<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB



(Mark One)

[x]  Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
     of 1934
                    FOR THE QUARTER ENDED: SEPTEMBER 30, 1998

[ ]  Transition report under Section 13 or 15(d) of the Exchange Act
                 FOR THE TRANSITION PERIOD FROM ______ TO ______

                         Commission file number: 0-28556

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

                         BOREALIS TECHNOLOGY CORPORATION
        (Exact name of small business issuer as specified in its charter)


<TABLE>
<S>                                                        <C>
           Delaware                                             88-0238203
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                            Identification Number)
</TABLE>

                               9790 Gateway Blvd.
                                Reno, NV  89511
                    (Address of principal executive offices)

                                 (702) 856-7600
                           (Issuer's telephone number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes  X   No 
                                                              ---     ---

State the number of shares outstanding of each of the issuer's classes of
equity, as of the latest practicable date:

<TABLE>
<S>                                                                  <C>
                      CLASS                                                   OUTSTANDING AT
Common Stock - par value $.001 ("Common Stock")                      September 30, 1998: 8,734,621
Series A-1 Convertible Preferred Stock - par value $.01                September 30, 1998: 2,350
       ("Convertible Preferred Stock")
</TABLE>

Transitional Small Business Disclosure Format (check one): Yes    ;  No  X .
                                                               ---      ---

<PAGE>   2
                        BOREALIS TECHNOLOGY CORPORATION


                                      INDEX


<TABLE>
<CAPTION>
                                                                                   Page No. 
                                                                                   --------
<S>                                                                                <C>
             PART I.  FINANCIAL INFORMATION

Item 1       Financial Statements:

                  Condensed Balance Sheets
                  September 30, 1998 (unaudited) and December 31, 1997                 3

                  Condensed Statements of Operations (unaudited)
                  three months and nine months ended September 30, 1998
                  and 1997                                                             4

                  Condensed Statements of Cash Flows (unaudited)
                  nine months ended September 30, 1998 and 1997                        5

                  Notes to Condensed Financial Statements (unaudited)                  6

Item 2       Management's Discussion and Analysis of Financial
             Condition and Results of Operations                                       7

             Risk Factors                                                              9

             PART II.  OTHER INFORMATION

Item 6       Exhibits and Reports on Form 8-K                                         12

</TABLE>
                                       2

<PAGE>   3




PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                         BOREALIS TECHNOLOGY CORPORATION
                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                             September 30,         December 31,
                                                                                1998                  1997
ASSETS                                                                       (Unaudited)
                                                                             -------------        --------------
<S>                                                                          <C>                  <C>
Current assets:
       Cash and cash equivalents                                             $  1,656,481         $   2,080,095
       Accounts receivable                                                        187,920               353,580
       Certificate of deposit                                                           -               650,000
       Other current assets                                                       499,003               290,667
                                                                             -------------        --------------
                Total current assets                                            2,343,404             3,374,342
                                                                                    
Property and equipment, net                                                       706,050               819,417
Note receivable from an employee                                                  277,474               156,988
Other assets                                                                       57,600                52,511
                                                                             -------------        --------------
                Total assets                                                 $  3,384,528         $   4,403,258
                                                                             =============        ==============


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       Accounts payable                                                      $    521,438         $      80,887
       Accrued employee compensation                                              413,364               596,450
       Promissory note                                                                  -               900,000
       Other accrued liabilities                                                  222,801               110,350
       Deferred revenue                                                           134,646               113,448
       Current portion of capital lease obligation                                 40,687                67,336
                                                                             -------------        --------------
                Total current liabilities                                       1,332,936             1,868,471
                                                                                    
Capital lease obligations                                                          34,986                35,597
                                                                                  
Stockholders' equity:
       Preferred stock, $.01 par value:
         Authorized shares - 5,000,000                                                 24                     -
         Issued and outstanding - 2,350
       Common stock, $.001 par value:
         Authorized shares - 30,000,000;
         Issued and outstanding shares:  8,734,621
         at September 30, 1998, and 5,245,428 at December 31, 1997                  8,735                 5,245
       Additional paid-in capital                                              22,919,703            16,739,788
       Note receivable from stockholder                                                 -               (93,124)
       Accumulated deficit                                                    (20,911,856)          (14,152,719)
                                                                             -------------        --------------
                Total stockholders' equity                                      2,016,606             2,499,190
                                                                             -------------        --------------
                                                                                   
                Total liabilities and stockholders' equity                   $  3,384,528         $   4,403,258
                                                                             =============        ==============

</TABLE>
            See accompanying notes to condensed financial statements.

