSACTIONS

         The following represents supplemental cash flow information for the
         years ended December 31, 2001, 2000 and 1999:




                                               DECEMBER 31,     DECEMBER 31,     DECEMBER 31,
                                                   2001            2000             1999
                                               ------------     ------------     ------------
                                                                        
Supplemental schedule of non-cash
activities:

Issuance of Common Stock in connection
with acquisition of minority interest
shareholders interest in subsidiary            $       --      $ 4,500,000       $       --

Issuance of Common Stock in connection
with acquisition of controlling
interest in refinery                                   --        1,666,576               --


Issuance of Common Stock in connection
with investments in oil and gas ventures               --               --          440,740


Issuance of Common Stock in connection
with compensation earned and third
party services provided                                --          112,700          298,872
                                               ----------      -----------       ----------
                                               $       --      $ 6,279,276       $  739,612
                                               ==========      ===========       ==========



                                      F-21

                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.      STOCK-BASED COMPENSATION PLANS

         On August 17, 1994, options to purchase 200,000 shares of CanArgo's
         Common Stock were issued to various individuals who were serving or
         were expected in the future to serve CanArgo as officers, directors,
         employees, consultants and advisors (the "1994 Plan"). The options were
         exercisable at an exercise price of $3.00 and were only exercisable at
         the time or within six months after services are rendered by such
         individuals. In 1999 all of the options issued under the 1994 Plan
         expired.

         Pursuant to the 1995 Long-Term Incentive Plan (the "1995 Plan") adopted
         by CanArgo in February 1996, 7,500,000 shares of the CanArgo's Common
         Stock have been authorized for possible issuance under the 1995 Plan.
         Stock options granted under the 1995 Plan may be either incentive stock
         options or non-qualified stock options. Options expire on such date as
         is determined by the committee administering the 1995 Plan, except that
         incentive stock options may expire no later than 10 years from the date
         of grant. Pursuant to the 1995 Plan, a specified number of stock
         options exercisable at the then market price are granted annually to
         non-employee directors of CanArgo, which become 100% vested six months
         from the date of grant. Stock appreciation rights entitle the holder to
         receive payment in cash or Common Stock equal in value to the excess of
         the fair market value of a specified number of shares of Common Stock
         on the date of exercise over the exercise price of the stock
         appreciation right. No stock appreciation rights have been granted
         through December 31, 2001. The exercise price and vesting schedule of
         stock appreciation rights are determined at the date of grant. Under
         the 1995 Plan, 4,065,334 options were outstanding at December 31, 2001.

         Pursuant to the terms of the Combination Agreement, on July 15, 1998
         each stock option granted under CAOG's existing Stock Option Plan (the
         "CAOG Plan") to purchase a CAOG common share was converted into an
         option to purchase 0.8 shares of the CanArgo's Common Stock. Pursuant
         to the CAOG Plan, which has been adopted by CanArgo, a total of 988,000
         shares of CanArgo's Common Stock have been authorized for issuance.
         Stock options granted under the CAOG Plan expire on such date as is
         determined by the committee administering the CAOG Plan, except that
         the term of stock options may not exceed 10 years from the date of
         grant. Under the CAOG Plan, 806,667 options were outstanding at
         December 31, 2001. In 2000, special stock options and warrants to
         purchase 2,220,000 shares of CanArgo's Common Stock were issued to
         various individuals who were serving or were expected in the future to
         serve CanArgo as officers, directors and employees. The special stock
         options are exercisable at an exercise price of $1.437 per common
         share. The warrants are exercisable at an exercise price of $1.27 per
         common share. At December 31, 2001, all 2,220,000 special stock options
         and warrants remained outstanding.

         The purpose of the Company's stock option plans is to further the
         interest of the Company by enabling officers, directors, employees,
         consultants and advisors of the Company to acquire an interest in the
         Company by ownership of its stock through the exercise of stock options
         and stock appreciation rights granted under its various stock option
         plans.


                                      F-22


                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         A summary of the status of stock options granted under the 1994 Plan,
         the 1995 Plan, CAOG Plan and special stock options and warrants is as
         follows:




                                                                             SHARES ISSUABLE
                                                      SHARES AVAILABLE      UNDER OUTSTANDING    WEIGHTED AVERAGE
                                                          FOR ISSUE              OPTIONS          EXERCISE PRICE
                                                      ----------------      -----------------    ----------------
                                                                                        
BALANCE, DECEMBER 31, 1998                                   93,584              1,718,416             1.70
    Options (1994 & 1995 Plan):
       Increase in shares available for issue             3,250,000                     --
       Granted at market                                 (2,746,166)             2,746,166             0.36
       Canceled (1994 Plan)                                      --                (74,000)            3.00
       Canceled                                             298,332               (298,332)            1.95
    CAOG Plan Authorization:
       Granted at market                                   (227,500)               227,500             0.31
       Canceled                                             198,000               (198,000)            1.17
                                                         ----------             ----------             ----

BALANCE, DECEMBER 31, 1999                                  866,250              4,121,750             0.72
    Options (1994 & 1995 Plan):
       Granted at market                                 (1,087,000)             1,087,000             1.06
       Exercised                                                 --             (1,441,331)            0.39
       Canceled                                             436,250               (436,250)            0.89
    CAOG Plan Authorization:
       Granted at market                                   (485,000)               485,000             1.10
       Exercised                                            (63,333)                                   0.46
       Canceled                                             737,500               (737,500)            1.69
    Special Stock Options and Warrants:
       Granted at market                                         --              2,220,000             1.40
                                                         ----------             ----------             ----

BALANCE, DECEMBER 31, 2000                                  468,000              5,235,336             1.02
    Options (1995 Plan):
       Increase in shares available for issue             3,500,000                     --
       Granted at market                                 (1,795,000)             1,795,000             0.68
       Exercised                                                 --                     --
       Canceled                                             123,335               (123,335)            1.44
    CAOG Plan Authorization:
       Granted at market                                   (185,000)               185,000             1.02
       Exercised                                                 --                     --
       Canceled                                                  --                     --
                                                         ----------             ----------             ----
BALANCE, DECEMBER 31, 2001                                2,111,335              7,092,001             0.92
                                                         ==========             ==========             ====


         Shares issuable upon exercise of vested options and the corresponding
         weighted average exercise price are as follows:


                                      F-23


                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




                                    SHARES ISSUABLE         WEIGHTED
                                   UNDER EXERCISABLE     AVERAGE EXERCISE
                                        OPTIONS              PRICE
                                   -----------------     ----------------
                                                   
  December 31, 1999                        672,277          $   1.85
  December 31, 2000                        725,329          $   0.99
  December 31, 2001                      3,452,831          $   0.91


         The weighted average fair value of options granted during the year was
         $0.71, $1.26 and $0.22 for the years ended December 31, 2001, 2000 and
         1999 respectively.

         The following table summarizes information about stock options
         outstanding at December 31, 2001:



                                   OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                             --------------------------------------------------------------------------------
                                 NUMBER          WEIGHTED        WEIGHTED          NUMBER           WEIGHTED
                                OF SHARES         AVERAGE        AVERAGE         OF SHARES           AVERAGE
Range of Exercise             OUTSTANDING AT     REMAINING       EXERCISE      EXERCISABLE AT        EXERCISE
      Prices                 DECEMBER 31, 2001     TERM           PRICE      DECEMBER 31, 2001        PRICE
-----------------            -----------------   ---------       --------    -----------------      ---------
                                                                                     
$0.275 to $0.69                  2,790,001         4.64            0.65          1,511,249             0.48
$0.70 to $0.99                     175,000         3.97            0.88             61,667             0.88
$1.00 to $1.85                   4,127,000         2.50            1.30          1,879,915             1.26
                                 ---------         ----            ----          ---------             ----
$0.275 to $1.85                  7,092,001         3.38            0.92          3,452,831             0.91
                                 =========         ====            ====          =========             ====


         As discussed in Note 2, Summary of Significant Accounting Policies,
         "Stock-Based Compensation Plans", CanArgo accounts for its stock-based
         compensation plans under APB Opinion 25. Accordingly, no compensation
         cost has been recognized for those stock options with exercise prices
         equal to or greater than the market price of the stock on the date of
         grant. Under SFAS No. 123, compensation cost is measured at the grant
         date based on the fair value of the awards and is recognized over the
         service period, which is usually the vesting period. Had compensation
         cost for those stock options been determined consistent with SFAS No.
         123, CanArgo's net loss and net loss per common share after plan
         forfeitures would have been approximately $14,553,000 and $0.17
         respectively for the year ended December 31, 2001, $3,077,000 and $0.05
         respectively for the year ended December 31, 2000 and $8,806,000 and
         $0.34 respectively for the year ended December 31, 1999.

