EX-99.1 2 nxt_ex991.htm FS nxt_ex991.htm

EXHIBIT 99.1

 

 

NXT ENERGY SOLUTIONS INC.

 

Consolidated Financial Statements

For the Years ended

December 31, 2024, 2023 and 2022

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of NXT Energy Solutions Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of NXT Energy Solutions Inc. (the Company) as at December 31, 2024 and 2023, and the related consolidated statements of loss and comprehensive loss, cash flows and shareholders’ equity deficit for each of the years in the two-year period ended December 31, 2024, and the related notes and schedules (collectively referred to as the consolidated financial statements).

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

 

The consolidated statements of loss and comprehensive loss, cash flows and shareholders’ equity of the Company for the year ended December 31, 2022, were audited by other auditors whose report dated March 31, 2023, expressed an unqualified opinion on those consolidated financial statements.

 

Material Uncertainty Related to Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s current cash position is not expected to be sufficient to meet the Company’s obligations and planned operations for a year beyond the date of auditor’s report, unless additional financing is obtained or new revenue contracts are completed. This raises substantial doubt about the Company’s ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

                                                         

MNP LLP

Suite 2000, 112 - 4th Avenue SW, Calgary AB, T2P 0H3

 

1.877.500.0792    T: 403.263.3385    F: 403.269.8450

 

 

 

 

 

 

 

 

MNP.ca

 

 
[1]

 

 

Going Concern

 

Critical Audit Matter Description

 

As described in Note 1 to the consolidated financial statements, the Company’s current cash position is not expected to be sufficient to meet the Company’s obligations and planned operations for a year beyond the date that these consolidated financial statements have been issued, unless additional financing is obtained or new revenue contracts are completed.

 

We identified the assessment of the ability of the Company to continue as a going concern as a critical audit matter due to the significant assumptions and judgements made by management in estimating future cash flows, which are subject to high degree of uncertainty.

 

This matter is also described in the “Material Uncertainty Related to Going Concern” section of our report.

 

Audit Response

 

We responded to this matter by performing procedures in relation to the assessment of the ability of the Company to continue as a going concern. Our audit work in relation to this included, but was not restricted to, the following:

 

 

·

Obtaining an understanding from management on the Company’s future plans for the operations, including financing arrangements.

 

 

 

 

·

Evaluating the key assumptions used in management’s model to estimate future cash flows by comparing assumptions used by management against historical performance, budgets, economic and industry indicators and publicly available information.

 

 

 

 

·

Comparing the assumptions related to revenue projections to those used in assessments of impairment indicators for non-financial assets.

 

 

 

 

·

Assessing the adequacy of the going concern disclosure included in Note 1 to the consolidated financial statements and considering whether these appropriately reflected the assessments that management performed.

 

 

Chartered Professional Accountants

 

We have served as the Company’s auditor since 2023.

 

Calgary, Canada

March 27, 2025

 

 

 
[2]

 

 

NXT ENERGY SOLUTIONS INC.

Consolidated Balance Sheets

(Expressed in Canadian dollars)

 

 

 

     December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

 $ 730,395

 

 

 $ 401,713

 

Accounts receivable (Note 3)

 

 

 105,858

 

 

 

 1,828,523

 

Prepaid expenses

 

 

 274,799

 

 

 

 53,673

 

 

 

 

 1,111,052

 

 

 

 2,283,909

 

Long term assets

 

 

 

 

 

 

 

 

Deposits (Note 4)

 

 

 261,485

 

 

 

 249,917

 

Property and equipment (Note 5)

 

 

 375,777

 

 

 

 515,809

 

Right of Use Assets (Note 6)

 

 

 2,506,506

 

 

 

 665,130

 

Intellectual property (Note 7)

 

 

 9,771,481

 

 

 

 11,469,995

 

 

 

 $ 14,026,301

 

 

 $ 15,184,760

 

Liabilities and Shareholders' Equity Deficit

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities (Note 8, 22)

 

 $ 1,233,974

 

 

 $ 1,836,741

 

Deferred revenue (Note 9)

 

 

 840,768

 

 

 

 -

 

Convertible debentures (Note 10)

 

 

 4,915,248

 

 

 

 1,842,566

 

Current portion of long-term debt (Note 11)

 

 

 111,111

 

 

 

 111,111

 

Current portion of lease obligation (Note 12)

 

 

 693,607

 

 

 

 343,513

 

 

 

 

 7,794,708

 

 

 

 4,133,931

 

Long-term liabilities

 

 

 

 

 

 

 

 

Convertible debentures (Note 10)

 

 

 4,259,709

 

 

 

 1,513,423

 

Long-term debt (Note 11)

 

 

 601,852

 

 

 

 712,963

 

Long-term lease obligations (Note 12)

 

 

 1,607,935

 

 

 

 252,004

 

Asset retirement obligation (Note 13)

 

 

 24,761

 

 

 

 27,030

 

 

 

 

 6,494,257

 

 

 

 2,505,420

 

 

 

 

 14,288,965

 

 

 

 6,639,351

 

Shareholders' equity deficit

 

 

 

 

 

 

 

 

Common shares (Note 15): - authorized unlimited

 

 

 

 

 

 

 

 

Issued: 78,495,184 (2023 – 78,025,237) common shares

 

 

 98,262,510

 

 

 

 98,179,271

 

Contributed capital

 

 

 9,739,322

 

 

 

 9,552,839

 

Deficit

 

 

 (108,264,496 )

 

 

 (99,186,701 )

 

 

 

 (262,664 )

 

 

 8,545,409

 

 

 

 $ 14,026,301

 

 

 $ 15,184,760

 

 

Going Concern (Note 1)

Commitments (Note 14)

Subsequent event (Note 17)

 

Signed "Charles Selby"

 

 

 

 

 

Signed "Bruce G. Wilcox"

Director

 

Director

 

    

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

 

 
[3]

 

   

NXT ENERGY SOLUTIONS INC.