                                       3

<PAGE>   4



                         BOREALIS TECHNOLOGY CORPORATION
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                          Three Months Ended                         Nine Months Ended
                                                             September 30,                             September 30,
                                                        1998                 1997                   1998                1997
                                                    --------------      --------------         --------------      --------------
<S>                                                 <C>                 <C>                    <C>                 <C>
Total revenues                                      $    217,206        $    520,927            $   476,437         $   728,281
 
Cost of revenues                                          12,645               1,061                 49,515              37,329
                                                    --------------      --------------         --------------      --------------

Gross profit                                             204,561             519,866                426,922             690,952

Operating expenses:
      Sales and marketing                              1,543,816             974,667              3,754,792           3,350,743
      Research and development                           749,066             578,510              2,415,539           1,754,822
      General and administrative                         308,317             462,482                995,307           1,455,451
                                                    --------------      --------------         --------------      --------------
           Total operating expenses                    2,601,199           2,015,659              7,165,638           6,561,016

Loss from operations                                  (2,396,638)         (1,495,793)            (6,738,716)         (5,870,064)

Interest income (expense)                                (11,386)              7,256                (20,422)             21,875
                                                    --------------      --------------         --------------      --------------

Net loss                                             $(2,408,024)        $(1,488,537)           $(6,759,138)        $(5,848,189)
                                                    ==============      ==============         ==============      ==============

Basic and diluted net loss
   per common share                                  $     (0.37)        $     (0.34)           $     (0.98)        $     (1.64)
                                                    ==============      ==============         ==============      ==============

Shares used in computing basic and diluted net
  loss per common share                                6,533,638           4,346,577              6,891,957           3,576,211
                                                    ==============      ==============         ==============      ==============
</TABLE>

            See accompanying notes to condensed financial statements.

<PAGE>   5

                         BOREALIS TECHNOLOGY CORPORATION
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         Nine Months Ended
                                                                            September 30,
                                                                     1998                 1997
                                                                     ----                 ----
<S>                                                               <C>                 <C>
OPERATING ACTIVITIES
Net Loss                                                          $(6,759,138)        $(5,848,189)
Adjustments to reconcile net loss to net cash used in
      operating activities:
           Depreciation and amortization                              309,202             255,914
           Common stock issued for compensation                       123,825              70,006
           Recognized portion employee note receivable                162,847                   -
           Changes in operating assets and liabilities:
                Accounts receivable                                   165,660            (220,308)
                Other current assets                                  (76,328)           (130,440)
                Accounts payable                                      440,551             (88,980)
                Accrued employee compensation and benefits           (183,086)            108,483
                Other accrued Liabilities                             112,451             404,163
                Deferred Revenue                                       21,198               5,302
                                                                  ------------         -----------
Net cash used in operating activities                              (5,682,818)         (5,444,049)


INVESTING ACTIVITIES
Proceeds upon maturity of certificate of deposit                      650,000                   -
Purchases of property and equipment                                  (195,835)           (272,865)
Increase in employee note receivable                                 (425,000)                  -
Loan to stockholder                                                         -             (18,125)
Increase in other assets                                                    -                   -
                                                                  ------------         -----------
Net cash provided by (used in) investing activities                     29,165            (290,990)

FINANCING ACTIVITIES
Proceeds from issuance of preferred stock, net                      2,209,998                   -
Proceeds from issuance of common stock, net                         3,942,729           4,595,987
Proceeds from exercise of common stock options                              -               1,672
Proceeds from issuance of promissory note                                   -             250,000
Payment of promissory note                                           (900,000)                  -
Increase in capital lease obligations                                  34,467                   -
Payments under capital lease obligations                              (57,155)           (141,737)
                                                                  ------------         -----------
Net cash provided by financing activities                           5,230,039           4,705,922

Net decrease in cash and cash equivalents                            (423,614)         (1,029,117)

Cash and cash equivalents at beginning of period                    2,080,095           3,921,506
                                                                  ------------         -----------

Cash and cash equivalents at end of period                          1,656,481           2,892,389
                                                                  ============         ===========
</TABLE>

            See accompanying notes to condensed financial statements.

                                       5

<PAGE>   6
                         BOREALIS TECHNOLOGY CORPORATION
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

     The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. For further information, refer to
the 1996 financial statements and footnotes thereto included in the Company's
10-KSB and the Company's registration statement on Form SB-2 declared effective
by the Securities and Exchange Commission on July 21, 1997.

NOTE 2 - FINANCING

     On February 20, 1998, the Company successfully completed a private
placement financing. The Company issued 1,001,000 shares of its Common Stock and
warrants to purchase an additional 500,500 at an exercise price of $5 per share
with proceeds net of offering expenses and underwriter's discounts of
approximately $2.2 million.

     In August 1998, the Company completed a private placement financing. The
Company issued 2,793,000 shares of its Common Stock, recording proceeds net of
offering expenses of approximately $2.7 million.

     In September 1998, the Company successfully completed a third private
placement financing. The Company issued 2,350 shares of its Convertible
Preferred Stock (the "Shares") and warrants to purchase an additional 117,500
shares of Common Stock at an exercise price of $1.50 per share with proceeds net
of offering expenses of approximately $2.2 million. Each Share is convertible at
the option of the holder into that number of shares of Common Stock equal to
$1,000 divided by the Common Stock Price which equals the lesser of : (i) 80% of
the average of the last sales prices for the Company's Common Stock reported by
NASD OTC Bulletin Board for the 5 trading days ending one day prior to the day
of conversion of the Shares into shares of Common Stock or, (ii) $2.50.