         The fair value of each stock option granted by CanArgo was calculated
         using the Black-Scholes option-pricing model applying the following
         weighted-average assumptions for the years ended December 31, 2001,
         2000 and 1999: dividend yield of 0.00%, risk-free interest rate of
         4.61% for the year ended December 31, 2001, dividend yield of 0.00%;
         risk-free interest rate of 5.98% for the year ended December 31, 2000,
         and dividend yield of 0.00%; risk-free interest rate of 5.86% for the
         year ended December 31, 1999, the average expected lives of options of
         3.37 years, 3.51 years and 4.0 years respectively; and volatility of
         75.15% for the year ended December 31, 2001, 75.07% for the year ended
         December 31, 2000 and 80.0% for the year ended December 31, 1999.


18.      RELATED PARTY TRANSACTIONS

         Of the 50% of CanArgo Standard Oil Products not held by CanArgo, 41.65%
         is held by Standard Oil Products, an unrelated third party entity, and
         8.35% is held by an individual who is one of the founders of Standard
         Oil Products and is an officer and director of CanArgo Standard Oil
         Products. In September 2002, CanArgo approved a plan to sell CanArgo
         Standard Oil Products to finance Georgian and Ukrainian development
         projects and in October 2002, CanArgo agreed to sell its 50% holding
         for $4 million with


                                      F-24


                           CANARGO ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         legal ownership being transferred upon receipt of final payment due in
         August 2003. The majority of refined product purchased by CanArgo
         Standard Oil Products for resale at its petrol stations is purchased
         from a company controlled by Standard Oil Products. Total product
         purchasers from the related company in 2001 were $4,941,000. At
         December 31, 2001, accounts payable included $223,725 with respect to
         these purchases. In 2001 the related company also contributed petrol
         station sites to CanArgo Standard Oil Products at negotiated arms
         length amounts. Certain equipment is provided to Georgian British Oil
         Company Ninotsminda by a company owned by significant employees of
         Georgian British Oil Company Ninotsminda. Total rental payments for
         this equipment in 2001 was $124,078.

         In 2000, three non-employee directors each received compensation in the
         amount of $90,000 for services provided with respect to the June and
         August 2000 private placements.

19.      SUBSEQUENT EVENTS

         On February 12, 2002, CanArgo completed a private placement of
         5,210,000 common shares at NOK 2.95 per share (approximately US$0.33
         per share) for gross proceeds of approximately $1,719,000.



                                      F-25


                           CANARGO ENERGY CORPORATION
                       SUPPLEMENTAL FINANCIAL INFORMATION
                   QUARTERLY RESULTS OF OPERATIONS - UNAUDITED



                                                                             2001
                                ------------------------------------------------------------------------------------------------
                                   FIRST               SECOND                THIRD               FOURTH
                                  QUARTER              QUARTER              QUARTER              QUARTER                YEAR
                                ------------         ------------         ------------         ------------         ------------
                                                                                                     
Operating Revenue from
Continuing Operations           $  2,154,378         $  1,551,524         $  2,095,429         $  1,369,542         $  7,170,873

Operating Loss from
Continuing Operations               (619,150)          (1,294,077)            (877,314)         (13,316,955)         (16,107,496)

Net Loss from Continuing
Operations                          (364,852)          (1,214,048)            (566,994)         (11,416,018)         (13,561,912)

Net Income from Discontinued
Operations, net of Taxes and
Minority Interest                     38,771               10,608               79,630              214,557              343,566

Net and Comprehensive Loss          (326,081)          (1,203,440)            (487,364)         (11,201,461)         (13,218,346)

Net Loss per Common Share -
basic and diluted from
Continuing Operations                   0.00                (0.02)               (0.01)               (0.12)               (0.16)

Net Loss per Common Share -
basic and diluted from
Discontinued Operations                 0.00                 0.00                 0.00                 0.00                 0.00

Net Loss per Common Share -
basic and diluted                       0.00                (0.02)               (0.01)               (0.12)               (0.16)




                                                                              2000
                                    ------------------------------------------------------------------------------------------
                                       FIRST             SECOND               THIRD              FOURTH
                                      QUARTER           QUARTER              QUARTER             QUARTER               YEAR
                                    -----------        -----------         -----------         -----------         -----------
                                                                                                    
Operating Revenue from
Continuing Operations               $ 2,080,976        $ 1,515,095         $ 1,163,277         $ 2,250,196         $ 7,009,544

Operating Profit (Loss) from
Continuing Operations                   122,707           (187,392)           (788,199)         (1,548,266)         (2,401,150)

Net Profit (Loss) from
Continuing Operations                   100,462           (279,952)           (712,729)         (1,251,087)         (2,143,306)

Net Income from Discontinued
Operations, net of Taxes and
Minority Interest                            --                 --                  --              (8,298)             (8,298)

Net and Comprehensive Loss              100,462           (279,952)           (712,729)         (1,259,385)         (2,151,604)

Net Loss per Common Share -
basic and diluted from
Continuing Operations                      0.00              (0.01)              (0.01)              (0.01)              (0.04)

Net Loss per Common Share -
basic and diluted from
Discontinued Operations                      --                 --                  --                0.00                0.00

Net Profit (Loss) per Common
Share -  basic and diluted                 0.00              (0.01)              (0.01)              (0.02)              (0.04)



                                      F-26


                           CANARGO ENERGY CORPORATION
                       SUPPLEMENTAL FINANCIAL INFORMATION
                SUPPLEMENTAL OIL AND GAS DISCLOSURES - UNAUDITED


ESTIMATED NET QUANTITIES OF OIL AND GAS RESERVES

Users of this information should be aware that the process of estimating
quantities of "proved" and "proved developed" natural gas and crude oil reserves
is very complex, requiring significant subjective decisions in the evaluation of
all available geological, engineering and economic data for each reservoir. The
data for a given reservoir may also change substantially over time as a result
of numerous factors including, but not limited to, additional development
activity, evolving production history and continual reassessment of the
viability of production under varying economic conditions. Consequently,
material revisions to existing reserve estimates occur from time to time.
Although every reasonable effort is made to ensure that reserve estimates
reported represent the most accurate assessments possible, the significance of
the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.

Proved reserves are estimated quantities of natural gas, crude oil and
condensate that geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs with existing
equipment under existing economic and operating conditions.

Proved developed reserves are proved reserves that can be expected to be
recovered through existing wells with existing equipment and under existing
economic and operating conditions.

No major discovery or other favorable or adverse event subsequent to December
31, 2001 is believed to have caused a material change in the estimates of proved
or proved developed reserves as of that date.

The following tables sets forth the Company's net proved oil and gas reserves,
including the changes therein, and net proved developed reserves at December 31,
2001, as estimated by the independent petroleum engineering firm, Ashton Jenkins
Mann:



NET PROVED RESERVES - OIL                           REPUBLIC OF
(In Thousands of Barrels)                             GEORGIA        CANADA         TOTAL
                                                    -----------      ------         ------
                                                                           
DECEMBER 31, 1998                                      7,544            158          7,702
       Purchase of properties                             --             --             --
       Revisions of previous estimates                    --             --             --
       Extension, discoveries, other additions           274             --            274
       Production                                       (100)           (17)          (117)
       Disposition of properties                          --           (141)          (141)
                                                      ------         ------         ------
DECEMBER 31, 1999                                      7,718             --          7,718
       Purchase of properties                          1,610             --          1,610
       Revisions of previous estimates                    --             --             --
       Extension, discoveries, other additions           583             --            583
       Production                                       (246)            --           (246)
       Disposition of properties                          --             --             --
                                                      ------         ------         ------
DECEMBER 31, 2000                                      9,665             --          9,665
       Purchase of properties                             --             --
       Revisions of previous estimates                (5,689)            --         (5,689)
       Extension, discoveries, other additions            --             --             --
       Production                                       (247)            --           (247)
       Disposition of properties                          --             --             --
                                                      ------         ------         ------
DECEMBER 31, 2001                                      3,729             --          3,729
                                                      ======         ======         ======
NET PROVED DEVELOPED OIL RESERVES
       December 31, 2001                               2,928             --          2,928
                                                      ======         ======         ======



