NXT ENERGY SOLUTIONS INC.

As at and for the three and nine month periods ended September 30, 2011

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NXT ENERGY SOLUTIONS INC.

Consolidated Balance Sheets

 (Unaudited) (Expressed in Canadian dollars)

	September 30			December 31
	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	714,524		$	464,583
Short term investments		-			905,651
Accounts receivable		35,839			3,071
Work-in-progress		49,550			-
Prepaid expenses and other		52,631			45,941
		852,544			1,419,246
Restricted cash [note 4]		45,461			101,856
Property and equipment		436,912			525,804
	$	1,334,917		$	2,046,906
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities [note 3]	$	586,577		$	576,588
Current portion of capital lease obligation		9,294			10,684
		595,871			587,272
Long term liabilities:
Capital lease obligation		1,762			8,153
Asset retirement obligation		57,076			54,444
		654,709			649,869
Future operations [note 1]
Commitments and contingencies [note 10]
Subsequent event [note 8]
Shareholders’ equity:
Preferred shares: - authorized unlimited
Issued: 10,000,000		3,489,000			3,489,000
Common shares: - authorized unlimited
Issued: 34,022,396 shares as of September 30, 2011 (2010 - 30,801,796) [note 5]		53,202,476			52,031,435
Contributed capital		5,283,197			4,659,026
Deficit		(62,005,400	)		(59,493,359	)
Accumulated other comprehensive income		710,935			710,935
		680,208			1,397,037
	$	1,334,917		$	2,046,906

Signed “George Liszicasz”	Signed “Brian Kohlhammer”
Director	Director

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

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NXT ENERGY SOLUTIONS INC.

Consolidated Statements of Loss and Comprehensive Loss

 (Unaudited) (Expressed in Canadian dollars)

	For the three months						For the nine months
	ended September 30						ended September 30
	2011			2010			2011			2010
Revenue
Survey revenue	$	-		$	-		$	144,650		$	443,011
Oil and natural gas revenues		1,398			820			4,570			4,162
		1,398			820			149,220			447,173
Expense
Survey cost		1,846			5,275			45,836			466,290
General and administrative		1,032,914			908,417			2,529,065			3,030,428
Amortization and depreciation		38,978			38,880			114,596			124,402
		1,073,738			952,572			2,689,497			3,621,120
		(1,072,340	)		(951,752	)		(2,540,277	)		(3,173,947	)
Other expense (income)
Interest income, net		(2,817	)		(3,982	)		(8,345	)		(7,476	)
Loss (gain) on foreign exchange		(44,146	)		8,434			(23,217	)		1,286
Oil & natural gas operations and other		-			5,471			-			4,195
Loss on sale of property		-			-			-			1,074
Accretion and abandonment of
asset retirement obligation		1,437			915			3,326			2,709
		(45,526	)		10,838			(28,236	)		1,788
Net loss and comprehensive loss	$	(1,026,814	)	$	(962,590	)	$	(2,512,041	)	$	(3,175,735	)
Net loss per share - basic and diluted [note 6]	$	(0.03	)	$	(0.03	)	$	(0.08	)	$	(0.10	)

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

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NXT ENERGY SOLUTIONS INC.

Consolidated Statements of Cash Flows

(Unaudited) (Expressed in Canadian dollars)

	For the three months						For the nine months
	ended September 30						ended September 30
	2011			2010			2011			2010
Operating activities
Net loss for the period	$	(1,026,814	)	$	(962,590	)	$	(2,512,041	)	$	(3,175,735	)
Items not affecting cash
Amortization and depreciation		38,978			38,880			114,596			124,402
Accretion of asset retirement obligation		877			798			2,632			2,393
Stock-based compensation expense		246,000			72,899			294,785			173,763
Loss (gain) on sale of property		-			-			-			1,074
		(740,959	)		(850,013	)		(2,100,028	)		(2,874,103	)
Changes in non-cash working capital balances (note 9)		185,680			20,682			(79,019	)		903,602
Net cash generated by (used in) operating activities		(555,279	)		(829,331	)		(2,179,047	)		(1,970,501	)
Financing activities
Repayment of capital lease obligation		(2,390	)		(2,192	)		(7,781	)		(6,441	)
Issue of common shares and warrants, net of issuance costs		-			-			1,487,827			54,518
Exercise of stock options and warrants		12,600			-			12,600			-
Net cash generated by (used in) financing activities		10,210			(2,192	)		1,492,646			48,077
Investing activities
Purchase of property and equipment		(5,022	)		(9,856	)		(25,704	)		(58,978	)
Proceeds from sale of property and equipment		-			-			-			401
Decrease (increase) in restricted cash		254,183			45,967			56,395			(43,971	)
Decrease (increase) in short term investments		-			197,429			905,651			(1,803,884	)
Net cash generated by (used in) investing activities		249,161			233,540			936,342			(1,906,432	)
Net cash inflow (outflow)		(295,908	)		(597,983	)		249,941			(3,828,856	)
Cash and cash equivalents, beginning of period		1,010,432			943,272			464,583			4,174,145
Cash and cash equivalents, end of period	$	714,524		$	345,289		$	714,524		$	345,289
Supplemental information:
Cash interest paid	$	347		$	479		$	1,187		$	1,572