     In connection with the Company's issuance of Convertible Preferred Stock, a
non-cash financing charge approximating $365,000 will be recorded in the fourth
quarter ended December 31, 1998 in accordance with the Emerging Issues Task
Force ("EITF") Topic No. D-60, "Accounting for the Issuance of Convertible
Preferred Stock and Debt Securities with a Nondetachable Conversion Feature."

NOTE 3 - BASIC AND DILUTED NET LOSS PER COMMON SHARE

     Loss per share was computed by dividing the net loss by the weighted
average number of shares of common stock outstanding. Common stock equivalents
from stock options, warrants and convertible preferred stock are excluded from
the computation because their effect is anti-dilutive.

     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which the Company adopted on December 31, 1997. As
a result, the Company changed the method used to compute earnings per share.
Under the new requirements for calculating basic earnings (loss) per share, the
dilutive effect of stock options was excluded. A restatement of prior periods
was not necessary as common equivalent shares from common stock options and
warrants have been excluded from the computation of net loss per share, as their
effect is anti-dilutive.

NOTE 4 - BORROWINGS

     In the nine months ending September 30, 1998 the Company paid off a
$650,000 promissory note with proceeds from a certificate of deposit and the
Company paid off a $250,000 bank credit line plus accrued interest.

NOTE 5 - USE OF ESTIMATES

     The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which require the Company's management
to make estimates and assumptions that affect the amounts reported therein.
Actual results could vary from such estimates.

NOTE 6 - ADOPTION ON NEW PRONOUNCEMENTS

     As of January 1, 1998, the Company implemented the AICPA's Statement of
Position 97-2, Software Revenue Recognition ("SOP 97-2"). Adoption of SOP 97-2
had no impact on the Company's revenue recognition.


                                       6

<PAGE>   7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion and analysis contains forward-looking statements
regarding future events and the future financial performance of Borealis
Technology Corporation (the "Company") that involve risks and uncertainties.
These statements include, but are not limited to, statements related to the
market acceptance of Arsenal and the adequacy of the Company's cash reserves.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those
set forth herein under "Risk Factors" and elsewhere in this Statement.

     The Company has experienced significant operating losses for each of the
fiscal years beginning with fiscal 1994 and for the nine month period ended
September 30, 1998 and expects such losses to continue for the forseeable
future. The Company's sole product, Arsenal, is designed for the customer
relationship management market. To date, the Company has shipped its Arsenal
product to 6 customers. The Company derives substantially all of its revenues
from the sale of Arsenal licenses and maintenance contracts for Arsenal. There
can be no assurance that Arsenal will ever achieve significant market acceptance
or that the Company will ever achieve profitability.

     The Company's future operating results will depend on many factors,
including demand for Arsenal, the level of product and price competition,
potential customers' perceptions of the Company's financial position, the
ability of the Company to develop and market new products and to control costs,
the ability of the Company to expand its direct sales force and indirect
distribution channels and the ability of the Company to attract and retain key
personnel. In particular, the ability of the Company to achieve revenue growth
in the future will depend on its success in adding, assimilating and retaining a
substantial number of direct sales personnel and third party integrators in
future periods. Purchases of customer relationship management products, such as
Arsenal, are discretionary and generally involve a significant commitment of
capital. As a result, in the event of any downturn in any potential customer's
business or the economy in general, purchases of the Company's products may be
deferred or canceled, which could have a material adverse effect on the
Company's business, financial condition and results of operations.

     The Company has generally recognized and expects to recognize product and
license revenue which is not subject to significant obligations upon execution
of a licensing agreement, delivery of the software and when collection is deemed
probable. Service revenues are recognized as services are performed while
maintenance revenues are recognized ratably over the term of the support period.

REVENUES:

     Revenues have historically consisted of revenue from the licensing and sale
of products, revenue from service and maintenance agreements and revenue from
consulting and training services. Revenues decreased from $520,927 for the three
months ended September 30, 1997 to $217,206 for the comparable period ended
September 30, 1998. Revenues decreased from $728,281 for the nine months ended
September 30, 1997 to $476,437 for the nine months ended September 30, 1998.
Both of these decreases reflect a slowdown in sales due in part to potential
customers' perceptions of the Company's financial position. The Company's
ability to generate revenues will be dependent upon, among other things, market
acceptance of Arsenal and the Company's ability to attract, retain and
assimilate additional sales personnel and the Company's ability to secure
additional financing.

COST OF REVENUES:

     Cost of revenues represent primarily amounts incurred pursuant to royalty
obligations and maintenance agreements on certain technology and the wages of
technical services personnel. The cost of revenues increased from $1,061 for the
three months ended September 30, 1997 to $12,645 for the comparable period ended
September 30, 1998. The cost of revenues increased from $37,329 for the nine
months ended September 30, 1997 to $49,515 for the comparable period ended
September 30, 1998. The Company anticipates that the absolute dollar spending
for cost of revenues will increase in the foreseeable future as the Company
expands its technical services organization to support customer needs. However,
given the limited sales of Arsenal, the Company believes that the ratio of cost
of revenues to revenues is not meaningful in the periods presented or indicative
of future ratios.