                                      F-27

                           CANARGO ENERGY CORPORATION
                       SUPPLEMENTAL FINANCIAL INFORMATION
                SUPPLEMENTAL OIL AND GAS DISCLOSURES - UNAUDITED



NET PROVED RESERVES - GAS                           REPUBLIC OF
(In Million Cubic Feet)                               GEORGIA
                                                    -----------
                                                 
       Purchase of properties                              --
       Revisions of previous estimates                     --
       Extension, discoveries, other additions          8,417
       Production                                         (83)
                                                      -------
DECEMBER 31, 1999                                       8,334
       Purchase of properties                           1,658
       Revisions of previous estimates                     --
       Extension, discoveries, other additions          4,654
       Production                                      (1,146)
       Disposition of properties                           --
                                                      -------
DECEMBER 31, 2000                                      13,500
       Purchase of properties                              --
       Revisions of previous estimates                 (7,365)
       Extension, discoveries, other additions             --
       Production                                      (1,110)
       Disposition of properties                           --
                                                      -------
DECEMBER 31, 2001                                       5,025
                                                      =======

NET PROVED DEVELOPED GAS RESERVES
       December 31, 2001                                3,863
                                                      =======


         Net proved oil reserves in the Republic of Georgia as at December 31,
         2001 and 2000 were as follows:



                                                DECEMBER 31,                      DECEMBER 31,
                                                  2001                               2000
                                     -----------------------------      ------------------------------
                                                           PSC                                 PSC
                                     OIL RESERVES      ENTITLEMENT      OIL RESERVES       ENTITLEMENT
                                      - GROSS            VOLUMES          - GROSS            VOLUMES
                                        (MSTB)          (MSTB)(1)          (MSTB)           (MSTB)(1)
                                     ------------      -----------      ------------       -----------
                                                                               
Proved  Developed Producing             3,985             2,928             3,800             2,570
Proved Undeveloped                      1,076               801            14,500             7,095
                                       ------            ------           -------            ------
TOTAL PROVEN                            5,061             3,729            18,300             9,665
                                       ======            ======           =======            ======


         Net proved gas reserves in the Republic of Georgia as at December 31,
         2001 and 2000 were as follows:



                                                     DECEMBER 31,                      DECEMBER 31,
                                                        2001                               2000
                                            ----------------------------       ----------------------------
                                                                PSC                                PSC
                                            GAS RESERVES     ENTITLEMENT       GAS RESERVES     ENTITLEMENT
                                              - GROSS         VOLUMES            - GROSS          VOLUMES
                                              (MMCF)          (MMCF)(1)          (MMCF)          (MMCF)(1)
                                            ------------     -----------       ------------     -----------
                                                                                    
Proved  Developed Producing                    12,878           3,863             15,200           4,560
Proved Undeveloped                              3,873           1,162             29,800           8,940
                                              -------          ------            -------         -------
TOTAL PROVEN                                   16,751           5,025             45,000          13,500
                                              =======          ======            =======         =======


-----------

(1)     PSC Entitlement Volumes attributed to CanArgo using the "economic
        interest method" applied to the terms of the production sharing
        contract. PSC Entitlement Volumes are those produced volumes which,
        through the production sharing contract, accrue to the benefit of
        Ninotsminda Oil Company after deduction of Georgian Oil's share which
        includes all Georgian taxes, levies and duties. As a result of


                                      F-28

                           CANARGO ENERGY CORPORATION
                       SUPPLEMENTAL FINANCIAL INFORMATION
                SUPPLEMENTAL OIL AND GAS DISCLOSURES - UNAUDITED


         CanArgo's interest in Ninotsminda Oil Company, these volumes accrue to
         the benefit of CanArgo for the recovery of capital, repayment of
         operating costs and share of profit.

Results of operations for oil and gas producing activities for the years ended
December 31, 2001, 2000 and 1999 are as follows:



                                                                       REPUBLIC OF
YEAR ENDED DECEMBER 31, 2001                                             GEORGIA
                                                                      ------------
                                                                   
Revenues                                                              $  4,873,623
Operating expenses                                                       1,568,011
Depreciation, depletion and amortization                                10,167,368
                                                                      ------------
Operating Income/(Loss)                                                 (6,861,756)
Income tax provision                                                            --
                                                                      ------------
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES            $ (6,861,756)
                                                                      ============





                                                                      REPUBLIC OF
YEAR ENDED DECEMBER 31, 2000                                            GEORGIA
                                                                      -----------
                                                                   
Revenues                                                              $6,108,779
Operating expenses                                                     1,287,035
Depreciation, depletion and amortization                               3,099,000
                                                                      ----------
Operating Income                                                       1,722,744
Income tax provision                                                          --
                                                                      ----------
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES            $1,722,744
                                                                      ==========




                                                    REPUBLIC OF
YEAR ENDED DECEMBER 31, 1999                          GEORGIA               CANADA                TOTAL
                                                    -----------           ----------            ----------
                                                                                       
Revenues                                            $2,274,524            $  219,088            $2,493,612
Operating expenses                                     703,430               205,495               908,925
Depreciation, depletion and amortization               968,203                    --               968,203
                                                    ----------            ----------            ----------
Operating Income (Loss)                                602,891                13,593               616,484
Income tax provision                                        --                    --                    --
                                                    ----------            ----------            ----------
RESULTS OF OPERATIONS FOR OIL AND GAS
PRODUCING ACTIVITIES                                $  602,891            $   13,593            $  616,484
                                                    ==========            ==========            ==========



                                      F-29


                           CANARGO ENERGY CORPORATION
                       SUPPLEMENTAL FINANCIAL INFORMATION
                SUPPLEMENTAL OIL AND GAS DISCLOSURES - UNAUDITED


Costs incurred for oil and gas property acquisition, exploration and development
activities for the years ended December 31, 2001, 2000 and 1999 are as follows:




                                      EASTERN
                                       EUROPE                  CANADA                 TOTAL
                                     -----------            ------------            -----------
                                                                           
DECEMBER 31, 2001
Property Acquisition
     Unproved*                       $ 5,186,002            $         --            $ 5,186,002
     Proved                                   --                      --                     --
Exploration                            5,851,306                      --              5,851,306
Development                            2,054,989                      --              2,054,989
                                     -----------            ------------            -----------
     Total costs incurred            $13,092,297            $         --            $13,092,297
                                     ===========            ============            ===========

DECEMBER 31, 2000
Property Acquisition
     Unproved*                       $ 1,365,783            $         --            $ 1,365,783
     Proved                                   --                      --                     --
Exploration                                   --                      --                     --
Development                            9,261,624                      --              9,261,624
                                     -----------            ------------            -----------
     Total costs incurred            $10,627,407            $         --            $10,627,407
                                     ===========            ============            ===========

DECEMBER 31, 1999
Property Acquisition
     Unproved                        $        --            $         --            $        --
     Proved                                   --                      --                     --
Exploration                                   --                      --                     --
Development                            1,991,779                  39,101              2,030,880
                                     -----------            ------------            -----------
     Total costs incurred            $ 1,991,779            $     39,101            $ 2,030,880
                                     ===========            ============            ===========


*      These amounts represent costs incurred by CanArgo and excluded from the
       amortization base until proved reserves are established or impairment is
       determined.


                                      F-30


                           CANARGO ENERGY CORPORATION
                       SUPPLEMENTAL FINANCIAL INFORMATION
                SUPPLEMENTAL OIL AND GAS DISCLOSURES - UNAUDITED


STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES

The following information has been developed utilizing procedures prescribed by
SFAS No. 69 Disclosure about Oil and Gas Producing Activities ("SFAS 69") and
based on crude oil reserve and production volumes estimated by the Company's
engineering staff. It may be useful for certain comparative purposes, but should
not be solely relied upon in evaluating the Company or its performance. Further,
information contained in the following table should not be considered as
representative of realistic assessments of future cash flows, nor should the
Standardized Measure of Discounted Future Net Cash Flows be viewed as
representative of the current value of the Company.