Consolidated Statements of Loss and Comprehensive Loss

(Expressed in Canadian dollars)

 

 

 

For the Year ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Revenue

 

 

 

 

 

 

 

 

 

SFD® related revenue (Note 21)

 

 $ 644,294

 

 

 $ 2,145,716

 

 

 $ -

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

SFD® related costs, net

 

 

 2,021,768

 

 

 

 2,249,126

 

 

 

 1,178,183

 

General and administrative expenses (Notes 17, 22)

 

 

 4,045,778

 

 

 

 3,420,143

 

 

 

 3,736,431

 

Amortization

 

 

 1,887,013

 

 

 

 1,759,473

 

 

 

 1,768,727

 

 

 

 

 7,954,559

 

 

 

 7,428,742

 

 

 

 6,683,341

 

Other expenses (income)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 750,611

 

 

 

 160,262

 

 

 

 36,220

 

Foreign exchange loss (gain)

 

 

 574,106

 

 

 

 (8,028 )

 

 

 (15,340 )

Loss on remeasurement of convertible debentures (Note 10)

 

 

 296,534

 

 

 

 -

 

 

 

 -

 

Loss on disposal of assets, lease modifications and other

 

 

 146,279

 

 

 

 15,852

 

 

 

 28,855

 

 

 

 

 1,767,530

 

 

 

 168,086

 

 

 

 49,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

 (9,077,795 )

 

 

 (5,451,112 )

 

 

 (6,733,076 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (Note 18)

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and comprehensive loss

 

 

 (9,077,795 )

 

 

 (5,451,112 )

 

 

 6,733,076 )

Loss per share (Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 (0.12 )

 

 

 (0.07 )

 

 

 (0.10 )

Diluted

 

 

 (0.12 )

 

 

 (0.07 )

 

 

 (0.10 )

 

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

 

 
[4]

 

 

NXT ENERGY SOLUTIONS INC.

Consolidated Statements of Cash Flows

(Expressed in Canadian dollars)

 

 

 

For the Year ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Cash from (used in):

 

Operating activities

 

 

 

 

 

 

 

 

 

Net loss

 

 $ (9,077,795 )

 

 $ (5,451,112 )

 

 $ (6,733,076 )

Items not affecting cash:

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense (Note 17)

 

 

 268,734

 

 

 

 241,271

 

 

 

 215,284

 

Amortization

 

 

 1,887,013

 

 

 

 1,759,473

 

 

 

 1,768,727

 

Accretion expense (recovery) (Note 13)

 

 

 (2,269 )

 

 

 2,456

 

 

 

 2,237

 

Non-cash lease amortization and accretion (Note 12)

 

 

 353,433

 

 

 

 683,190

 

 

 

 752,149

 

Unrealized foreign exchange (gain) loss

 

 

 659,257

 

 

 

 (25,451 )

 

 

 13,956

 

Loss on disposal of assets and lease modifications

 

 

 135,455

 

 

 

 -

 

 

 

 11,921

 

Remeasurement of convertible debentures (Note 10)

 

 

 296,534

 

 

 

 -

 

 

 

 -

 

Change in deposits

 

 

 5,763

 

 

 

 3,362

 

 

 

 -

 

Change in non-cash working capital balances (Note 20)

 

 

 1,868,996

 

 

 

 (1,294,087 )

 

 

 1,755,107

 

Lease payments (Note 12)

 

 

 (364,712 )

 

 

 (739,527 )

 

 

 (720,309 )

Prepaid Ling-term insurance

 

 

 -

 

 

 

 (11,525 )

 

 

 -

 

 

 

 

 5,108,204

 

 

 

 619,162

 

 

 

 3,799,072

 

Net cash used in operating activities

 

 

 (3,969,591 )

 

 

 (4,831,950 )

 

 

 (2,934,004 )

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from the Employee Share Purchase plan (Note 17)

 

 

 41,620

 

 

 

 36,246

 

 

 

 49,738

 

Proceeds for Restricted Stock Units

 

 

 -

 

 

 

 4,370

 

 

 

 -

 

Repayment of long-term debt (Note 11)

 

 

 (111,111 )

 

 

 (111,111 )

 

 

 (64,815 )

Net proceeds from Rights Offering (Note 15)

 

 

 -

 

 

 

 -

 

 

 

 216,062

 

Net proceeds from Private Placement (Note 15)

 

 

 -

 

 

 

 1,622,057

 

 

 

 216,182

 

Net proceeds from Convertible Debentures (Note 10)

 

 

 4,735,004

 

 

 

 3,457,555

 

 

 

 -

 

Repayment of lease obligations (Note 12)

 

 

 (359,706 )

 

 

 -

 

 

 

 (27,950 )

Net cash from financing activities

 

 

 4,305,807

 

 

 

 5,009,117

 

 

 

 389,217

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 (27,029 )

 

 

 (32,322 )

 

 

 -

 

Proceeds from short-term investments

 

 

 -

 

 

 

 -

 

 

 

 550,000

 

Net cash from (used in) investing activities

 

 

 (27,029 )

 

 

 (32,322 )

 

 

 550,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

 19,495

 

 

 

 (6,569 )

 

 

 369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

 328,682

 

 

 

 138,276

 

 

 

 (1,994,418 )

Cash and cash equivalents, beginning of the year

 

 

 401,713

 

 

 

 263,437

 

 

 

 2,257,855

 

Cash and cash equivalents, end of the year

 

 

 730,395

 

 

 $ 401,713

 

 

 $ 263,437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

 

 

 

 

 

 

 

Cash interest paid

 

 

 548,756

 

 

 

 120,952

 

 

 

 35,779

 

Cash taxes paid

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

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

 

 
[5]

 

 

NXT ENERGY SOLUTIONS INC.