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

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NXT ENERGY SOLUTIONS INC.

Consolidated Statements of Shareholders’ Equity

(Unaudited) (Expressed in Canadian dollars)

	for the nine months
	ended September 30
	2011			2010
Common Shares
Balance at beginning of the period	$	52,031,435		$	51,934,360
Issued upon exercise of stock options and warrants		12,600			54,518
Issued through private placement, net of issue costs		1,158,441			-
Transfer from contributed capital upon exercise of options and warrants		-			42,557
Balance at end of the period		53,202,476			52,031,435
Preferred Shares
Balance at beginning and end of the period		3,489,000			3,489,000
Contributed Capital
Balance at beginning of the period		4,659,026			3,939,953
Recognition of stock based compensation expense		294,785			350,989
Contributed capital transferred to common shares pursuant to exercise of options and warrants		-			(42,557	)
Value attributed to warrants issued through private placement		329,386			-
Balance at end of the period		5,283,197			4,248,385
Deficit
Balance at beginning of the period		(59,493,359	)		(55,040,931	)
Net loss for the period		(2,512,041	)		(3,175,735	)
Balance at end of the period		(62,005,400	)		(58,216,666	)
Accumulated Other Comprehensive Income
Balance at beginning and end of the period		710,935			710,935
Total Shareholders’ Equity at end of the period	$	680,208		$	2,263,089

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

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NXT ENERGY SOLUTIONS INC.

Notes to the Consolidated Financial Statements

For the nine month period ended and as at September 30, 2011

(Unaudited) (Expressed in Canadian dollars unless otherwise stated)

1. Organization and Future Operations

NXT Energy Solutions Inc. (the “Company” or “NXT”) was incorporated under the laws of the State of Nevada on September 27, 1994, and was later continued from the State of Nevada to the Province of Alberta, Canada on October 24, 2003.

NXT owns a proprietary technology called Stress Field Detection (“SFD®”), an airborne survey system that is designed to identify areas with oil and natural gas reservoir potential. This technology was acquired from NXT’s current CEO and President on December 31, 2005 following a ten year period wherein the company controlled the technology through a series of licensing agreements.

For the ten year period prior to 2006 the Company had engaged in extensive activities to develop, validate and obtain industry acceptance of SFD®, including conducting SFD® surveys for oil and gas industry partners on a cost recovery basis and participating as a joint venture partner in SFD® identified exploration wells. By December 31, 2005 the company had accumulated a deficit of approximately $47.6 million in conducting these activities.

This early period was effective in developing the technology to a stage where SFD® was both technically ready and had the required industry validation to embark on the commercial phase of the company. In 2006 the Company began the “commercialization” phase by offering SFD® survey services to clients engaged in oil and gas exploration activities with a focus on potential clients operating in the western Canadian sedimentary basin.

The global financial crisis of late 2008 affected a number of markets and resulted in a dramatic decline in NXT’s Canadian market opportunities. This caused NXT to re-focus its sales activities towards international markets, and in 2009 NXT commenced active operations in Colombia.

Despite having provided services to clients since 2006, NXT is still in the early stage of commercializing its SFD® technology. The generation of positive cash flow from operations in the future will depend largely on its ability to demonstrate the value of the NXT survey system to a much wider client base. NXT recognizes that this early commercialization phase can last for several years and that its’ financial position is dependent upon a limited number of client projects, on obtaining additional financing and attracting future clients.