CanArgo believes that the following factors should be taken into account in
reviewing the following information: (1) future costs and selling prices will
probably differ from those required to be used in these calculations; (2) actual
rates of production achieved in future years may vary significantly from the
rate of production assumed in the calculations; (3) selection of a 10% discount
rate is arbitrary and may not be reasonable as a measure of the relative risk
inherent in realizing future net oil and gas revenues; and (4) future net
revenues may be subject to different rates of income taxation.

Under the Standardized Measure, future cash inflows were estimated by applying
period-end oil prices adjusted for fixed and determinable escalations to the
estimated future production of period-end proven reserves. Future cash inflows
were reduced by estimated future development, abandonment and production costs
based on period-end costs in order to arrive at net cash flow before tax. Future
income tax expenses has been computed by applying period-end statutory tax rates
to aggregate future pre-tax net cash flows, reduced by the tax basis of the
properties involved and tax carryforwards. Use of a 10% discount rate is
required by SFAS No. 69.

Management does not rely solely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as proven reserves and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.

The standardized measure of discounted future net cash flows relating to proved
oil and gas reserves is as follows:



                                                                   REPUBLIC OF
DECEMBER 31, 2001 (IN THOUSANDS)                                     GEORGIA
                                                                   -----------
                                                                
Future cash inflows                                                  $ 61,922
Less related future:
 Production costs                                                      26,177
 Development and abandonment costs                                      6,284
                                                                     --------
 Future net cash flows before income taxes                             29,461
 Future income taxes(1)                                                  (740)
                                                                     --------
 Future net cash flows                                                 28,721
 10% annual discount for estimating timing of cash flows               12,026
                                                                     --------
 Standardized measure of discounted future net cash flows            $ 16,695
                                                                     ========



                                      F-31


                           CANARGO ENERGY CORPORATION
                       SUPPLEMENTAL FINANCIAL INFORMATION
                SUPPLEMENTAL OIL AND GAS DISCLOSURES - UNAUDITED




                                                                    REPUBLIC OF
DECEMBER 31, 2000 (IN THOUSANDS)                                      GEORGIA
                                                                    -----------
                                                                 
Future cash inflows                                                  $ 219,531
Less related future:
 Production costs                                                       37,356
 Development and abandonment costs                                      63,049
                                                                     ---------
 Future net cash flows before income taxes                             119,126
 Future income taxes(1)                                                 (5,063)
                                                                     ---------
 Future net cash flows                                                 114,063
 10% annual discount for estimating timing of cash flows                51,097
                                                                     ---------
 Standardized measure of discounted future net cash flows            $  62,966
                                                                     =========


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

(1)     Future cash flows are based on PSC Entitlement Volumes attributed to
        CanArgo using the "economic interest method" applied to the terms of the
        production sharing contract. PSC Entitlement Volumes are those produced
        volumes which, through the production sharing contract, accrue to the
        benefit of Ninotsminda Oil Company after deduction of Georgian Oil's
        share which includes all Georgian taxes, levies and duties. As a result
        of CanArgo's interest in Ninotsminda Oil Company, these volumes accrue
        to the benefit of CanArgo for the recovery of capital, repayment of
        operating costs and share of profit.

A summary of the changes in the standardized measure of discounted future net
cash flows applicable to proved oil and gas reserves is as follows:



                                                         DECEMBER 31,        December 31,          December 31,
       IN THOUSANDS                                          2001                 2000                 1999
                                                         ------------        ------------          ------------
                                                                                          
Beginning of year                                         $ 62,966             $ 40,168             $ 15,040

Purchase (sale) of reserves in place                            --               11,316                 (437)
Revisions of previous estimates                            (36,196)                (409)                  --

Development costs incurred during the period                 2,055                9,262                1,992

Additions to proved reserves resulting from
extensions, discoveries and improved recovery                   --                   --                   --
Accretion of discount                                           --                   --                   --
Sales of oil and gas, net of production costs               (2,327)              (4,822)              (1,410)
Net change in sales prices, net of production
costs                                                      (12,865)               4,393               29,256

Changes in production rates (timing) and other               3,062                3,058               (4,273)
                                                          --------             --------             --------
Net increase (decrease)                                    (46,271)              22,798               25,128
                                                          --------             --------             --------
End of year                                               $ 16,695             $ 62,966             $ 40,168
                                                          ========             ========             ========



                                      F-32


                   CANARGO ENERGY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                 AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
                      (EXPRESSED IN UNITED STATES DOLLARS)



                                                                      Unaudited
                                                        ---------------------------------------
                                                        SEPTEMBER 30,             December 31,
                                                            2002                      2001
                                                        -------------             -------------
                                                                            
ASSETS

Cash and cash equivalents                               $   1,710,291             $   5,891,038
Accounts receivable                                           621,382                 2,007,112
Inventory                                                     197,733                   405,918
Prepayments                                                   446,510                 2,235,712
Other current assets                                          745,802                   697,827
                                                        -------------             -------------
      Total current assets                              $   3,721,718             $  11,237,607

Capital assets, net (including unevaluated
amounts of $36,242,713 and $24,570,886,
respectively)                                              61,155,382                52,535,420

Investments in and advances to oil and gas
and other ventures - net                                      630,734                   719,308
Assets of subsidiary held for sale                          7,347,104                 5,819,582
                                                        -------------             -------------

TOTAL ASSETS                                            $  72,854,938             $  70,311,917
                                                        =============             =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable                                        $     780,452             $     828,461
Deferred revenue                                            1,000,000                        --
Income taxes payable                                           61,000                    61,000
Accrued liabilities                                           222,937                   400,221
                                                        -------------             -------------
        Total current liabilities                       $   2,064,389             $   1,289,682

Provision for future site                                     107,290                    64,290
restoration
Liabilities of subsidiary                                   2,231,504                 1,177,174
held for sale

Minority shareholder advances                                      --                   450,000
Minority interest in subsidiaries                           3,357,445                 1,531,191
Commitments and contingencies (Note 12)

Stockholders' equity:
     Common stock, par value $0.10 per share                9,735,620                 9,200,845
     Capital in excess of par value                       145,151,475               144,057,517
     Foreign currency translation adjustment                   97,938                        --
     Accumulated deficit                                  (89,890,723)              (87,458,782)
                                                        -------------             -------------
        Total stockholders' equity                      $  65,094,310             $  65,799,580
                                                        -------------             -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $  72,854,938             $  70,311,917
                                                        =============             =============


See accompanying notes to unaudited consolidated condensed financial statements.


                                      F-33



                   CANARGO ENERGY CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
       FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
                      (EXPRESSED IN UNITED STATES DOLLARS)



                                                          Unaudited Three Months Ended              Unaudited Nine Months Ended
                                                        ---------------------------------         ---------------------------------
                                                        SEPTEMBER 30,        September 30,        SEPTEMBER 30,        September 30,
                                                            2002                 2001                 2002                 2001
                                                        ------------         ------------         ------------         ------------
                                                                                                           