Consolidated Statements of Shareholders' Equity Deficit

(Expressed in Canadian dollars)

 

 

 

For the Year ending December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

Balance at beginning of the year

 

 $ 98,179,271

 

 

 $ 96,423,648

 

 

 $ 95,779,352

 

Issuance of common stock, net of share issuance costs for:

 

 

 

 

 

 

 

 

 

 

 

 

Rights Offering (Note 15)

 

 

 -

 

 

 

 -

 

 

 

 216,062

 

Private placement (Note 15)

 

 

 -

 

 

 

 1,622,057

 

 

 

 216,182

 

Employee Share Purchase Plan (Note 15)

 

 

 83,239

 

 

 

 66,755

 

 

 

 89,127

 

Restricted Stock Unit Plan (Note 15)

 

 

 -

 

 

 

 66,811

 

 

 

 122,925

 

Balance at end of the year

 

 

 98,262,510

 

 

 

 98,179,271

 

 

 

 96,423,648

 

Contributed Capital

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of the year

 

 

 9,552,839

 

 

 

 9,404,518

 

 

 

 9,381,966

 

Recognition of stock-based compensation expense (Note 17)

 

 

 186,483

 

 

 

 148,321

 

 

 

 22,552

 

Balance at end of the year

 

 

 9,739,322

 

 

 

 9,552,839

 

 

 

 9,404,518

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of the year

 

 

 (99,186,701 )

 

 

 (93,735,589 )

 

 

 (87,002,513 )

Net loss

 

 

 (9,077,795 )

 

 

 (5,451,112 )

 

 

 (6,733,076 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of the year

 

 

 (108,264,496 )

 

 

 (99,186,701 )

 

 

 (93,735,589 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Shareholders' Equity Deficit at end of the year

 

 

 (262,664 )

 

 

 8,545,409

 

 

 

 12,092,577

 

 

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

 

 
[6]

 

   

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

1. The Company and going concern

 

NXT Energy Solutions Inc. (the "Company" or "NXT") is a publicly traded company based in Calgary, Alberta Canada and listed on the Toronto Stock Exchange (“TSX”).

 

NXT's proprietary Stress Field Detection ("SFD®") technology is an airborne survey system that utilizes the principles of quantum mechanics to infer stress anomalies of exploration interest. The method can be used both onshore and offshore to remotely identify areas conducive to fluid entrapment in order to recommend areas with commercial hydrocarbon and/or geothermal potential.

 

These consolidated financial statements of NXT have been prepared by management in accordance with generally accepted accounting principles of the United States of America ("US GAAP”).

 

These consolidated financial statements reflect adjustments, all of which are normal recurring adjustments that are, in the opinion of management, necessary to reflect fairly the financial position and results of operations for the respective periods.

 

These consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that NXT will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

 

The events described in the following paragraphs highlight that there continues to be material uncertainties that cast substantial doubt about NXT’s ability to continue as a going concern within one year after the date that these consolidated financial statements have been issued. The Company’s current cash position is not expected to be sufficient to meet the Company’s obligations and planned operations for a year beyond the date that these consolidated financial statements have been issued.

 

During 2024 the Company completed an SFD® survey and has received deposits payments on three other SFD® surveys planned to be executed in 2025 (the “2025 SFD® Surveys”). As of the date of these financial statements, the Company has finished the acquisition phase of one of the 2025 SFD® Surveys and received milestone payments which has generated cash from operations for the Company. In addition, during 2023 and 2024 the Company completed private placements which resulted in raising an additional net proceeds of $9,757,366 (Notes 10 and 15).

 

The Company continues to develop its pipeline of opportunities to secure additional revenue contracts. The Company’s longer-term success remains dependent upon its ability to convert these revenue opportunities into successful contracts, to continue to attract new client projects, expand its revenue base to a level sufficient to exceed fixed operating costs, and generate consistent positive cash flow from operations. The occurrence and timing of these events cannot be predicted with certainty.

 

Further financing options that may or may not be available to the Company include issuance of new equity, debentures or bank credit facilities. The need for any of these options will be dependent on the timing of securing additional SFD® related revenues and obtaining financing on terms that are acceptable to both the Company and the financier.

 

 
Page | 7

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

The consolidated financial statements do not reflect adjustments that would be necessary if the going concern basis was not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, then adjustments would be necessary in the carrying value of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. These adjustments could be material.

 

Use of Estimates and Judgements

 

In preparing these consolidated financial statements, NXT is required to make estimates and assumptions that affect both the amount and timing of recording assets, liabilities, revenues and expenses since the determination of these items may be dependent on future events. The Company uses the most current information available and exercises careful judgment in making these estimates and assumptions. In the opinion of management, these consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the Company’s significant accounting policies. The estimates and assumptions used are based upon management's best estimate as at the date of the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period when determined. Actual results may differ from those estimates.

 

Certain estimates and judgments have a material impact where the assumptions underlying these accounting estimates relate to matters that are highly uncertain at the time the estimate or judgment is made or are subjective. In 2024, 2023 and 2022, the estimates and judgments included the assessment of impairment indicators of intellectual property and recognition of SFD® related revenue.

 

The Company reviews intellectual property for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company considers both internal and external factors when assessing for potential indicators of impairment of its intellectual property, including the consideration of historical and forecasted SFD® related revenues, market capitalization, control premiums, and the SFD® related revenue multiples compared to industry peers. When indicators of impairment exist, the Company first compares the total of the estimated undiscounted future cash flows or the estimated sale price to the carrying value of an asset. If the carrying value exceeds these amounts, an impairment loss is recognized for the excess of the carrying value over the estimated fair value of the intellectual property.

 

Other accounting estimates and judgments that may have a material impact on the financial statements include: the forward-looking assumptions related to the going concern assumption, the estimated useful lives of intellectual property and property, plant and equipment, lease interest rates and terms, the fair value of convertible debentures, and the assumptions used to measure stock-based compensation expense.