                                       7

<PAGE>   8
OPERATING EXPENSES:

     Total operating expenses are comprised of sales and marketing, research and
development, and general and administrative expenses. Sales and marketing
expenses increased from $974,667 for the three months ended September 30, 1997
to $1,543,816 for the comparable period ended September 30, 1998. Sales and
marketing expenses increased from $3,350,743 for the nine months ended September
30, 1997 to $3,754,792 for the comparable period ended September 30, 1998. These
increases in sales and marketing expenses are primarily the result of increased
staffing of sales personnel and increased spending on trade shows, advertising
and promotional events. Research and development expenses increased from
$578,510 for the three months ended September 30, 1997 to $749,066 for the
comparable period ended September 30, 1998. Research and development expenses
increased from $1,754,822 for the nine months ended September 30, 1997 to
$2,415,539 for the comparable period ended September 30, 1998. These increases
in research and development expenses are due to an increase in staffing and
expenditures related to the development of enhancements to Arsenal. General and
administrative expenses decreased from $462,482 for the three months ended
September 30, 1997 to $308,317 for the comparable period ended September 30,
1998. General and administrative expenses decreased from $1,455,451 for the nine
months ended September 30, 1997 to $995,307 for the comparable period ended
September 30, 1998. These decreases in general and administrative spending are
primarily due to decreases in staffing.

     Based on the Company's research and development process, costs incurred
between the establishment of technical feasibility and general release have not
been material and therefore have not been capitalized in accordance with
Statement of Financial Accounting Standards No. 86. All research and development
costs are expensed as incurred.

NET LOSS:

     As a result of the factors discussed above, the net loss increased from
$1,488,537 for the three months ended September 30, 1997 to $2,408,024 for the
comparable period ended September 30, 1998 and increased from $5,848,189 for the
nine months ended September 30, 1997 to $6,759,138 for the comparable period
ended September 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES


     On February 20, 1998, the Company successfully completed a private
placement financing. The Company issued 1,001,000 shares of its Common Stock and
warrants to purchase an additional 500,500 at an exercise price of $5 per share
with proceeds net of offering expenses and underwriter's discounts of
approximately $2.2 million.

     In August 1998, the Company completed a private placement of 2,793,000
shares of its Common Stock, recording proceeds net of offering expenses of
approximately $2.7 million.  

     In September 1998, the Company completed a third private placement of
shares of Convertible Preferred Stock (the "Shares") at a per share price of
$1,000. The Company issued 2,350 Shares and warrants to purchase an additional
117,500 shares of Common Stock at an exercise price of $1.50 per share with
proceeds net of offering expenses of approximately $2.2 million. Each Share is
convertible at the option of the holder into that number of shares of Common
Stock equal to $1,000 divided by the Common Stock Price which equals the lesser
of : (i) 80% of the average of the last sales prices for the Company's Common
Stock reported by NASD OTC Bulletin Board for the 5 trading days ending one day
prior to the day of conversion of the Shares into shares of Common Stock or;
(ii) $2.50.

     In connection with the Company's issuance of Convertible Preferred Stock, a
non-cash financing charge approximating $365,000 will be recorded in the fourth
quarter ended December 31, 1998 in accordance with the Emerging Issues Task
Force ("EITF") Topic No. D-60, "Accounting for the Issuance of Convertible
Preferred Stock and Debt Securities with a Nondetachable Conversion Feature."

     The Company's cash and short-term investments totaled $1,656,481 at
September 30, 1998, representing 49% of total assets. The Company used $5.7
million of cash to fund operations for the nine months ended September 30, 1998.
Net cash used in operating activities was primarily for the development, sales
and marketing costs associated with Arsenal. The Company's principal investing
activities consisted of advances to an employee and expenditures for computers
and computer related equipment. During the nine months ending September 30,
1998, the Company paid off a $250,000 outstanding bank credit line as well as a
$650,000 promissory note with proceeds from a certificate of deposit. During the
nine month period the Company received $7.1M in net proceeds from three private
placements.

     The Company's existing capital resources and cash generated from
operations, if any, are sufficient to meet the Company's cash requirements only
for the next few weeks at its anticipated level of operations. The Company is
currently seeking additional funding. However, there can be no assurance that
any additional financing will be available on acceptable terms, or at all, as
required by the Company. Moreover, if additional financing is not available, the
Company will be required to reduce or suspend its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous to investors.

     For the quarter ended March 31, 1998, the Company was not able to maintain
the standards for continued quotation on the Nasdaq SmallCap Market. The Company
was granted a temporary exception from the NASDAQ Marketplace net tangible
assets/market capitalization/net income requirements subject to the Company
meeting certain conditions which expired on October 14, 1998. Because the
Company was not able to meet the specified conditions it was removed from
trading on the Nasdaq SmallCap Market in October.