Operating Revenues from Continuing Operations:
  Oil and gas sales                                     $    696,406         $  1,201,779         $  3,159,850         $  3,819,685
  Refining                                                        --              893,651                   --            1,981,646
  Other                                                           --                   --            1,398,153                   --
                                                        ------------         ------------         ------------         ------------
                                                             696,406            2,095,430            4,558,003            5,801,331
                                                        ------------         ------------         ------------         ------------
Operating Expenses:
  Field operating expenses                                   261,942              452,560            1,141,304            1,566,037
  Purchases of crude oil and products                             --               60,419                   --              327,536
  Refinery operating expenses                                     --              649,909                   --              846,934
  Direct project costs                                       176,556              365,625            1,158,258              936,830
  Selling, general and administrative                        403,314              865,836            2,703,952            2,688,945
  Depreciation, depletion and amortization                   316,831              578,395            1,601,327            2,524,457
                                                        ------------         ------------         ------------         ------------
                                                           1,158,643            2,972,744            6,604,841            8,890,739
                                                        ------------         ------------         ------------         ------------
OPERATING LOSS FROM CONTINUING OPERATIONS                   (462,237)            (877,314)          (2,046,838)          (3,089,408)
                                                        ------------         ------------         ------------         ------------
Other Income (Expense):
  Interest, net                                               34,508              143,617               31,710              646,830
  Other                                                     (829,444)               8,376             (724,388)              38,731
  Equity income from investments                              45,494               45,431              136,485               74,292
                                                        ------------         ------------         ------------         ------------
TOTAL OTHER INCOME (EXPENSE)                                (749,442)             197,424             (556,193)             759,853
                                                        ------------         ------------         ------------         ------------
NET LOSS BEFORE MINORITY INTEREST                         (1,211,679)            (679,890)          (2,603,031)          (2,329,555)
Minority interest in income (loss) of consolidated
subsidiaries                                                 (52,774)             112,899               (2,300)             183,663
                                                        ------------         ------------         ------------         ------------
NET LOSS FROM CONTINUING OPERATIONS                     $ (1,264,453)        $   (566,991)        $ (2,605,331)        $ (2,145,892)
                                                        ============         ============         ============         ============
NET INCOME FROM DISCONTINUED OPERATIONS, NET OF
TAXES AND MINORITY INTEREST                                   36,608               79,628              173,390              129,007
                                                        ------------         ------------         ------------         ------------
NET LOSS                                                  (1,227,845)            (487,363)          (2,431,941)          (2,016,885)
                                                        ============         ============         ============         ============
OTHER COMPREHENSIVE INCOME:
  Foreign currency translation                               149,195                   --               97,938                   --
                                                        ------------         ------------         ------------         ------------
COMPREHENSIVE LOSS                                      $ (1,078,650)        $   (487,363)        $ (2,334,003)        $ (2,016,885)
                                                        ============         ============         ============         ============

  Weighted average number of
  common shares outstanding                               97,356,206           91,484,823           96,479,984           81,185,630
                                                        ------------         ------------         ------------         ------------
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
  - from continuing operations                          $      (0.01)        $      (0.01)        $      (0.03)        $      (0.02)
  - from discontinued operations                                0.00                 0.00         $       0.00                 0.00
                                                        ------------         ------------         ------------         ------------
NET LOSS PER COMMON SHARE - BASIC AND DILUTED           $      (0.01)        $      (0.01)        $      (0.03)        $      (0.02)
                                                        ------------         ------------         ------------         ------------



See accompanying notes to unaudited consolidated condensed financial statements.


                                      F-34


                   CANARGO ENERGY CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
       FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
                      (EXPRESSED IN UNITED STATES DOLLARS)




                                                                            Unaudited Nine Months Ended
                                                                         ----------------------------------
                                                                         SEPTEMBER 30,        September 30,
                                                                             2002                 2001
                                                                         -------------        -------------
                                                                                        
Operating activities:
  Net income (loss) from continued operations                              (2,605,331)          (2,145,892)
  Depreciation, depletion and amortization                                  1,601,327            2,524,457
  Equity income from investments                                             (136,484)             (74,292)
  Allowance for doubtful accounts                                             275,000              100,000
  Minority interest in income (loss) of consolidated subsidiaries               2,300             (183,663)
  Changes in assets and liabilities:
    Accounts receivable                                                     1,110,730           (2,107,058)
    Inventory                                                                 208,185             (380,602)
    Other current assets                                                      (47,975)            (168,411)
    Accounts payable                                                          (48,009)          (1,864,214)
    Deferred revenue                                                        1,000,000                   --
    China Projects payable                                                         --              700,940
    Accrued liabilities                                                      (177,284)            (509,146)
  Advances from joint venture partner                                              --           (5,888,573)
                                                                         ------------         ------------
NET CASH GENERATED BY (USED IN) OPERATING ACTIVITIES                        1,182,459           (9,996,454)
                                                                         ------------         ------------
Investing activities:
  Capital expenditures                                                    (10,055,351)          (8,751,032)
  Acquisitions, net of cash acquired                                          (25,000)          (4,044,973)
  Proceeds from disposition of investment                                          --              125,000
  Investments in and advances to oil and gas and other
    ventures                                                                  225,058             (589,232)
  Change in non cash working capital items                                  1,789,202             (553,457)
                                                                         ------------         ------------
NET CASH USED IN INVESTING ACTIVITIES                                      (8,066,091)         (13,813,694)
                                                                         ------------         ------------
Financing Activities:
  Proceeds from sale of common stock                                        1,790,948            7,235,339
  Share issue costs                                                          (162,215)            (643,075)
  Advances from minority interest                                           1,373,954            1,935,881
                                                                         ------------         ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                   3,002,687            8,528,145

NET CASHFLOWS FROM SUBSIARY HELD FOR SALE                                    (299,802)          (3,356,524)

NET DECREASE IN CASH AND CASH EQUIVALENTS                                  (4,180,747)         (18,638,527)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              5,891,038           29,696,654
                                                                         ------------         ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                    1,710,291         $ 11,058,127
                                                                         ============         ============


See accompanying notes to unaudited consolidated condensed financial statements.


                                      F-35


                   CANARGO ENERGY CORPORATION AND SUBSIDIARIES
         NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
     NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 (UNAUDITED)


(1)      Basis of Presentation

         The interim consolidated condensed financial statements and notes
         thereto of CanArgo Energy Corporation and its subsidiaries
         (collectively, CanArgo) have been prepared by management without audit.
         In the opinion of management, the consolidated condensed financial
         statements include all adjustments, consisting of normal recurring
         adjustments, necessary for a fair statement of the results for the
         interim period. The accompanying consolidated condensed financial
         statements should be read in conjunction with the consolidated
         financial statements and notes thereto included in CanArgo's Annual
         Report on Form 10-K for the year ended December 31, 2001 filed with the
         Securities and Exchange Commission. All amounts are in U.S. dollars.

         Certain items in the consolidated condensed financial statements have
         been reclassified to conform to the current year presentation. There
         was no effect on net loss as a result of these reclassifications.

         In September 2002, CanArgo approved a plan to sell CanArgo Standard Oil
         Products to finance Georgian and Ukrainian development projects and in
         October 2002, CanArgo agreed to sell its 50% holding with legal
         ownership being transferred upon receipt of final payment due in August
         2003. The assets and liabilities of CanArgo Standard Oil Products have
         been classified as "Assets of subsidiary held for sale" and
         "Liabilities of subsidiary held for sale". The results of operations of
         CanArgo Standard Oil Products have been classified as discontinued for
         all periods presented. The minority interest related to CanArgo
         Standard Oil Products has not been reclassified for any of the periods
         presented, however net income from discontinued operations is disclosed
         net of taxes and minority interest.

         During 2002, the Company adopted the self-sustaining method of
         accounting for CanArgo Standard Oil Products. The adoption of the
         self-sustaining method was necessitated by the fact that CanArgo
         Standard Oil Products was no longer financially and operationally
         dependant upon its parent company. Under the self-sustaining method of
         foreign currency translation, assets and liabilities are translated
         into US dollars at period end exchange rates and income and expenses
         are translated into US dollars at average rates in effect during the
         period. Exchange gains and losses on translation are reflected as a
         separate component of shareholders' equity.

(2)      Need for Significant Additional Capital, Possible Impairment of Assets

         CanArgo has incurred recurring operating losses, and its current
         operations are not generating positive cash flows.

         In order to preserve available cash resources while still maintaining
         essential field operations and development activities in Georgia, a
         significant cost reduction plan is being implemented. Disposal of
         further non-core assets and external sources of funding are also being
         pursued.

         Development of the oil and gas properties and ventures in which CanArgo
         has interests involves multi-year efforts and substantial cash
         expenditures. Full development of these properties will require the
         availability of substantial funds from external sources. CanArgo
         believes that it will be able to generate funds from external sources
         including quasi-governmental financing agencies, conventional lenders,
         equity investors and other oil and gas companies that may desire to
         participate in CanArgo's oil and gas projects, although no firm funding
         commitments have been received.

         Ultimate realization of the carrying value of CanArgo's oil and gas
         properties will require production of oil and gas in sufficient
         quantities and marketing such oil and gas at sufficient prices to
         provide positive cash flow to CanArgo. This is dependent upon, among
         other factors, achieving significant production at


                                      F-36




         costs that provide acceptable margins, reasonable levels of taxation
         from local authorities and the ability to market the oil and gas
         produced at or near world prices. In addition, CanArgo must mobilize
         drilling equipment and personnel to initiate drilling, completion and
         production activities. If one or more of the above factors, or other
         factors, are different than anticipated, CanArgo may not recover the
         carrying value of its oil and gas properties.

