Borealis Exploration Limited Interim Management Report for the Three Months Ended 31 December 2015 -

Borealis Exploration Limited Management Report

These consolidated financial statements for the nine months ended 31 December 2015 (this “Interim Report”) have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRS"), the Gibraltar Companies Act, the Gibraltar (Companies Accounts) Act 1999 and the Gibraltar (Consolidated Accounts) Act 1999. For the avoidance of doubt, the Management of Borealis Exploration Limited hereby declares that the same accounting policies and methods of computation have been followed in these nine-month interim financial statements as compared with the company’s annual financial statements for the fiscal year ended 31 March 2015 (i.e., the most recent annual financial statements of Borealis Exploration Limited (“Borealis”)).

Please note that, in accordance with applicable Gibraltar law, in September 2015, the Board of Directors of Borealis approved a change in fiscal year end from 31 March to 30 September with the next fiscal year to end on 30 September 2016 and the next set of audited financial statements to be prepared in respect of the 18 months ended 30 September 2016.

Business Development and Economic Results for the Nine Months Ended 31 December 2015

As at the nine months ended 31 December 2015, Borealis and its subsidiary companies had not earned any revenues from operations. Borealis continued to fund and/or conduct its operations primarily through the sale of shares in its subsidiaries and contributions of services and information from third-parties. Through the nine months ended 31 December 2015, the management of Borealis continued to spend 80% of its management time and 90% of its financial resources on commercializing the Chorus Motors and WheelTug technologies. Borealis management spent the balance of its time and financial resources primarily on its other technology companies, including Avto Metals plc, Power Chips plc, Cool Chips plc, and, to a lesser extent, on certain of its other companies.

Chorus Motors and WheelTug

As at the date of these consolidated financial statements, Borealis’s subsidiary, WheelTug plc, had sold a total of 976 delivery slots consisting of 508 Boeing 737NG slots, 74 Boeing 737Max delivery slots, and 394 Airbus A320 to Alitalia, Air Berlin, Corendon Airlines, EL AL, HNA Aviation, Iceland Air, Israir, Jet Airways, KLM Royal Dutch Airlines, Malaysia Airlines, Onur Air, Volaris and one undisclosed airline. A total of 200 of the Boeing 737NG and Airbus A320 slots are convertible between types

The terms of such sales provide that WheelTug plc will lease the units to the airlines after FAA certification (see below) is granted, which is expected to result in the first revenue in 2017. It is expected that future booking of WheelTug delivery slots will be subject to the receipt of a deposit in respect of each such delivery slot. It is also expected that such deposit will be refundable in the event that WheelTug plc will not receive FAA certification in respect of the Boeing 737NG and/or the Airbus 320 families of aircraft, as the case may be, but will otherwise be non-refundable.

On 17 December 2015, the WheelTug system formally entered the FAA certification process. This process involves the receipt of a Supplemental Type Certification (STC) for the WheelTug system. The STC represents approval to modify an aircraft from its original design. In order to achieve STC approval, WheelTug plc must demonstrate the system's performance against safety and other requirements. These requirements and the means for demonstrating them are laid out in a Project Specific Certification Plan (“PSCP”) agreed upon by WheelTug plc, Avenger Aerospace (our certification partner) and the FAA. On 17 December 2015, WheelTug submitted two PSCPs (one for the landing gear and one for the core system). On 13 January 2016, WheelTug received formal Project Numbers for each of them from the FAA.

The formal certification process fundamentally ensures a safe design through control systems and rigorous design processes. While these processes are not identical across products, there are strong similarities between them. A PSCP thus contains not only product design details that show how safety requirements are expected to be met, but process details that show how WheelTug will ensure that those requirements are met. WheelTug has developed a strong process with associated control software.

Once the PSCP is approved, WheelTug will have a clear roadmap for approval with mutually understood requirements. The PSCP approval will represent a significant reduction in program risk. The certification process is expected to require two years.

Production and delivery of WheelTug units is expected to commence in 2018 after FAA certification is granted. Borealis management believes that the sale of WheelTug units will be the first product in the Borealis family of companies that will result in operating revenue.

On December 18, 2013, Commercial aircraft builder Airbus S.A.S. announced that it will work with WheelTug’s main E-Taxi competitor, aviation suppliers Safran SA of France and Honeywell Inc. of the U.S., to help it develop a system that will allow airliners to push back from an airport ramp and taxi to and from runways using electric motors in their wheels, without using their jet engines. Borealis management views this as a positive development, as airlines see Airbus’s involvement as proof that E-Taxi is coming. To-date, no airline has reserved any Safran/Honeywell delivery slots. Indeed, as communicated in the announcement, Airbus has only committed to evaluation - not formally offering the product to airlines.