As a result of the de-listing, trading in the Company's Common Stock is now
being conducted in the over-the-counter market on an electronic bulletin board
established for securities that do no meet the Nasdaq SmallCap Market Listing
requirements, or in what are commonly referred to as the "pink sheets".

                                       8
<PAGE>   9

RISK FACTORS

Going Concern Assumption; Future Capital Needs Uncertain; No Assurance of Future
Financing

     The Company's independent auditors' report on the Company's financial
statements at December 31, 1997 and for the years ended December 31, 1996 and
1997 contains an explanatory paragraph indicating that the Company had recurring
operating losses that raise substantial doubt about its ability to continue as a
going concern. In addition, the Company had an accumulated deficit of
$20,911,856 at September 30, 1998. The Company currently requires and in the
future may require substantial additional funds and there can be no assurance
that any independent auditor's report on the Company's future financial
statements will not include a similar explanatory paragraph if the Company is
unable to raise sufficient funds or generate sufficient cash from operations to
cover the cost of its operations. The existence of the explanatory paragraph may
materially adversely affect the Company's relationship with prospective
customers, third party integrators and suppliers, and therefore could have a
material adverse effect on the Company's business financial condition and
results of operations.

     In the absence of receiving additional funding, the Company anticipates
that its existing capital resources and cash generated from only operations, if
any, will be sufficient to meet the Company's cash requirements only for  the
next few weeks at its anticipated level of operations. There can be no assurance
that any additional financing will be available on acceptable terms, or at all,
as required by the Company. Moreover, if additional financing is not available,
the Company will be required to reduce or suspend its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous to investors. The Company has experienced in the past,
and may continue to experience, operational difficulties and delays in its
product development due to working capital constraints. Any such difficulties or
delays have a material adverse effect on the Company's business, financial
condition and results of operations.

Complete Dependence on Recent Product Introduction

     The Company derives substantially all of its revenues from the sale of
licenses and maintenance contracts for Arsenal. Consequently, the Company is
entirely dependent on the market acceptance of Arsenal. Unless and until Arsenal
receives market acceptance, the Company will have no material source of revenue.
There can be no assurance that Arsenal will achieve market acceptance. The
Company's ability to effectuate market acceptance and sales of Arsenal will be
substantially dependent on the hiring and training of additional personnel, and
there can be no assurance that the Company will be able to successfully hire and
train such personnel. Although the Company has begun to hire additional
personnel, market acceptance of Arsenal will require the Company to successfully
hire and retain sales personnel in a timely manner, of which there can be no
assurance. Any such failure will have a material adverse effect on the Company's
business, financial condition and results of operations. Failure of Arsenal to
achieve significant market acceptance will have a material adverse effect on the
Company's business, financial condition and results of operations.

Illiquidity of Trading Market; Penny Stock

     Shares of the Company's common stock are quoted on the NASD OTC Bulletin
Board system. This over-the-counter market on an electronic bulletin board
generally supports quotations for securities of companies that do not meet the
Nasdaq SmallCap Market listing requirements. As a result, investors may find it
more difficult to dispose of, or to obtain accurate price quotations of, the
Company's common stock than they would if the Company's common stock were quoted
on the Nasdaq SmallCap Market. In addition, quotation on the NASD OTC Bulletin
Board depends on the willingness of broker-dealers to make a market in the
Company's common stock. There is no assurance that the Company's common stock
will continue to be so quoted or that there will continue to be a market for
buying and selling of the Company's common stock. Furthermore, if the Company's
net tangible assets fall below $2 million for the next audited financial
statements, or the Company otherwise fails to meet certain criteria of the
Commission, the common stock will become subject to so-called "penny stock"
rules that impose additional sales practice and market making requirements on
broker-dealers who sell and/or make a market in such securities. Such rules may
discourage the ability or willingness of broker-dealers to sell and/or make a
market in the common stock.

Risk of Dilution by Holders of Preferred Stock

     In September 1998, the Company issued and sold 2,350 shares of Series A-1
Preferred stock in a private placement financing. Each of these shares of
preferred stock is convertible into such number of shares of common stock as is
determined by dividing $1000.00 by the "Conversion Price" at the time of
conversion. The Conversion Price is equal to 80% of the lesser of (i) the
average of the closing prices for the Company's common stock on the previous
five trading days prior to conversion and (ii) $2.50. For example, if the
average of the closing prices of the Company's common stock for the previous
five days was $1.00, then one share of preferred stock would convert into 1,250
shares of common stock ($1000 divided by ($1.00 times .80)). Because of this
"anti-dilution" conversion feature, the holders of preferred stock may have the
ability to substantially dilute the ownership of the holders of common stock,
particularly if the market price of the common stock decreases significantly due
to sales of common stock, including sales of common stock that was obtained upon
conversion of preferred stock.
 