         CanArgo generally has the principal responsibility for arranging
         financing for the oil and gas properties and ventures in which it has
         an interest. There can be no assurance, however, that CanArgo or the
         entities that are developing the oil and gas properties and ventures
         will be able to arrange the financing necessary to develop the projects
         being undertaken or to support the corporate and other activities of
         CanArgo or that such financing if available will be on terms that are
         acceptable to or are deemed to be in the best interests of CanArgo,
         such entities or their respective stockholders or participants.

         The consolidated financial statements of CanArgo do not give effect to
         any additional impairment in the value of CanArgo's oil and gas
         properties and ventures or other adjustments that would be necessary if
         financing cannot be arranged for the development of such properties and
         ventures or if they are unable to achieve profitable operations.
         Failure to arrange such financing on reasonable terms or failure of
         such properties and ventures to achieve profitability would have a
         material adverse effect on the financial position, including
         realization of assets, results of operations, cash flows and prospects
         of CanArgo.

(3)      Foreign Operations

         CanArgo's future operations and earnings will depend upon the results
         of CanArgo's operations in the Republic of Georgia, Ukraine and Russia.
         There can be no assurance that CanArgo will be able to successfully
         conduct such operations, and a failure to do so would have a material
         adverse effect on CanArgo's financial position, results of operations
         and cash flows. Also, the success of CanArgo's operations will be
         subject to numerous contingencies, some of which are beyond management
         control. These contingencies include general and regional economic
         conditions, prices for crude oil and natural gas, competition and
         changes in regulation. Since CanArgo is dependent on international
         operations, CanArgo will be subject to various additional political,
         economic and other uncertainties. Among other risks, CanArgo's
         operations may be subject to the risks and restrictions on transfer of
         funds, import and export duties, quotas and embargoes, domestic and
         international customs and tariffs, and changing taxation policies,
         foreign exchange restrictions, political conditions and regulations.

(4)      Inventory

         Inventory at September 30, 2002 and December 31, 2001 consisted of the
         following:



                      SEPTEMBER 30,   December 31,
                          2002            2001
                      -------------   ------------
                                
Crude oil               $171,659        $373,818
Refined products          26,074          32,100
                        --------        --------
                        $197,733        $405,918
                        ========        ========



                                      F-37




(5)      Capital Assets, Net

         Capital assets, net of accumulated depreciation and impairment, at
         September 30, 2002 and December 31, 2001 include the following:



                                                           SEPTEMBER 30,                       December 31,
                                                               2002                                2001
                                        --------------------------------------------------    --------------
                                                           ACCUMULATED
                                                          DEPRECIATION           NET               NET
                                           COST           AND IMPAIRMENT    CAPITAL ASSETS    CAPITAL ASSETS
                                        -----------       --------------    --------------    --------------
                                                                                  
OIL AND GAS PROPERTIES
  Proved properties                     $31,900,462        $16,414,771        $15,485,691        $16,669,691
  Unproved properties                    36,286,394                 --         36,286,394         24,570,886
                                        -----------        -----------        -----------        -----------
                                         68,186,856         16,414,771         51,772,085         41,240,577
PROPERTY AND EQUIPMENT

  Oil and gas related equipment          12,346,319          3,561,867          8,784,452         10,621,771
  Office furniture, fixtures and
  equipment and other                     1,093,107            605,112            487,995            562,221
                                        -----------        -----------        -----------        -----------
                                         13,439,426          4,166,979          9,272,447         11,183,992

REFINING                                  4,165,067          4,054,217            110,850            110,851
                                        -----------        -----------        -----------        -----------
            TOTAL                       $85,791,349        $24,635,967        $61,155,382        $52,535,420
                                        ===========        ===========        ===========        ===========



         Unproved property additions relate to CanArgo's exploration activity in
         the period. Oil and gas related equipment includes new or refurbished
         drilling rigs and related equipment, all of which are in the Republic
         of Georgia.

         In July 2002, CanArgo acquired the remaining 15% interest it did not
         own in IPEC, whose sole operations were the ownership of a 0.1% working
         interest in the Bugruvativske field for cash consideration of $50,000.
         Total cash consideration was allocated to capital assets and on
         completion of the acquisition IPEC became a wholly owned subsidiary of
         CanArgo. Subsequent to the purchase, in July 2002, CanArgo disposed of
         its entire interest (100%) in IPEC to the nominees of a local Ukrainian
         oil and gas company for $13,435 and recorded $34,742 in unproved
         properties related to CanArgo's investment in the Bugruvativske field.



                                      F-38


(6)      Investments in and Advances to Oil and Gas and Other Ventures

         CanArgo has acquired interests in oil and gas and other ventures
         through less than majority interests in corporate and corporate-like
         entities. A summary of CanArgo's net investment in and advances to oil
         and gas and other ventures at September 30, 2002 and December 31, 2001
         is set out below:




                                                                            SEPTEMBER 30,       December 31,
INVESTMENTS IN AND ADVANCES TO OIL AND GAS AND OTHER VENTURES                   2002                2001
                                                                            -------------       ------------
                                                                                          
Ukraine - Stynawske Field, Boryslaw
     Through 45% ownership of Boryslaw Oil Company                          $ 6,613,603         $ 6,698,062
Republic of Georgia - Ninotsminda
    Through an effective 50% ownership of East Georgian Pipeline Co.                 --             192,500
Other Investments                                                                75,000              75,000
                                                                            -----------         -----------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND GAS
AND OTHER VENTURES                                                          $ 6,688,603         $ 6,965,562
                                                                            -----------         -----------

EQUITY IN PROFIT (LOSS) OF OIL AND GAS AND OTHER VENTURES

Ukraine - Stynawske Field, Boryslaw                                            (598,076)           (593,961)
Republic of Georgia - East Georgian Pipeline Co.                                     --            (192,500)
                                                                            -----------         -----------
CUMULATIVE EQUITY IN PROFIT (LOSS) OF OIL AND GAS
AND OTHER VENTURES                                                          $  (598,076)        $  (786,461)

IMPAIRMENT - STYNAWSKE FIELD, BORYSLAW                                       (5,459,793)         (5,459,793)
                                                                            -----------         -----------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND GAS
AND OTHER VENTURES, NET OF EQUITY LOSS AND IMPAIRMENT                       $   630,734         $   719,308
                                                                            ===========         ===========



         Under the terms of the license Boryslaw Oil Company holds in the
         Stynawske field, field operations were to be transferred to Boryslaw
         Oil Company effective January 1, 1999. As a result of prolonged
         negotiations, which created significant uncertainty as to CanArgo's
         ability to raise funds for the project or enter into a satisfactory
         farm-out agreement on a timely basis, CanArgo recorded in the third
         quarter of 1999 an impairment charge of $5,459,793 against its entire
         investment in and advances to Boryslaw Oil Company.

         In 2001 an agreement was reached to undertake a limited investment and
         development program by June 2002 in respect of Boryslaw Oil Company to
         increase production and to meet certain work commitments under the
         Stynawske field licence. These obligations have not been fully met,
         however, Boryslaw Oil Company is seeking modifications to the licence
         to allow a proper assessment of the workovers and development plans
         completed to date. A repayment schedule of CanArgo's advances to
         Boryslaw Oil Company has also been agreed of which $250,000 was repaid
         at September 30, 2002. Boryslaw Oil Company has not been given notice
         by the Ukrainian licensing body of early termination of the license.
         CanArgo is actively seeking to farm-out part of its interest in
         Boryslaw Oil Company in return for financing to carry out the work
         programme. If Boryslaw Oil Company does not proceed with the Stynawske
         field development programme or if modifications to the current licence
         agreement cannot be


                                      F-39


         obtained, it may be in breach of obligations it has with regard to the
         field license and an impairment charge against CanArgo's investment in
         and advances to Boryslaw Oil Company may be required.

         CanArgo's venture in Boryslaw Oil Company is in the development stage
         and accordingly, realization of this investment is dependent upon
         successful development of and ultimately cash flows from operations of
         the venture.

         Other investments represent CanArgo's 10% interest in a Caspian Sea
         exploration project.


