Management Review of Operations and Financial Statements
for Fiscal 1999 and First Quarter Fiscal 2000
August 17, 1999

Fellow Shareholders:
General Overview

Borealis owns and develops industrial technologies fundamentally changing basic industries. We are developing industrial technologies for more efficient generation of electrical power, more effective electrical motors, and silent, non-polluting cooling and refrigeration systems. We anticipate that some of these technologies will open entirely new fields for scientific exploration and commercial development in the 21st Century.

Closest to market is the Chorus™ Motor, a significantly improved electric motor that provides considerably more torque and higher efficiencies than existing electric drives. We have built and tested an Alpha version, and are now completing testing on an improved Beta version; we expect to announce these results shortly. Work is already underway on production prototypes.

In the opinion of our technical staff, the Chorus™ Motor technology will change drive technology forever. Borealis is changing a commodity business into a proprietary business where our patented technology is expected to lead to substantial profit margins. The Chorus™ Motor is an ideal source of motive power for traction applications, including elevators, hoists, conveyors, locomotives, and automobiles. We expect the Chorus™ Motor to become the drive of choice for most applications.

Borealis is also developing another new technology: chips which produce electricity. These chips are small, lightweight, durable, versatile, silent, nonpolluting, and have no moving parts. They will make it possible to generate electricity anywhere there is a source of heat. Alternatively, the chips can absorb heat to provide cooling, refrigeration, and climate control. These devices are designed to be more efficient than any competing technology.

We are working on several prototypes of the Borealis Power Chips™ and Borealis Cool Chips™. The most advanced of these prototype efforts is currently at the assembly and test phase.

Borealis Power Chips™ should revolutionize electrical power generation across virtually all applications, just as Borealis Cool Chips™ should replace virtually every existing active cooling and thermal management technology.

What is truly stunning is that your company has been able to mount these serious efforts in areas of basic fundamental science where the world's large business enterprises will not tread and the world's governments are not providing funding.

For all these technologies, Borealis has patents and patents pending, representing the extensive intellectual property we have developed in recent years.

These technological advances are becoming commercial realities. The Chorus™ Motor has production prototypes underway that should rock the industry. It should be noted that we are building these production prototypes of the Chorus™ Motor Technology with leading electronics companies. Borealis expects to license the Chorus™ Motor technology to major motor manufacturers. Alternatively, we are prepared to manufacture and sell the Chorus™ technology package by ourselves.

As a companion to our research and development work, Roche Bay Mining Company Limited, a subsidiary of Borealis Technical Limited, owns one of the largest viable untapped magnetite deposits in the world. Ownership was transferred last year to Roche Bay and expiring leases were renewed after 33 years under direct Borealis Exploration Limited ownership. The leases that expire in 2000 are scheduled for renewal at that time. These properties hold tremendous value and we are working to unlock the asset for our shareholders. In the past year we re-confirmed by INAA analysis that there is precious metal content in these deposits.

Last year your company successfully completed a Continuance out of Canada and a Continuance into Gibraltar. This was a natural outgrowth of the gradual shift of our operations towards Europe. Our technology work is managed out of Europe and we are a virtual company based in the European Union. Roche Bay Mining Company Limited, and most of the other operating companies in the Borealis Group of Companies, incorporated in Gibraltar. Borealis has retained all current share listings, and all reporting to the US and Canadian Securities Authorities is now in US GAAP and we are working to meet full US disclosure requirements, with the intention of augmenting our stock exchange listings.

Specific Borealis Properties and Operations

Virtual Company

Borealis is a "virtual" company in the sense that unlike other companies, we are heavily distributed throughout the world such that the Internet plays a dominant role in our day-to-day operations and working practices. It is the means by which we manage our business, discuss new ideas, and promote ourselves to the outside world. Modern communications technology has allowed us to circumvent the traditional problems associated with working on 4 continents and 18 time zones. Because of this, we have access to facilities and personnel about which a company of our size would normally only dream.

Borealis has consultants around the world, all of whom work over e-mail. Management discussions take place over the net, as do technical discussions. Borealis runs a continual Board of Directors meeting 24 hours a day, all year, with an annual traffic of over 2,000 messages to each Board Member. Borealis has intense direct participatory management, and many consultants to the company sit in on the Board meetings and provide input even while they are not voting members.

Our Web Site, www.borealis.com, makes information about our technology available, and informs shareholders, other companies, and the general public about Borealis. The Web site is always being updated; a search engine has been added and some of our major technologies, like the Chorus™ Technology, are described on the site in some detail. As more patents are issued by the USPTO a more complete picture of our extensive research efforts will be publicly available on the Web site. Additionally Borealis sends out a weekly update (as well as daily share prices) to shareholders and to all the major news organizations and other interested parties, detailing our ongoing work and progress (e-mail pr@borealis.com if you would like to receive these updates). Through this wide distribution, we are able to keep people better informed than through traditional channels. Your management uses this technology to be very responsive to shareholder questions and comments.