 

 
Page | 8

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

2. Significant Accounting Policies

Basis of Presentation

 

These consolidated financial statements for the year ended December 31, 2024 have been prepared by management in accordance with generally accepted accounting principles of US GAAP.

 

Consolidation

 

These consolidated financial statements reflect the accounts of the Company and its wholly owned subsidiaries (all of which are inactive). 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.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash on hand and short term Guaranteed Investment Certificates (“GIC’s”) with an original maturity less than 90 days from the date of acquisition.

 

Short Term Investments

 

Short term investments consist of short term GICs, with original maturity dates greater than 90 days and up to one year.

 

Derivative Instruments

 

As at December 31, 2024 and 2023, NXT had no outstanding derivative instruments.

 

Fair Value Measures

 

For any balance sheet items recorded at fair value on a recurring basis or non-recurring basis, the Company is required to classify the fair value measure into one of three categories based on the fair value hierarchy noted below.

 

In Level I, the fair value of assets and liabilities is determined by reference to quoted prices in active markets for identical assets and liabilities that the Company has the ability to assess at the measurement date.

 

At December 31, 2024 the fair values of restricted stock units (“RSU”) liability was based on share price that was determined using Level I inputs.

 

In Level II, determination of the fair value of assets and liabilities is based on the extrapolation of inputs, other than quoted prices included within Level I, for which all significant inputs are observable directly or indirectly. Such inputs include published exchange rates, interest rates, yield curves and stock quotes from external data service providers. Transfers between Level I and Level II would occur when there is a change in market circumstances. There are no Level II fair value measures.

   

In Level III, the fair value of assets and liabilities measured on a recurring basis is determined using a market approach based on inputs that are unobservable and significant to the overall fair value measurement. Assets and liabilities measured at fair value can fluctuate between Level II and Level III depending on the proportion of the value of the contract that extends beyond the time frame for which inputs are considered to be observable. As contracts near maturity and observable market data becomes available, the contracts are transferred out of Level III and into Level II.

 

 
Page | 9

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

The determination of the fair value of the acquisition of the Intellectual property (Note 7) was determined using Level III inputs, as well as the November Debentures and 2024 Debentures (both defined in Note 10).

 

Measurement of credit losses on financial instruments

 

The impairment model of financial instruments is based on expected losses rather than incurred losses. In making the assessment of expected losses, the Company considers the following factors: historically realized bad debts; a counterparty’s present financial condition and whether a counterparty has breached certain contracts; the probability that a counterparty will enter bankruptcy; changes in economic conditions that correlate to increased levels of default and term to maturity of the specific receivable. These expected credit losses are recognized as an allowance rather than as a direct write-down of the amortized cost basis.

 

Deposits

 

Deposits consist of security payments made to lessors for the Company’s office and aircraft lease. They are classified as long term if the lease end date is greater than one year.

 

Property and Equipment

 

Property and equipment is recorded at cost, less accumulated amortization, which is recorded over the estimated service lives of the assets using the following annual rates and methods:

 

Survey equipment

20% declining balance

Computers

30% declining balance

Furniture and other equipment

20% declining balance

Leasehold improvements

10% declining balance

 

Intellectual Property

 

Intellectual property acquired is recorded at cost, less accumulated amortization, which is recorded over the estimated minimum useful life of the assets. The Company incurs periodic costs that are expensed when incurred to file patents and to maintain them.

 

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets, which includes property, equipment and intellectual property for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company considers both internal and external factors when assessing for potential indicators of impairment, and with respect to intellectual property, the Company’s assessment includes consideration of historical and forecasted SFD® related revenues, market capitalization, control premiums, and the SFD® related revenue multiples compared to industry peers.

 

When indicators of impairment exist, the Company first compares the total of the estimated undiscounted future cash flows or the estimated sale price to the carrying value of an asset. If the carrying value exceeds these amounts, an impairment loss is recognized for the excess of the carrying value over the estimated fair value of the asset.

 

 
Page | 10

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

Convertible Debentures

 

Convertible debentures are recorded as a current liability if the Company has an obligation to deliver cash to the holder on demand on or before the maturity date and a long-term liability if non-demand and the maturity date is greater than one year. If the convertible debentures are converted to either voting preferred or common shares, the preferred or common shares will be classified as equity. Interest on the convertible debenture is accrued as earned. The November Debentures and the 2024 Debentures (defined below) are revaluated at their fair values. Since they are denominated in US$ they do not meet the fix to fix criteria.

 

Foreign Currency Translation

 

The Company's functional currency is the Canadian dollar. Revenues and expenses denominated in foreign currencies are translated into Canadian dollars at the average exchange rate for the applicable period. Monetary assets and liabilities are translated into Canadian dollars at the exchange rate in effect at the end of the applicable period. Non-monetary assets and liabilities are recorded at the relevant exchange rates for the period in which the balances arose. Any related foreign exchange gains and losses resulting from these translations are included in the determination of net income (loss) for the period.

 

Income Taxes

 

NXT follows the asset and liability method of accounting for income taxes. This method recognizes deferred income tax assets and liabilities based on temporary differences in reported amounts for financial statement and income tax purposes, at the income tax rates expected to apply in the future periods when the temporary differences are expected to be reversed or realized. The effect of a change in income tax rates on deferred income tax assets and deferred income tax liabilities is recognized in income in the period when the tax rate change is enacted. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized.

 

Stock-based Compensation

 

NXT follows the fair value method of accounting for stock options, restricted stock units, deferred stock units, and the employee share purchase plan (the “Share Compensation Plans”) that are granted to acquire common shares under NXT's Share Compensation Plans. For equity-settled stock-based compensation awards, fair values are determined at the grant date and the expense, net of estimated forfeitures, is recognized over the requisite service period with a corresponding increase recorded in contributed capital. An adjustment is made to compensation for any differences between the estimated forfeitures and the actual forfeitures. For cash-settled stock-based compensation awards, fair values, based on observable prices, are determined at each reporting date and periodic changes are recognized as compensation costs, with a corresponding change to liabilities. Stock-based awards with performance conditions are recognized as compensation costs only when the performance condition is probable of being met.