Recent Hires of Key Executives; Need to Fill Key Executive Position; Dependence
on Limited Number of Key Personnel

     The Company's Chairman of the Board recently assumed the position as Chief
Executive Officer following the resignation of its President and Chief Executive
Officer in March 1998. The Company's future success substantially depends on the
efforts of certain of its officers and key technical and other employees, many
of whom have only recently joined the Company. In particular the Company's Vice
President of Engineering recently joined the Company in February 1998.
Additionally, the Company is currently seeking to hire a Vice President of
Marketing. The Company's future success will require it to recruit additional
key personnel, including additional sales and marketing personnel. The Company
has not entered into employment agreements nor does it have key man life
insurance. The Company believes that its future success depends on its ability
to attract, retain and motivate highly skilled employees, who are in great
demand. There can be no assurance that the Company will be successful in doing
so.

                                       9

<PAGE>   10
Dependence on Third Party Integrators

     Software products that address the customer relationship management needs
of medium- to large-size businesses are typically highly complex and require
significant customization that often results in an extensive implementation
process. The Company's strategy for implementing Arsenal is dependent on the
utilization of third-party integrators to install, customize and service it.
Consequently, third-party integrators are required to undergo a substantial
amount of training to be able to apply the Company's products to the varied
needs of the Company's current and prospective customers. There can be no
assurance that the Company will be able to attract and retain personnel
necessary to train such integrators. In addition, there can be no assurance that
the Company's training will be sufficient or that such integrators will be able
to provide the level or quality of service required to meet the needs of the
Company's current and prospective customers. The Company will likely be
dependent on third-party integrators to complete certain post-delivery
obligations prior to the Company's recognition of revenue. Any failure of such
integrators to complete such obligations could prevent the Company from
recognizing revenue and the failure to so recognize revenue could have a
material adverse effect on the Company's business, financial condition and
results of operations. If the Company is unable to maintain effective, long-term
relationships with these integrators, or if such integrators fail to meet the
needs of the Company's current and prospective customers in a timely fashion, or
at all, such failure would result in a loss of, or delay in, market acceptance
of sales and could result in increased product support costs and an injury to
the Company's reputation, which would have a material adverse effect on the
Company's business, financial condition and results of operations.

     The Company has not and does not plan to enter into or maintain exclusive
relationships with third-party integrators and, consequently, such integrators
may have existing relationships with, or may undertake new relationships with,
the Company's direct competitors. There can be no assurance that such
integrators will promote Arsenal effectively, or at all. The failure of the
Company to provide sufficient incentive for such integrators may materially and
adversely affect the Company's sales of Arsenal which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Recent Losses; Quarterly Fluctuations in Performance

     The Company has experienced significant operating losses in each of the
fiscal years beginning with fiscal 1994 and for the nine months ending September
30, 1998 and expects to incur significant operating losses for the foreseeable
future. In mid 1995, the Company ceased sales and marketing of its entire
product line and shifted its focus to the development of Arsenal and the
establishment of a third-party integrator channel. As a result, the Company
derives substantially all of its revenues from the sales of licenses and
maintenance contracts for Arsenal. Consequently, the Company is entirely
dependent on the market acceptance of Arsenal. Unless and until Arsenal receives
market acceptance, the Company will have no material source of revenue. There
can be no assurance that Arsenal will achieve market acceptance, moreover, there
can be no assurance that the Company will ever achieve profitability.

     The Company's operating and other expenses are relatively fixed in the
short term. As a result, variation in the timing of revenues will cause
significant variations in quarterly operating results. Notwithstanding the
difficulty in forecasting future sales, the Company generally must undertake its
development, sales and marketing activities and other commitments months in
advance. Accordingly, any shortfall in revenues in a given quarter may
materially adversely affect the Company's business, financial condition and
results of operations due to the inability to adjust expenses during the quarter
to match the level of revenues for the quarter. Once commitments for such
expenditures are undertaken, the Company may be unable to reduce them quickly if
revenue is less than expected. In addition, the Company's sales expectations are
based entirely on its internal estimates of future demand. Due to these and
other factors, the Company believes that quarter-to-quarter comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance.

     Operating results may fluctuate as a result of many factors, including
volume and timing of orders received, the extent to which the Company is
required to establish and support a third-party integrator channel or hire
additional sales personnel to supplement such channel, announcements by the
Company and its competitors, the timing of commercial introduction of
enhancements to Arsenal, if any, or competitive products, the impact of price
competition on the Company's average selling prices, and the level of research
and development required to complete any future product enhancements. Almost all
of these factors are beyond the Company's control. In addition, due to the short
product life cycles that characterize the customer resource management software
market, the Company's failure to introduce any Arsenal enhancements in a timely
manner could have a material adverse effect on the Company's business, financial
condition and results of operations.