The Borealis Annual Report, including financials, proxy solicitation, information circulars, and the notice of annual meeting will all be available at www.borealis.com by August 20th. We are, as we did last year, accepting proxies, after August 20th, for the 1999 Annual Meeting electronically. Proxies can be voted either in hard copy, from a link on our web site, or by e-mail to proxy@borealis.com.



It should be noted that while the annual meeting for 1999 will be physically in Gibraltar, it will also occur virtually, over the net.

This virtual company structure is great to work with and allows us to have many people directly involved in the decision-making processes at Borealis. This approach may not be conventional, but the results to date have validated the business structure many times over.

Discussion of Audited Financial Results for Fiscal 1999
Borealis remains short of cash, and the expenses involved in maintaining our activities are substantial for a company our size.

Remember when looking at the statements that we now report in US Dollars, and in US GAAP, and that US and Canadian Reporting requirements are substantially different.

Our operating expenses last year were $1,995,738 up from $1,456,249 in 1998. Our Basic Loss per share was 40 cents, compared to 43 cents in 1998.

With the step-up in our research activities, we expect continued substantive third party assistance for our projects in fiscal 2000. We have third party assistance, for example, in the building of inverters for the Chorus Motor from a major electronics company, which is expected to speed Chorustoward production and the marketplace. While not visible on our financial statements, this kind of help is literally worth millions to us. Additionally, we entered into a strategic partnership with another company concerning the Borealis Refrigeration and related technologies. Under the agreement, Borealis Technical Limited has agreed to grant limited intellectual property rights in return for devices fabricated to specifications provided by Borealis.

We expect such significant and substantial assistance to continue and for other major world class players to assist with our technology developments. We also expect direct licensing agreements of some or all of our technologies.

Our deficit at year end was $35,186,659 compared to $33,193,401 at year end 1998. We may have a $2 million plus loss for fiscal 2000, unless expected licensing revenue materializes.

Our current assets-to-liabilities ratio is extremely low, at $20,969 in current assets to $3,965,988 in current liabilities for a ratio of 0.00529 compared to fiscal 1998 where we had $5,588 in current assets as compared to $2,768,697 in liabilities for a 0.00202 ratio. We continue to have among the worst current asset-to-liability ratios of any viable operating company in the world. Some explanation is in order:

It first must be noted that the actual current liabilities, when deposits on shares to be issued are removed, has fallen to $1,438,975 from $1,630,147. Our total current liabilities, given the fact that we spent about $2 Million last year, are going the right way.

Management has chosen to keep the number of shares outstanding below 5 million in order to limit dilution of our existing shareholders. Management has also lent millions of dollars to Borealis through the years, at no interest, in order to facilitate the operation of your company. Your management took shares in subsidiary Companies last year for debts due, reducing the amount due to management to $17,532 from $721,439 last year.

Borealis continues to run large accounts payable: $1,421,443 at 1999 year end. This figure was up significantly from last year, when the figure was $891,503.

The 'deposits on share issue' of $2,527,013 compares with last year's figure of $1,138,550. This entry is capital that has been raised by subsidiary companies through the issue of obligations to issue their shares, and is included as a liability in the financial statements. Once the shares of these subsidiaries are issued these amounts will be reflected as minority interests on the consolidated balance sheet. We expect to continue to raise substantial sums in this manner as needed.

As noted in the prior year's annual report the royalty payable of $1,874,675 USD is shown as a liability. As per Note 9 of our financial statements, this amount is due upon sale of product from the company's mineral properties, or sale of the properties themselves. The repayment of the balance is solely from proceeds on the sale of the Company's mineral properties or products thereof. This liability has now been assumed by Roche Bay Mining Company Limited.

The mineral properties which were carried on the books last year at $5,371,933CDN are now carried at zero, though the properties are still listed in the notes. Roche Bay Mining Company Limited now owns the Roche Bay Magnetite Deposits and is working hard at getting value for them.

Freuchen Bay is a very exciting polymetallic prospect; our consultants tell us it may be the best such prospect in the world. We have held it for decades and when it is set up in its own independent company in the new Faraway Mines Limited it should have an interesting exploration and development future.

All of our corporate share investments were written down to zero last year and no longer appear anywhere in the books. As reported last year we continue to expect to sell our Arktos Resource Limited shares, for gross considerations of well over $100,000. We continue with our desire as reported last year to reactivate Faraway Gold Mines Limited, and hope finally to issue shares, share for share, at our sole discretion around March, 2000 in a new company, Faraway Mines Limited. All registered shareholders of Faraway are expected to receive full instructions in the next few months. Borealis intends to make the Faraway holdings valuable for all shareholders.

In addition, four of our subsidiary companies, Borealis Power Manufacturing Limited, Borealis Cool Manufacturing Limited, Borealis Motor Manufacturing Limited and Roche Bay Mining Company Limited are now offering and selling shares privately at $38, $38, $50 and $50 per share respectively. Borealis indirectly owns 5,200,000 shares in each of these two companies. There have been transactions with the shares of these four companies to date but they have not yet been issued to the shareholders. Borealis Power Manufacturing Limited and Borealis Cool Manufacturing Limited have had transactions from 20 cents a share to $38 per share. Borealis Motor Manufacturing Limited has transactions from $5 to $50 per share and Roche Bay Mining Company Limited has only done transactions at $50 per share.