 

Upon exercise or realization of the equity-settled Share Compensation Plans, the consideration received by NXT, and the related amount which previously recorded in contributed capital, is recognized as an increase in the recorded value of the common shares of the Company.

 

 
Page | 11

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

Net Income (Loss) Per Share

 

Basic income (loss) per share amounts is calculated by dividing net income (loss) by the weighted average number of common shares that are outstanding for the fiscal period. Shares issued during the period are weighted for the portion of the period that the shares were outstanding. Diluted income per share, in periods when NXT has net income, is computed using the treasury stock method, whereby the weighted average number of shares outstanding is increased to include any additional shares that would be issued from the assumed exercise of stock options and restricted stock units. The incremental number of shares added under the treasury stock method assumes that outstanding stock options and restricted stock units that are exercisable at exercise prices below the Company's average market price (i.e. they were “in-the-money”) for the applicable fiscal period are exercised and then that number of incremental shares is reduced by the number of shares that could have been repurchased by the Company from the issuance proceeds, using the average market price of the Company’s shares for the applicable fiscal period.

 

No addition to the basic number of shares is made when calculating the diluted number of shares if the diluted per share amounts become anti-dilutive (such as occurs in the case where there is a net loss for the period).

 

Revenue

 

SFD® Surveys

 

The performance obligation for NXT in SFD® surveys is the acquisition, processing, interpretation and integration of Stress Field Detection (SFD®) data. Revenue from the sale of SFD® survey contracts (excluding any related foreign value added taxes) is recognized over time by measuring the progress toward satisfaction of its performance obligation to the customer. All funds received or invoiced in advance of recognition of revenue are reflected as contract obligations and classified as a current liability on our balance sheet.

 

The Company uses direct survey costs as the input measure to recognize revenue in any fiscal period. The percentage of direct survey costs incurred to date over the total expected survey costs to be incurred, provides an appropriate measure of the stage of the performance obligation being satisfied over time.

 

SFD® Data Sales

 

The performance obligation for NXT in SFD® data sales is the delivery of the promised specific services as itemized in the contract with the customer. Revenue from the sale of SFD® data (excluding any related foreign value added taxes) is recognized once the services are completed and the data is transferred to the customer.

 

Leases

 

The Company determines if an arrangement is an operating or finance lease, as defined under US GAAP, at inception. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. These leases are included in right-of-use (“ROU”) assets and lease obligations in the Consolidated Balance Sheet.

 

 
Page | 12

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the obligation to make lease payments arising from such leases. Lease obligations are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term, taking into consideration conditions such as incentives and termination penalties, as appropriate. A corresponding ROU asset is recognized at the amount of the lease obligation, adjusted for payments made prior to lease commencement or initial direct costs, if any.

 

When calculating the present value, the Company uses the rate implicit in the lease, or uses its incremental borrowing rate for a similar term and risk profile based on the information available at the commencement date. The Company’s lease terms may have options to extend or terminate the lease which are included in the calculation of lease obligations when it is reasonably certain that it will exercise those options. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Office and equipment lease expenses are included within General and administrative expenses.

 

The aircraft lease cost is treated as a finance lease and is recorded in ROU assets. The ROU asset amortization included within amortization costs and lease payments are recorded as interest expense and as a reduction in the lease liability. The aircraft ROU is amortized at a 10% declining balance.

 

Lease agreements can contain both lease and non-lease components, which are accounted for separately.

 

Government grants

 

Government grants are recognized when there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as an expense reduction in the period in which the costs are incurred. Where the grant relates to an asset, it is recognized as a reduction to the net book value of the related asset and then subsequently in net loss over the expected useful life of the related asset through lower charges to amortization and impairment.

 

3. Accounts Receivable

 

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Trade receivables

 

 $ 22,210

 

 

 $ 1,738,694

 

Other receivables

 

 

 83,648

 

 

 

 89,829

 

 

 

 

 105,858

 

 

 

 1,828,523

 

Allowance for doubtful accounts

 

 

 -

 

 

 

 -

 

Net accounts receivable

 

 

 105,858

 

 

 

 1,828,523

 

 

The entire trade receivables at December 31, 2024 and December 31, 2023 were with one, but not the same customer in each year. All trade receivables were current and were collected subsequent to December 31 each year.

 

 
Page | 13

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

4. Deposits

 

Security deposits have been made to the lessors of the office building and the aircraft. The aircraft deposit is denominated in United States Dollars.

 

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Prepaid expenses

 

 $ 2,401

 

 

 $ 8,164

 

Building

 

 

 43,309

 

 

 

 43,309

 

Aircraft

 

 

 215,775

 

 

 

 198,444

 

 

 

 

 261,485

 

 

 

 249,917

 

 

5. Property and equipment 

 

 

 

December 31, 2024

 

 

 

Cost

 

 

Accumulated

 

 

Net book

 

 

 

Base

 

 

Amortization

 

 

value

 

Survey equipment

 

 $ 949,062

 

 

 $ 771,143

 

 

 $ 177,919

 

Computers and software

 

 

 1,265,045

 

 

 

 1,257,313

 

 

 

 7,732

 

Furniture and other equipment

 

 

 405,877

 

 

 

 401,110

 

 

 

 4,767

 

Leasehold improvements

 

 

 523,507

 

 

 

 338,148

 

 

 

 185,359

 

 

 

 

 3,143,491

 

 

 

 2,767,714

 

 

 

 375,777

 

 

 

 

December 31, 2023

 

 

 

Cost

 

 

Accumulated

 

 

Net book

 

 

 

Base

 

 

Amortization

 

 

value

 

Survey equipment

 

 $ 924,959

 

 

 $ 743,239

 

 

 $ 181,720

 

Computers and software

 

 