Rapid Technological Change; Risk of Product Delays or Defects

     The customer relationship management software market is characterized by
ongoing technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The introduction of products embodying new technologies and the emergence of new
industry standards and practices can render existing products obsolete and
unmarketable. The Company's future success depends in large part upon its
ability to obtain market acceptance of Arsenal, develop enhancements to Arsenal
to address the changing requirements of its customers, educate third-party
integrators regarding Arsenal and anticipate or respond to technological
advances, competitive products and emerging industry standards in a timely,
cost-effective manner. There can be no assurance that the Company will be
successful in marketing and supporting Arsenal or enhancements to Arsenal, if
any, or will not experience difficulties that could delay or prevent the
successful marketing and support of these products, or that Arsenal and any such
product enhancements will adequately meet the requirements of the marketplace
and achieve any significant degree of commercial acceptance. The Company has in
the past experienced delays in product development, including significant delays
in the development of Arsenal. Delays in enhancements to Arsenal, if any, may
result in customer dissatisfaction and delay or loss of product and maintenance
revenues. In addition, there can be no assurance that Arsenal or other future
products will meet the requirements of the marketplace or will conform to
industry standards and requirements. Any delays in the development or
introduction of enhancements to Arsenal or failure to respond to market
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.



                                       10

<PAGE>   11
     Software products such as Arsenal often contain errors or "bugs" that can
adversely affect the performance of the product or damage a user's data. There
can be no assurance that, despite testing by the Company and by potential
customers, errors will not be found in Arsenal, resulting in a loss, of, or
delay in, market acceptance and sales, diversion of development resources,
injury to the Company's reputation, or increased service and warranty costs, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.

Competition

     The customer relationship management software market is highly competitive,
highly fragmented and characterized by rapid technological change, frequent new
product introductions, short product life cycles and evolving industry
standards, and is expected, in the future, to be characterized by significant
price erosion over the life of a product. Within specific ranges of
functionality, the Company experiences competition from many sources, including:
(i) companies that directly address the sales automation market, (ii)
third-party integrators, that design, develop and implement custom solutions;
(iii) the internal information technology departments of organizations that
develop proprietary applications; and (iv) suppliers of Personal Information
Managers off-the-shelf software specific to personal computers designed to aid
in such activities as time management, contact management and calendaring. In
addition, the Company may experience competition from additional companies, to
the extent such companies enter the customer resource management market, such as
"groupware" vendors, "help-desk" vendors, Local Area Network ("LAN") based
application development tools vendors, remote LAN-access communication vendors
and communications and systems management software vendors. Among the Company's
potential competitors are also a number of large hardware and software companies
that may develop or acquire products that compete in the sales automation
software market.

     Current and potential competitors have established and may establish
cooperative relationships with third parties to increase the ability of their
products to address the needs of the Company's current and prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Many of the
Company's current and potential competitors have significantly greater
financial, technical, marketing, name recognition and other resources than the
Company. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products than
can the Company. There can be no assurance that the Company will be able to
compete successfully against current or future competitors or that competitive
pressures will not materially adversely affect the Company's business, financial
condition and results of operations.




                                       11

<PAGE>   12
YEAR 2000 COMPLIANCE

     Many computer systems were not designed to handle any dates beyond the year
1999, and therefore computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. Borealis has completed a
Year 2000 compliance review for all Arsenal products released through September
30, 1998. The Company does not anticipate that addressing the year 2000 problem
for Arsenal products will have a material impact on operations or financial
results. To date, costs incurred in remediating identified Year 2000 issues
have not been material.

     Despite design review and ongoing testing, Arsenal products may contain
undetected errors or defects associated with Year 2000 date handling. Known or
unknown errors or defects in Arsenal products could result in: (i) delay or loss
of revenue; (ii) diversion of development resources; (iii) damage to reputation;
and (iv) increased service and warranty costs.

     Year 2000 issues may also affect the computer systems used internally by
the Company to manage and operate its business. Borealis has completed a Year
2000 compliance review of its internal systems and is not aware of any material
costs or operational issues associated with Year 2000 issues affecting internal
systems. To date the Company has not incurred and does not believe that it will
incur significant operating expenses or be required to invest heavily in
computer systems improvements to be Year 2000 compliant. However, the Company
may experience significant unanticipated problems and costs caused by undetected
errors or defects in internal systems. The worst-case scenario if such problems
occur would be the inability to ship products and record revenue.

     The Company does not currently have any information concerning the Year
2000 compliance status of its customers or prospective customers. If current or
future customers fail to achieve Year 2000 compliance or if they divert
technology expenditures (especially technology expenditures that were reserved
for software and services) to address Year 2000 compliance issues, the Company's
business, results of operations or financial condition would be materially
adversely affected.

     The Company has funded its Year 2000 activities from available cash and has
not separately accounted for these costs in the past. To date, these costs have
not been material. The Company may incur additional costs for administrative,
customer support, internal IT and product engineering activities to address
ongoing internal and product-related Year 2000 issues. In addition, the Company
may experience problems and costs with Year 2000 compliance that could
materially adversely affect its business, results of operations, and financial
condition. The Company has not yet fully developed a contingency plan to address
situations that may result if it is unable to achieve Year 2000 readiness of
critical operations. The cost of developing and implementing such a plan may
itself be material. Finally, the Company is also subject to external forces that
might generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failures and related service interruptions.