One should note that all of our extensive Intellectual Property activities are also being taken on the books at a relatively nominal value. We are only capitalizing and writing off patent office filing fees, and these fees will continue to grow as the patent base grows. With this accounting system the patents have a book value this year of $63,592 after accumulated amortization of $6,794 compared to $50,396 after accumulated amortization of $4,227 last year.

Again, we remain optimistic that our extensive processing equipment in NWT will finally arrive in Rankin Inlet where it will form the backbone of a crushed rock operation of which Borealis holds a 50% interest. It is our opinion that this will be a great business for your company.

Our financial statements do not reflect the intrinsic value that certain assets may have. Borealis has always followed conservative accounting policies. Our liabilities are fully reported while many assets are valued at zero or a nominal amount on the books. In addition, we follow a conservative accounting treatment with respect to the research expenditures. None of these costs have been deferred, or capitalized, except direct patent filing costs.

We feel very good about Borealis and its prospects. We feel that we currently have the ability to take the Chorus Motor to market in short order. We expect to dominate basic industrial research for decades to come. We have been able to afford this very exciting R&D to date, and with the spectacular laboratory results we have obtained to date, the funding of your Family of Companies should be getting easier.

Borealis Legal Matters
The Federal Government of Canada fined Borealis substantial sums for spilling a teaspoon of oil in a northern lake. We paid off the fine in 1998 and are now paying off the interest. Borealis will continue to pursue vigorously the Federal Government of Canada, the Canadian Federal Government officials and the private parties and companies who set this chain of events into motion and who ransacked and destroyed our camp, mine and processing facilities at Fat Lake. Government Officials on Environmental Inspections should not cause environmental damage nor should they engage in looting. Government of Canada officials did both at Fat Lake. These matters are scheduled to heard in the Canadian Court System in fiscal 2000.

There remains a great deal of confusion about Borealis Technology Corporation, and their use of the Borealis name. While the name is no longer being used, many people appear to have bought shares in the wrong company. Remember that we trade under the symbols BOREF and BSXC. If your share certificates do not say Borealis Exploration Limited, and you were buying shares in our company, you have bought the wrong company and your broker should make the error good.

We have one other legal action pending in which we are the plaintiffs, against the Sheriff and Government of Manitoba. We expect to win this case and collect serious damages. Settlement discussions are underway, and many insurance companies who insured Manitoba are involved. Management expects this case to go to Court. We are eager to get this matter into Court and to stop the stalling by the Government of Manitoba.

We are a defendant in a case relating to the 'flow-through exploration expenditures' from the 1980's. It is our solicitor's opinion that the case is without merit and we expect to recover the costs of our defense.

Advertising
Borealis closed down its electronic news services this past year. We still advertise on other e-mail services. We feel these advertisements are a very cost-effective way to get our name and our technologies known to the world.

Projections for Fiscal 2000
Fiscal 2000 should yield improved results. The ChorusMotor has a production prototype build underway. This is a very short step to market. Other builds have been basically completed, and we are waiting for test results. Many people are now helping our efforts, deferring payments, taking shares or working with us just to get a first look at our technologies. We hope to achieve a positive cash flow in fiscal 2000, and in doing so, greatly improve our financial position.

Your management hopes that Roche Bay Mining Company Limited will finally vindicate our holding this property through the decades.

Our basic scientific research is of immense significance to many industries. We are working to turn that reality into a positive cash flow and profits. Our main goal is to develop our technologies into marketable products, where they can generate revenue. We are closer to achieving that goal from our technologies than at any other time. The Chorusis a physical product, and it is almost ready for production.

Please mail in your proxy, or vote at proxy@borealis.com, or on the web at www.borealis.com.

These are exciting times as we change the basic technology that has been driving the industrial world for the past century,

Thanks for your continued support.

Best Regards,
Borealis Exploration Limited and the Borealis Family of Companies

"Rodney T. Cox"                               "Isaiah W. Cox"
Rodney T. Cox,                                   Isaiah W. Cox,
CEO/Chairman                                    President/Chief Operating Officer


Forward-Looking Statement
The discussion of the Company's business and operations in this report includes in several instances forward-looking statements, which are based upon management's good faith assumptions relating to the financial, market, operating and other relevant environments that will exist and affect the Company's business and operations in the future. All technical, scientific, and commercial statements regarding technologies and their impacts are based on the educated judgment of the Company's technical and scientific staff. No assurance can be made that the assumptions upon which management based its forward-looking statements will prove to be correct, or that the Company's business and operations will not be affected in any substantial manner by other factors not currently foreseeable by management or beyond the Company's control. All forward-looking statements involve risks and uncertainty. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect the events or circumstances after the date hereof or to reflect the occurrence of unanticipated events including those described in this report, and such statements shall be deemed in the future to be modified in their entirety by the Company's public pronouncements, including those contained in all future reports and other documents filed by the Company with the relevant Securities Commissions.