 1,265,045

 

 

 

 1,254,000

 

 

 

 11,045

 

Furniture and other equipment

 

 

 528,419

 

 

 

 520,525

 

 

 

 7,894

 

Leasehold improvements

 

 

 1,064,225

 

 

 

 749,075

 

 

 

 315,150

 

 

 

 

 3,782,648

 

 

 

 3,266,839

 

 

 

 515,809

 

 

 
Page | 14

 

   

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

6. Right of use assets

 

 

 

 

December 31, 2024

 

 

 

Cost

 

 

Accumulated

 

 

Right of

 

 

 

Base

 

 

Amortization

 

 

Use

 

Aircraft

 

 $ 3,468,239

 

 

 $ 1,939,006

 

 

 $ 1,529,233

 

Office Building

 

 

 2,324,694

 

 

 

 1,352,941

 

 

 

 971,753

 

Printer

 

 

 9,716

 

 

 

 4,196

 

 

 

 5,520

 

 

 

 

 5,802,649

 

 

 

 3,296,143

 

 

 

 2,506,506

 

 

 

 

December 31, 2023

 

 

 

Cost

 

 

Accumulated

 

 

Right of

 

 

 

Base

 

 

Amortization

 

 

Use 

 

Aircraft

 

 $ 1,847,617

 

 

 $ 1,728,958

 

 

 $ 118,659

 

Office Building

 

 

 1,725,414

 

 

 

 1,186,673

 

 

 

 538,741

 

Printer

 

 

 9,716

 

 

 

 1,986

 

 

 

 7,730

 

 

 

 

 3,582,747

 

 

 

 2,917,617

 

 

 

 665,130

 

 

 

 

 

 

 

 

 

 

Aircraft

 

On March 22, 2024 the Company extended its Aircraft lease for three years to March 28, 2027.  The Company will own the aircraft at the end of the lease term.  Terms of the lease extension include an interest rate of 12%, and monthly payments of US$40,189.  The Company has an early purchase option to acquire the aircraft on any of the following dates, March 28, 2025, September 28, 2025, March 28, 2026 or September 28, 2026.  The purchase price would be the amortized value of the lease liability, plus a four-months of interest.  The lease is being treated as a finance lease.  As a result of the lease extension the Right of Use Assets and lease obligations have been increased as follows:

 

Right of Use Assets

 

CDN$1,620,622

Lease obligations

 

US$1,182,393

 

The Company recognized a loss of $31,686 on the Aircraft lease modification.

 

 
Page | 15

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

Building

 

On May 1, 2024, the Company surrendered approximately 3,207 square feet of its office building lease to the landlord and extended its lease for an additional five years until September 30, 2030.  Terms of the lease extension include an implied interest rate of 10%, and monthly payments of $19,771.  The lease will continue to be treated as an operating lease.  As a result of the lease extension the Right of Use Assets and lease obligations have been increased as follows:

 

Right of Use Assets

 

 $ 599,281

 

Lease obligations

 

 $ 600,495

 

 

The Company has recognized a loss of $1,214 on the building lease modification, and a loss on disposal of leasehold improvements of $102,555.

 

7.  Intellectual property

 

 

 

December 31, 2024

 

 

 

Cost

 

 

Accumulated

 

 

Net book

 

 

 

Base

 

 

amortization

 

 

Value

 

SFD® Hydrocarbon Right acquired

 

 $ 25,271,000

 

 

 $ 15,724,601

 

 

 $ 9,546,399

 

SFD® Geothermal Right acquired

 

 

 275,610

 

 

 

 50,528

 

 

 

 225,082

 

 

 

 

 25,546,610

 

 

 

 15,775,129

 

 

 

 9,771,481

 

 

 

 

December 31, 2023

 

 

 

Cost

 

 

Accumulated

 

 

Net book

 

 

 

Base

 

 

amortization

 

 

Value

 

SFD® Hydrocarbon Right acquired

 

 $ 25,271,000

 

 

 $ 14,039,868

 

 

 $ 11,231,132

 

SFD® Geothermal Right acquired

 

 

 275,610

 

 

 

 36,747

 

 

 

 238,863

 

 

 

 

 25,546,610

 

 

 

 14,076,615

 

 

 

 11,469,995

 

 

SFD® Hydrocarbon Right

 

During 2015, NXT acquired the rights to the SFD® technology for use in the exploration of hydrocarbons (“Hydrocarbon Right”) from Mr. George Liszicasz, the former President and CEO of NXT (“CEO”), and recorded the acquisition as an intellectual property asset on the balance sheet.  The asset was recorded at the fair value of the consideration transferred, including the related tax effect of approximately $25.3 million. 

 

SFD® Geothermal Right

 

The Company acquired the SFD® technology rights for geothermal resources (“Geothermal Right”) from the CEO on April 18, 2021.  The consideration deliverable by the Company in connection with the acquisition of the Geothermal Right is set forth below:

 

 

1.

 US$40,000 (CDN$50,310) signature payment, which became due immediately and was paid on April 22, 2021;

 

2.

 300,000 common shares, which were issued in December 2021;

 

3.

 CDN$15,000 signature milestone payment paid in August 2021;

 

4.

 US$200,000 milestone payment which will become due in the event that the Company's cash balance exceeds CDN$5,000,000 due to receipt of specifically defined funds from operations; and

 

5.

 US$250,000 milestone payment would have become due in the event that the Company executed, completed, and received full payment for an SFD® contract valued at US$10,000,000 or greater, provided such contract was entered into and completed and payment of at least US$5,000,000 was received by April 18, 2023. This milestone expired as of April 18, 2023.

 

 
Page | 16

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

As of December 31, 2024, the Company has recognized $275,610 for the acquisition of the Geothermal Right which is the combination of the US$40,000 (CDN$50,310) and CDN$15,000 signature payments, the value of the 300,000 common shares of $207,300 and other costs of $3,000.  The cost of the remaining milestone will be recognized when it is deemed probable that the milestone will be achieved by a special committee of the Board of Directors, comprised entirely of independent directors.  The Board of Directors delegated authority to the special committee to determine when the milestones have been achieved.  As of December 31, 2024 the remaining milestone is still deemed not probable of being achieved.