<PAGE>   13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

<TABLE>
<CAPTION>
         Exhibit
          Number           Description
         -------           -----------
         <S>               <C>
         2.1(1)            Agreement and Plan of Merger between
                           Borealis Corporation, a Nevada corporation,
                           and Borealis Technology Corporation, a
                           Delaware corporation, dated June 7, 1996.
         3.1 (1)           Registrant's Certificate of Incorporation, as currently in effect.
         3.2               Certificate of Designations of Series A Convertible Preferred Stock.
         3.3               Certificate of Designations of Series A-1 Convertible Preferred Stock.
         3.4 (1)           Registrant's Bylaws, as currently in effect.
         4.1(1)            Specimen Certificate of Registrant's Common Stock
         4.2(1)            Form of WSGR Warrant
         4.3(1)            Form of Warrant issued to H.J. Meyers & Co., Inc. in connection with the Registrant's
                           initial public offering
         4.4(1)            Registrant's Contingent Rights Plan
         4.5(2)            Form of Warrant issued to H.J. Merers & Co., Inc. in connection with the Registrant's  July
                           1997 public offering
         10.1 (1)          Real Property Lease between Registrant and Incline Investors Group, dated June 15, 1995.
         10.2 (1)          Real Property Sublease between Registrant and U.S. Bank of Nevada, dated November 7, 1995.
         10.3 (1)          1994 Stock Plan.
         10.4 (1)          1996 Stock Plan.
         10.5 (1)          1996 Director Option Plan.
         10.6 (1)          Form of Indemnification Agreement.
         10.7 (1)          Asset License and Purchase Agreement between the Registrant and
                           Sales Technologies, Inc., dated April 15, 1994.
         10.8 (1)          Lease between the Registrant and DBB Holdings, Inc., dated June 11, 1996.
         10.9 (3)          Promissory Note between the Registrant and US Bank dated July 11, 1996.
         10.10(4)          1997 Employee Stock Purchase Plan
         10.11(1)          Form of Warrant for 2000 shares granted to Peter Pitsker on June 11, 1996
         10.12(1)          Form of Warrant for 7,000 shares granted to Jerry Brooks on June 11, 1996
         10.13(2)          Solution  Provider  Agreement between the Registrant and American  Technology  Corporation,
                           dated October 4, 1996
         10.14(2)          Promissory Note issued to Oxbow LLC
         10.15(2)          Warrant issued to Oxbow LLC
         10.16(2)          Rights Agreement between the Registrant and Oxbow LLC
         10.17(5)          Form of Unit Purchase Agreement for 1997-98 private placement 
         10.18(5)          Form of Warrant for 1997-98 private placement             
         10.19(6)          Form of Purchase Agreement for June 1998 private placement 
         10.20             Form of Purchase Agreement for September 1998 private placement
         10.21             Form of Warrants issued to investors for September 1998 private placement
         10.22             Real Sublease Agreement between Registrant and Bingo Technology Corporation
         10.23             Real Sublease Agreement between Registrant and Connecticut Surety Group

         27.1              Financial Data Schedule
</TABLE>
                  ------------------------
        (1)      Incorporated by reference to exhibits filed with
                 Registrant's Registration Statement on Form SB-2
                 which became effective on June 20, 1996.
        (2)      Incorporated by reference to exhibits with
                 Registrant's Registration Statement on Form SB-2
                 which became effective on July 21, 1997.
        (3)      Incorporated by reference to exhibits filed with
                 Registrant's Registration Statement on Form 10-QSB
                 filed August 13, 1996
        (4)      Incorporated by reference to annex filed with
                 Registrant's Definitive Proxy Statement on Schedule
                 14A filed April 11, 1997.
        (5)      Incorporated by reference to exhibits filed with
                 Registrant's Registration Statement on Form 10-QSB
                 filed May 15, 1998
        (6)      Incorporated by reference to exhibits filed with
                 Registrant's Registration Statement on Form 10-QSB
                 filed August 13, 1998


     (b) Reports on Form 8-K.
         
         Borealis filed a Current Report on Form 8-K on September 29, 1998, 
         relating to a private placement.

                                       12

<PAGE>   14

                                    SIGNATURE

     In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                       BOREALIS TECHNOLOGY CORPORATION
                                       Registrant



                                       BY: /s/ Elizabeth J. Gasper
                                           -------------------------------------
                                           Elizabeth J. Gasper
                                           Executive Vice President
                                           Chief Financial Officer


Date:  November__, 1998


                                       13

<PAGE>   15

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit        Document Description
-------        --------------------
<S>            <C>
 3.2           Certificate of Designations of Series A Convertible Preferred 
               Stock
 3.3           Certificate of Designations of Series A1 Convertible Preferred 
               Stock
10.20          Form of Purchase Agreement for September 1998 private placement
10.21          Form of Warrants issued to investors for September 1998 private 
               placement
10.22          Real sublease agreement between Registrant and Bingo Technology 
               Corporation
10.23          Real sublease agreement between Registrant and Connecticut 
               Surety Group 
27.1           Financial Data Schedule
</TABLE>