These consolidated financial statements have been prepared on a “going concern” basis in accordance with United States generally accepted accounting principles. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is significant doubt about the appropriateness of the use of the going concern assumption because the Company has experienced losses and negative cash flow from operations over the past several years and has traditionally had minimal working capital. NXT recognizes that current working capital is not sufficient to support the operations for the next twelve months without generating additional revenues and / or capital.

NXT anticipates it will be able to expand operations in order to generate both net income and cash from operations in future years with its existing business model; however, the occurrence and timing of this outcome cannot be predicted with certainty.

These consolidated financial statements do not include any adjustments to amounts and classifications of assets and liabilities or reported expenses that would be necessary should NXT be unable to raise additional capital or generate sufficient net income and cash from operations as required in future years in order to continue as a going concern.

2. Significant Accounting Policies

Basis of presentation

These interim unaudited consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles of the United States of America in accordance with the same accounting policies and methods used in preparing the consolidated financial statements for the fiscal year ended December 31, 2010. These interim statements should be read in conjunction with the 2010 annual audited consolidated financial statements as they contain disclosure which is supplemental to NXT’s annual consolidated financial statements and accordingly certain disclosure normally required for annual financial statements has been condensed or omitted.

Consolidation

These consolidated financial statements reflect the accounts of the Company and its wholly owned subsidiaries (two inactive United States subsidiary companies). All significant inter-company balances and transactions among NXT and its subsidiaries have been eliminated and are therefore not reflected in these consolidated financial statements.

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3. Accounts payable and accrued liabilities

	September 30		December 31,
	2011		2010
Accrued liabilities related to
Professional fees	$	108,250	$	118,065
Consultant fees		33,750		15,100
Board of Directors’ fees		53,750		-
Vacation pay		73,042		60,748
		268,792		193,913
Trade payables, payroll withholdings and other		317,785		382,675
	$	586,577	$	576,588

4. Restricted cash

Restricted cash consists of U.S. dollar money market securities (plus accrued interest) which has been deposited by NXT with financial institutions as security in order for these institutions to issue bank letters of credit for the benefit of third party clients. A Barbados bank holds on deposit U.S. $42,408 (encumbered until 2012) to satisfy a contractual requirement related to ongoing SFD® survey services in Colombia.

5. Common shares

The Company has an unlimited number of shares authorized.

The following is a continuity of issued and outstanding common shares:

	Common Shares
	# of Shares		Amount
As at December 31, 2010		30,801,796	$	52,031,435
Transactions during the 9 month period ended September 30, 2011
Issued through private placement; net of issue costs and value attributed to warrants		3,200,600		1,158,441
Issued on exercise of stock options		20,000		12,600
As at September 30, 2011		34,022,396	$	53,202,476

On February 16, 2011 NXT closed a non-brokered private placement (the “Placement”) for aggregate proceeds of $1,600,300 (net $1,487,827) including $40,000 from two officers of the Company. NXT issued 3,200,600 units at a price of $0.50 per unit where each unit consisted of one common share and one warrant, with each warrant entitling the holder to acquire an additional common share at a price of $0.60 per share on or before the expiry date of February 16, 2012. The expiry date may become accelerated at the discretion of NXT if the shares trade at a price greater than $0.90 for 10 consecutive trading days. In connection with closing of the Placement, NXT paid a finder’s fee of $72,600 and issued 145,320 warrants with the same terms as above.

The common shares were recorded at a value equal to the net proceeds received less $329,386 which was the estimated fair value attributed to the 3,345,920 warrants that were issued on the Placement.

6. Earnings (loss) per share

	For the three months						For the nine months
	ended September 30						ended September 30
	2011			2010			2011			2010
Net (loss) for the period	$	(1,026,814	)	$	(962,590	)	$	(2,512,041	)	$	(3,175,735	)
Weighted average number of shares
outstanding - basic and diluted		34,007,613			30,801,796			33,453,135			30,765,935
Net (loss) per share	$	(0.03	)	$	(0.03	)	$	(0.08	)	$	(0.10	)

All outstanding stock options, common share purchase warrants and preferred shares were excluded from the diluted earnings per share calculation for the periods ended September 30, 2011 and 2010 as they were anti-dilutive.