(7)      Accrued Liabilities

         Accrued liabilities at September 30, 2002 and December 31, 2001 include
         the following:



                       SEPTEMBER 30,   December 31,
                           2002            2001
                       -------------   ------------
                                 
Professional fees        $ 37,600        $150,000
Operating costs                --          90,000
Other                     185,337         160,221
                         --------        --------
                         $222,937        $400,221
                         ========        ========


         As at December 31, 2001 $90,000 represented liabilities relating to the
         winding up of East Georgian Pipeline Company.

(8)      Minority Shareholder Advances

         In 2001 CanArgo received $731,000 and in 2002, $476,000 on issuance of
         convertible loans from new minority shareholders of CanArgo's
         subsidiary, CanArgo Norio Limited (Norio). The cash amount received
         represented the new minority shareholders share of the cost of drilling
         an exploration well under the Norio and North Kumisi production sharing
         agreement. In November 2002, CanArgo reached agreement with the other
         shareholders in Norio on increasing CanArgo's interest in Norio. Under
         the agreement CanArgo's interest increased from 50% to 64% in Norio and
         its existing Norio and North Kumisi production sharing agreement. On
         finalisation of respective equity interest, the convertible loans,
         previously classified as minority shareholder advances, have been
         reclassified to minority interest.

(9)      Minority Interest

         In November 2002, CanArgo reached agreement with the other shareholders
         in CanArgo's subsidiary, CanArgo Norio Limited (Norio), on increasing
         CanArgo's interest in Norio. Under the agreement CanArgo's interest
         increased from 50% to 64% in Norio and its existing Norio and North
         Kumisi production sharing agreement. As a result of the finalisation of
         respective equity interest, CanArgo's interest was adjusted to reflect
         its share of $6,031,070, the carrying net asset value of Norio, and in
         accordance with the application of SAB 51, this gave rise to a
         non-operating loss of $443,564, classified as other expenses. The
         nominal value of the final shares issued in Norio were $1,250 per share
         which gives a nominal value for Norio of $11,328,928 of which CanArgo
         share is $7,269,023 and the minority shareholders share is $4,059,876.

         J.F. Russell Hammond, a non-executive director of CanArgo, is also an
         investment advisor to Provincial Securities who became a minority
         shareholder in the Norio and North Kumisi Production Sharing Agreement
         through a farm-in agreement to the Norio MK72 well.


                                      F-40



(10)     Stockholders' Equity



                                           COMMON STOCK
                                    ---------------------------
                                    NUMBER OF
                                      SHARES                        ADDITIONAL        FOREIGN                           TOTAL
                                    ISSUED AND                        PAID-IN         CURRENCY        ACCUMULATED    STOCKHOLDERS'
                                     ISSUABLE       PAR VALUE         CAPITAL        TRANSLATION       DEFICIT           EQUITY
                                    ----------    -------------    -------------    -------------   -------------    -------------
                                                                                                   
TOTAL, DECEMBER 31, 2001            92,008,446    $   9,200,845    $ 144,057,517    $          --   $ (87,458,782)   $  65,799,580

Less shares issuable at
beginning of period                   (148,826)         (14,883)        (279,436)              --              --         (294,319)

Issuance of common stock upon
exchange of CanArgo Oil & Gas          148,826           14,883          279,436               --              --          294,319
Inc. Exchangeable Shares

Issuance of common stock pursuant
to February private placement        5,210,000          521,000        1,241,433               --              --        1,762,433

Issuance of common stock pursuant
to May private placement               137,760           13,775           14,740               --              --           28,515

Share issue costs                           --               --         (162,215)              --              --         (162,215)

Current year adjustment                                                                    97,938                           97,938

Net loss                                    --               --               --               --      (2,431,941)      (2,431,941)
                                    ----------    -------------    -------------    -------------   -------------    -------------
TOTAL, SEPTEMBER 30, 2002           97,356,206    $   9,735,620    $ 145,151,475    $      97,938   $ (89,890,723)   $  65,094,310
                                    ==========    =============    =============    =============   =============    =============



         On May 24, 2002 CanArgo acquired all of the Exchangeable Shares of
         CanArgo Oil & Gas Inc. for an aggregate of 148,826 shares of CanArgo
         Common Stock on a share-for-share basis.


(11)     Net Loss Per Common Share

         Basic and diluted net loss per common share for the nine month periods
         ended September 30, 2002 and 2001 are based on the weighted average
         number of common shares outstanding during those periods. The weighted
         average numbers of shares issued and issuable without receipt of
         additional consideration for the nine month periods ended September 30,
         2002 and 2001 are 97,356,206 and 91,484,823 respectively. Options to
         purchase CanArgo's common stock were outstanding at September 30, 2002
         but were not included in the computation of diluted net loss per common
         share because the effect of such inclusion would have been
         anti-dilutive.

(12)     Commitments and Contingencies

         OIL AND GAS PROPERTIES AND INVESTMENTS IN OIL AND GAS VENTURES

         Current drilling obligations with respect to CanArgo's oil and gas
         properties include, under the second phase of the preliminary work
         programme for the Norio and Nazvrevi/Block XIII production sharing
         contracts, the drilling of one well, unless CanArgo decides to
         terminate the contracts.

         CanArgo has contingent obligations and may incur additional
         obligations, absolute and contingent, with respect to acquiring and
         developing oil and gas properties and ventures. At September 30, 2002,
         CanArgo had the contingent obligation to issue an aggregate of 187,500
         shares of its common stock, subject to the satisfaction of conditions
         related to the achievement of specified performance standards by the
         Stynawske field project.


                                      F-41


         The shareholders agreement with the other shareholder of Norio calls
         for a bonus payment of $800,000 to be paid by CanArgo should commercial
         production be obtained from the Middle Eocene or older strata and a
         second bonus payment of $800,000 should production from the Block from
         the Middle Eocene or older strata exceed 250 tonnes of oil per day over
         any 90 day period.


(13)     Segment Information

         Operating revenues from continuing operations for the nine month
         periods ended September 30, 2002 and 2001 by geographical area were as
         follows:



                                                          SEPTEMBER 30,      September 30,
                                                               2002               2001
                                                          -------------      -------------
                                                                       
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
  Eastern Europe                                           $ 3,159,850        $ 4,726,230

REFINING
  Eastern Europe                                                    --          1,981,646

OTHER
  Eastern Europe                                             1,398,153                 --

INTERSEGMENT ELIMINATIONS                                           --           (906,545)
                                                           -----------        -----------
TOTAL                                                      $ 4,558,003        $ 5,801,331
                                                           ===========        ===========


         Other Eastern Europe operating revenue relates to income from the hire
         of CanArgo equipment.



         Operating income (loss) from continuing operations for the nine month
         periods ended September 30, 2002 and 2001 by geographical area was as
         follows:



                                                          SEPTEMBER 30,       September 30,
                                                              2002                2001
                                                          -------------       -------------
                                                                        
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
   Eastern Europe                                          $ 2,060,386         $   645,542

REFINING
   Eastern Europe                                               (5,053)           (355,365)

CORPORATE AND OTHER EXPENSES                                (4,102,171)         (3,313,357)

INTERSEGMENT ELIMINATIONS                                           --             (66,228)
                                                           -----------         -----------
TOTAL OPERATING INCOME (LOSS)                              $(2,046,838)        $(3,089,408)
                                                           ===========         ===========



                                      F-42


         Net income (loss) before minority interest from continuing operations
         for the nine month periods ended September 30, 2002 and 2001 by
         geographic area was as follows:



                                                          SEPTEMBER 30,       September 30,
                                                              2002                2001
                                                          -------------       -------------
                                                                        
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
   Eastern Europe                                          $ 1,616,824         $   685,531

REFINING
   Eastern Europe                                                5,680            (355,365)

CORPORATE AND OTHER EXPENSES                                (4,225,535)         (2,593,493)

INTERSEGMENT ELIMINATIONS                                           --             (66,228)
                                                           -----------         -----------
NET INCOME (LOSS) BEFORE MINORITY INTEREST                 $(2,603,031)        $(2,329,555)
                                                           ===========         ===========


     Identifiable assets of continuing and discontinued operations as of
     September 30, 2002 and December 31, 2001 by business segment and
     geographical area were as follows:



                                                           SEPTEMBER 30,       December 31,
                                                                2002               2001
                                                           -------------       ------------
                                                                         