 

Reconciliation of Intellectual Property

 

 

 

SFD® Hydrocarbon Right

 

 

SFD® Geothermal Right

 

 

Total

 

Net book value at December 31, 2022

 

 $ 12,915,866

 

 

 $ 252,643

 

 

 $ 13,168,509

 

Amortization for 2023

 

 

 (1,684,734 )

 

 

 (13,780 )

 

 

 (1,698,514 )

Net book value at December 31, 2023

 

 

 11,231,132

 

 

 

 238,863

 

 

 

 11,469,995

 

Amortization for 2024

 

 

 (1,684,733 )

 

 

 (13,781 )

 

 

 (1,698,514 )

Net book value at December 31, 2024

 

 

 9,546,399

 

 

 

 225,082

 

 

 

 9,771,481

 

 

The Hydrocarbon Right is being amortized on a straight-line basis over its estimated useful life of 15 years. The annual amortization expense expected to be recognized is approximately $1.7 million per year for a 5-year aggregate total of $8.5 million.

 

The current book value of the Geothermal Right is being amortized on a straight-line basis over its estimated useful life of 20 years. The annual amortization expense expected to be recognized is approximately $13,781 per year for a 5-year aggregate total of approximately $68,902.

 

8.  Accounts payable and accrued liabilities

 

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued liabilities related to:

 

 

 

 

 

 

Consultants and professional fees

 

 $ 261,753

 

 

 $ 225,224

 

Payroll related

 

 

 471,596

 

 

 

 525,472

 

Board of director’s fees

 

 

 201,218

 

 

 

 228,199

 

Interest payable

 

 

 109,029

 

 

 

 38,222

 

 

 

 

 1,043,596

 

 

 

 1,017,117

 

Trade payables and other

 

 

 190,378

 

 

 

 819,624

 

 

 

 

 1,233,974

 

 

 

 1,836,741

 

 

 
Page | 17

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

9. Deferred revenue

 

As of December 31,2024, the company has received $840,768 (US$584,477) of deposits for signed SFD® contracts to be executed in 2025 ($nil for 2023).

 

10. Convertible Debentures

 

2024 Debentures

 

On May 31, 2024 the Company issued convertible debentures (the “2024 Debentures”) to MCAPM LP for the principal amount of US$2,000,000, being approximately CDN$2,773,660.  The 2024 Debentures bear interest at 10.0% per annum, paid quarterly in arrears, and are due and payable on May 31, 2026.  The 2024 Debentures are convertible into common shares at a conversion price of US$0.25 per Common Share which provides MCAPM LP with the right to obtain up to 8,000,000 common shares of the Company.  The 2024 Debentures are unsecured.

 

November Debentures

 

The Company issued a total of US$1,872,000 (approximately CAD$2,543,636) of a multi-tranche unsecured convertible debenture (the "November Debentures").  The November Debentures bear interest at 10.0% per annum, paid quarterly in arrears, and are due and payable two years after issuance.  The November Debentures are convertible into common shares in the capital of NXT at a fixed conversion price of US$0.1808 allowing the subscribers to obtain an aggregate of up to 10,353,982 common shares.  Insiders which include MCAPM, LP and Michael P. Mork (“Mork Capital”) and directors of NXT, were issued November Debentures valued, in the aggregate principal amount, at US$1,522,000 (approximately CDN$2,076,776). 

 

During 2023, the Company issued the first two tranches of the November Debentures for US$1,150,000 (approximately CDN$1,577,600). 

 

On January 12, 2024, the Company closed the final tranche of the November Debentures for an additional US$722,000 (approximately CDN$966,036).  The November Debentures are unsecured.

 

Mork Capital has the right to own, after conversion of all of their 2024 Debentures and  November Debentures, totaling US$3,375,000, a total of 30,526,321 common shares. This represents approximately 32.1% of the issued and outstanding common shares as of the date of these financial statements (after giving effect to the conversion of the full amount of the 2024 Debentures and the November Debentures).    

 

Ataraxia Debentures

 

In May 2023 the Company signed a subscription agreement with Ataraxia Capital (“Ataraxia”) in which Ataraxia would purchase US$2,300,000 of convertible debentures.  The terms of the convertible debentures issued to Ataraxia include an annual interest rate of 10%, paid quarterly in arrears.  They can also be converted into voting preferred shares with an annual dividend rate of 10% paid per quarter.  The preferred shares are not transferable, but may be converted on a one-to-one basis into common shares. The convertible debentures are payable on demand, but are due two years after the issue date. They are secured by a general security agreement, subordinate to the long-term debt.

 

 
Page | 18

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

On May 31, 2023 the Company issued a two-year term convertible debenture for US$1,200,000 (CDN$1,631,954) to Ataraxia and an additional US$200,000 (CDN$265,560) on July 10, 2023 (the “2023 Ataraxia Debentures”).  The 2023 Ataraxia Debentures have a fixed conversion price of US$0.143 per common share. 

 

On November 4, 2024 the Company issued a two-year term convertible debenture for US$500,000 (CDN$676,995) to Ataraxia and an additional US$400,000 (CDN$550,296) on November 12, 2024 (the “2024 Ataraxia Debentures”).  The 2024 Ataraxia Debentures have a fixed conversion price of US$0.24 per common share. 

 

Ataraxia has the right to own, after conversion of all of their 2023 Ataraxia Debentures and 2024 Ataraxia Debentures, 13,540,209 common shares. This represents approximately 14.6% of the issued and outstanding common shares as of the date of these financial statements (after giving effect to the conversion of the full amount of the 2023 Ataraxia Debentures and 2024 Ataraxia Debentures).