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7. Stock Options issued to Employees, Directors and Contractors

The following is a summary of stock options outstanding as at September 30, 2011:

					average
					remaining
	# of options		# of options		contractual
exercise price	outstanding		exercisable		life (years)
$ 0.45		166,600		166,600		4.0
$ 0.53		150,000		50,000		2.4
$ 0.63		1,466,741		1,190,075		1.0
$ 1.16		504,800		214,800		4.8
		2,288,141		1,621,475		2.4

	For the nine months ended					For the year ended
	September 30, 2011					December 31, 2010
	# of options			weighted average		# of options			weighted average
				exercise price					exercise price
Outstanding at beginning of period		2,134,804			$0.61		2,757,204			$1.76
Granted		654,800			$1.02		248,900			$0.45
Granted on re-pricing in 2010		-			-		2,113,204			$0.63
Cancelled for re-pricing		-			-		(2,113,204	)		$1.92
Forfeited		(270,000	)		$0.63		(431,300	)		$1.48
Expired		(211,463	)		$0.63		(340,000	)		$0.66
Exercised		(20,000	)		$0.63		(100,000	)		$0.55
Options outstanding as at end of period		2,288,141			$0.73		2,134,804			$0.61
Options exercisable as at end of the period		1,621,475			$0.68		1,737,637			$0.61

Stock options granted generally vest at a rate of one-third at the end of each of the first three years following the date of grant, except as noted below. Options lapse, if unexercised, generally five years from the date granted.

In the first quarter of 2011 an officer of the Company was granted 150,000 options at an excise price of $0.53 per share with one third of the options vesting at the date of grant and one-third vesting at the end of each of the following two years. These options will expire three years from the date of grant.

A total of 214,800 of the 504,800 stock options which were granted in July 2011 at an exercise price of $1.16 per share had immediate vesting.

Compensation expense associated with grants of stock options

The fair value attributed to grants of stock options is calculated using the Black-Scholes option valuation model utilizing the following weighted average assumptions:

	For the nine months ended September 30
	2011		2010
Expected dividends paid per common share	Nil		Nil
Expected life (years)		3.7		3
Expected volatility in the price of common shares (%)		115%		95%
Risk free interest rate (%)		2.2%		1.5%
Weighted average grant date fair market value per share		$0.83		$0.57

The intrinsic (or “in-the-money”) value of options exercised in 2011 was $0.36 per share (2010 - $0.53 per share).

As of September 30, 2011 there was $334,636 (2010 - US $434,132) of unrecognized stock based compensation expense related to non-vested stock options. This amount will be recognized in expense over the remaining vesting periods of the underlying stock options.

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8. Warrants

The following is a summary of outstanding common share purchase warrants:

	# of warrants		weighted average
			exercise price
Outstanding as at January 1, 2011				$-
Issued on February, 2011 private placement		3,345,920		$0.60
Outstanding as at September 30, 2011 (expire February 16, 2012)		3,345,920		$0.60

In November 2011, a total of 700,000 of the warrants were exercised, resulting in net proceeds to the Company of $420,000. There were no warrants outstanding in 2010.

The value attributed to warrants that were issued pursuant to the private placement on February 16, 2011 was calculated using the Black-Scholes warrant valuation model utilizing the following weighted average assumptions:

Expected dividends paid per common share	Nil
Expected life in years		0.8
Expected volatility in the price of common shares		94%
Risk free interest rate		1.5%
Weighted average grant date fair market value per share		$0.14

9. Changes in non-cash operating working capital

The change in non-cash working capital is comprised of:

	3 months ended Sept. 30					9 months ended Sept. 30
	2011		2010			2011			2010
Accounts receivable		67,823		13,421			(32,768	)		1,069,972
Work-in-progress		-		-			(49,550	)		-
Prepaid expenses and other		8,710		24,327			(6,690	)		17,874
Unearned revenue		-		-			-			-
Accounts payable and accrued liabilities		109,147		(17,066	)		9,989			(184,244	)
		185,680		20,682			(79,019	)		903,602
Portion attributable to:
Operating activities		185,680		20,682			(79,019	)		903,602
Financing activities		-		-			-			-
Investing activities		-		-			-			-
		185,680		20,682			(79,019	)		903,602

10. Commitments and contingencies

The Company has an operating lease commitment on office space through October 31, 2012 which requires minimum monthly lease payments of $32,212.

In addition, the Company has in place an agreement to utilize a minimum annual volume of aircraft charter hours, the terms of which it expects to meet for 2011.

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