CORPORATE
  Eastern Europe                                            $   112,525        $ 3,926,930
  Western Europe                                              3,609,193          7,310,677
                                                            -----------        -----------
TOTAL                                                         3,721,718         11,237,607

OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
  Eastern Europe                                             61,044,532         52,424,570

REFINING
  Eastern Europe                                                110,850            110,850

DISCONTINUED OPERATIONS
  Eastern Europe                                              7,347,104          5,819,582

OTHER ENERGY PROJECTS
  Eastern Europe                                                630,734            719,308
                                                            -----------        -----------
IDENTIFIABLE ASSETS - TOTAL                                 $72,854,938        $70,311,917
                                                            ===========        ===========



                                      F-43



(14)     Discontinued Operations

         In September 2002, CanArgo approved a plan to sell CanArgo Standard Oil
         Products to finance Georgian and Ukrainian development projects and in
         October 2002, CanArgo agreed to sell its 50% holding to Westrade
         Alliance LLC, an unaffiliated company, for $4 million in an arms-length
         transaction, with legal ownership being transferred upon receipt of
         final payment due in August 2003. The agreed consideration to be
         exchanged does not result in an impairment of the carrying value of
         assets held for sale. The assets and liabilities of CanArgo Standard
         Oil Products have been classified as "Assets of subsidiary held for
         sale" and "Liabilities of subsidiary held for sale" for all periods
         presented. The results of operations of CanArgo Standard Oil Products
         have been classified as discontinued for all periods presented. The
         minority interest related to CanArgo Standard Oil Products has not been
         reclassified for any of the periods presented, however net income from
         discontinued operations is disclosed net of taxes and minority
         interest.

         The results of discontinued operations at September 30, 2002 and
         September 30, 2001 consisted of the following:



                                                       SEPTEMBER 30,       September 30,
                                                           2002                2001
                                                       -------------       -------------
                                                                     
Operating Revenues                                        5,086,458           4,842,530
Income Before Income taxes and Minority Interest            367,174             258,014
Income Taxes                                                 20,394                  --
Minority Interest in Income                                (173,390)           (129,007)
                                                        -----------         -----------
Net Income from Discontinued Operation                  $   173,390         $   129,007
                                                        ===========         ===========



         Assets and liabilities of subsidiary held for sale at September 30,
         2002 and December 30, 2001 consisted of the following:



                                        SEPTEMBER 30,     December 30,
                                            2002              2001
                                        -------------     ------------
                                                    
Assets held for sale:
Cash and cash equivalents                    47,882               254
Accounts receivable                         239,796            90,108
Inventory                                   201,451           177,931
Other current assets                        135,023            35,384
Capital assets, net                       6,473,952         5,149,291
Investment in other ventures, net           249,000           366,614
                                         ----------        ----------
                                         $7,347,104        $5,819,582
                                         ==========        ==========

Liabilities held for sale:
Accounts payable                            660,269           240,958
Current portion of long term debt         1,110,276           392,408
Income taxes payable                         12,183            29,456
Accrued liabilities                             200                --
Long term debt                              448,576           514,352
                                         ----------        ----------
                                         $2,231,504        $1,177,174
                                         ==========        ==========


         Other investments include three petrol station sites in Tbilisi,
         Georgia in which CanArgo has a 50% non-controlling interest. CanArgo
         accounts for its interest in the three petrol station sites using the
         equity method and consolidates the remaining sites in which it has
         controlling interest. In 2002, CanArgo purchased the remaining 50% of
         Petro-Invest, a petrol station site in which CanArgo previously held a
         50% non-controlling interest. This site in now consolidated in the
         results of CanArgo Standard Oil Products, above.


                                      F-44


         In 2002, the three petrol station sites that CanArgo has a 50%
         non-controlling interest entered into credit facility agreements of
         $550,000 with a commercial lender in Georgia. As at September, 2002
         $350,000 of these facilities were drawn and as at September 30, 2002,
         $263,169 under the facilities were outstanding. The loans bear interest
         at 18% per annum and are secured by the assets of the petrol stations.
         The full amount of the loans are to be repaid by June 2004. No company
         guarantees have been provided by CanArgo with respect to these loans.

         In November 2001, CanArgo Standard Oil Products Limited entered into a
         $1 million credit facility agreement, in May 2002 a further $240,000
         credit facility agreement, and in September 2002 a further $800,000
         credit facility agreement with a commercial lender in Georgia to fund
         further expansion of its petrol station network. In 2001, the full
         amount of the first facility was drawn, in 2002 $180,000 of the second
         facility was drawn, and in September 2002 the full amount of the third
         facility was drawn. As at September 30, 2002, $1,558,855 of the total
         facility was outstanding. The loans bear interest at 18% per annum and
         are secured by the assets of five petrol stations. The full amount of
         the first loan is to be repaid by December 2003, the second loan by
         November 2004, and the third loan by February 2005. No parent company
         guarantees have been provided by CanArgo with respect to these loans.

         The remaining 50% interest in CanArgo Standard Oil Products is held by
         Standard Oil Products of Georgia and an individual, Mr. Levan
         Pkhakazde, who is one of the founders of Standard Oil Products and the
         General Director of CanArgo Standard Oil Products.

(15)     Acquisition and disposals

         In July 2002, CanArgo acquired the remaining 15% interest it did not
         own in IPEC for cash consideration of $50,000. Total cash consideration
         was allocated to capital assets and on completion of the acquisition,
         IPEC became a wholly owned subsidiary of CanArgo. There were no
         material assets or liabilities within IPEC at the acquisition date
         requiring fair valuing. Prior to acquisition, the historical cost of
         the 85% interest that CanArgo owned in IPEC was $33,369.

         In July 2002, CanArgo signed a covenant with a local Ukrainian oil and
         gas company, on their participation in the Joint Investment Production
         Activity agreement (JIPA) for the development of the Bugruvativske
         field in Ukraine. IPEC was to provide the vehicle by which they would
         become party, through their subsidiary or nominee, to the JIPA and in
         September 2002, CanArgo disposed of its entire interest (100%) in IPEC
         for $13,435 to their nominees.

(16)     Subsequent Events

         In October 2002, CanArgo agreed to sell its 50% holding in CanArgo
         Standard Oil Products to finance Georgian and Ukrainian development
         projects with legal ownership being transferred upon receipt of final
         payment due in August 2003. The assets and liabilities of CanArgo
         Standard Oil Products have been classified as "Assets of subsidiary
         held for sale" and "Liabilities of subsidiary held for sale". The
         results of operations of CanArgo Standard Oil Products have been
         classified as discontinued for all periods presented. The minority
         interest related to CanArgo Standard Oil Products has not been
         reclassified for any of the periods presented, however net income from
         discontinued operations is disclosed net of taxes and minority
         interest.

         In November 2002, CanArgo's subsidiary, CanArgo Norio Limited (Norio),
         won the tender for the oil and gas exploration and production rights to
         Block XIG (Tbilisi) and Block XIH (Rustavi) in Eastern Georgia. By
         successfully winning the tender, under the tender conditions issued by
         the Georgian State Agency for Regulation of Oil and Gas Resources,
         CanArgo should be awarded a licence for these blocks following
         negotiation of a Production Sharing Agreement with the Georgian State
         authorities.

         In November 2002, CanArgo reached agreement with the other shareholders
         in Norio on increasing CanArgo's interest in Norio. Under the agreement
         CanArgo's interest increased from 50% to 64% in Norio and its existing
         Norio and North Kumisi production sharing agreement, as well as the two
         new blocks. Convertible loans representing advances from new minority
         shareholders of Norio were


                                      F-45


         reclassified from advances in minority interest to minority interest as
         at 30 September 2002 following finalisation of CanArgo's equity
         interest in Norio. As a result of the finalisation of respective equity
         interest, CanArgo's interest was adjusted to reflect its share of
         $6,031,070, the carrying net asset value of Norio, and in accordance
         with the application of SAB 51, gave rise to a non-operating loss of
         $443,564, classified as other expenses. The nominal value of the final
         shares issued in Norio were $1,250 per share which gives a nominal
         value for Norio of $11,328,928 of which CanArgo share is $7,269,023 and
         the minority shareholders share is $4,059,876.

         In September 2002 Anthony J. Potter resigned as Chief Financial Officer
         and in November 2002, Roger Brittain resigned as non-executive Chairman
         of the Board.


                                      F-46


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