 

Repayment of principal and interest for convertible debentures:

 

US$

 

 

CDN$1.

 

2025

 

 

 3,102,200

 

 

 

 4,462,515

 

2026

 

 

 3,830,050

 

 

 

 5,509,527

 

Total principal and interest payments

 

 

 6,932,250

 

 

 

 9,972,042

 

Less interest

 

 

 (760,250 )

 

 

 (1,093,619 )

Principal remaining

 

 

 6,172,000

 

 

 

 8,878,423

 

Change in fair value of convertible debentures

 

 

 206,141

 

 

 

 296,534

 

Net principal remaining

 

 

 6,378,141

 

 

 

 9,174,957

 

Current portion of convertible debentures

 

 

 3,416,926

 

 

 

 4,915,248

 

Non-current portion of convertible debentures

 

 

 2,961,215

 

 

 

 4,259,709

 

1. Converted at 1.4385

 

Fair Value

 

The November Debentures and the 2024 Debentures have been revalued at their fair value as of December 31, 2024 using level 3 inputs as follows:

 

US$/CDN$ volatility

 

 

 6.58 %

Stock price volatility

 

 

 173.78 %

Stock price

 

 $ 0.11

 

Risk free interest rate

 

 

 4.49 %

Credit Spread

 

5.67% to 30.93%

 

 

The fair value change to the debentures in 2024 was $296,534 (US$206,141) and $nil for 2023.

 

Interest expense for convertible debentures:

 

2024

 

 

2023

 

 

2022

 

$US

 

 $ 455,112

 

 

 $ 94,781

 

 

 

 -

 

$CDN

 

 $ 621,378

 

 

 $ 128,612

 

 

 

 -

 

 

 
Page | 19

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

11. Long-term debt

 

On May 26, 2021, the Company received $1,000,000 from the Business Development Bank of Canada’s (“BDC”) Highly Affected Sectors Credit Availability Program (“HASCAP Loan”), funded by the Royal Bank of Canada.  The HASCAP Loan is a $1,000,000 non-revolving ten-year term credit facility with an interest rate of 4%.  Repayment terms were interest only until May 26, 2022, and monthly principal plus interest payments for the remaining nine years.  The HASCAP Loan is secured by a general security agreement and is guaranteed by BDC. 

 

Repayment of principal and interest:

 

 

 

2025

 

 $ 137,593

 

2026

 

 

 133,148

 

2027

 

 

 128,704

 

2028

 

 

 124,259

 

2029

 

 

 119,815

 

2030 to 2031

 

 

 162,129

 

Total principal and interest payments

 

 

 805,648

 

Less interest

 

 

 (92,685 )

Total principal remaining

 

 

 712,963

 

Current portion of long-term debt

 

 

 111,111

 

Non-current portion of long-term debt

 

 

 601,852

 

 

12. Lease obligation

 

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Aircraft 1.

 

 $ 1,318,602

 

 

 $ 37,242

 

Office Building

 

 

 977,420

 

 

 

 550,548

 

Printer

 

 

 5,520

 

 

 

 7,727

 

 

 

 

 2,301,542

 

 

 

 595,517

 

Current portion of lease obligations

 

 

 693,607

 

 

 

 343,513

 

Long-term lease obligations

 

 

 1,607,935

 

 

 

 252,004

 

1. Converted at 1.4385

 

 
Page | 20

 

  

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

Maturity of lease liabilities:

 

Finance Lease1.

 

 

Operating Leases

 

 

Total

 

 

Weighted Average Remaining Lease Terms

  

2025

 

 

 693,743

 

 

 

 240,676

 

 

 

 934,419

 

 

3.7 years

  

2026

 

 

 693,742

 

 

 

 240,391

 

 

 

 934,133

 

 

3.1 years

  

2027

 

 

 116,615

 

 

 

 237,252

 

 

 

 353,867

 

 

3.3 years

  

2028

 

 

 -

 

 

 

 237,252

 

 

 

 237,252

 

 

2.3 years

  

2029

 

 

 -

 

 

 

 237,252

 

 

 

 237,252

 

 

1.8 years

  

2030

 

 

 -

 

 

 

 177,939

 

 

 

 177,939

 

 

0.8 years

  

Total lease payments

 

 

 1,504,100

 

 

 

 1,370,762

 

 

 

 2,874,862

 

 

 

  

Less imputed interest

 

 

 (185,498 )

 

 

 (387,822 )

 

 

 (573,320 )

 

 

  

Total discounted lease payments

 

 

 1,318,602

 

 

 

 982,940

 

 

 

 2,301,542

 

 

 

  

Current portion of lease obligations

 

 

 565,974

 

 

 

 127,633

 

 

 

 693,607

 

 

 

  

Non-current portion of lease obligations

 

 

 752,628

 

 

 

 855,307

 

 

 

 1,607,935

 

 

 

  

1. Converted at 1.4385

 

Movement of lease obligations

 

2024

 

 

2023

 

Opening balance, January 1

 

 $ 595,517

 

 

 $ 1,246,723

 

Additions

 

 

 2,252,803

 

 

 

 -

 

Operating lease payments

 

 

 (364,712 )

 

 

 (739,527 )

Finance lease principal payments

 

 

 (359,706 )

 

 

 -

 

Lease accretion

 

 

 99,803

 

 

 

 90,378

 

Foreign exchange

 

 

 78,740

 

 

 

 (908 )

Other

 

 

 (903 )

 

 

 (1,149 )

Closing Balance, December 31

 

 

 2,301,542

 

 

 

 595,517

 

Current portion of lease obligations

 

 

 693,607

 

 

 

 343,513

 

Long-term lease obligations

 

 

 1,607,935

 

 

 

 252,004

 

 

 

 

Lease Term Till

 

Option to Extend

 

Incremental Borrowing Rate

 

Aircraft

 

March 2027

 

No

 

 

 12.0 %

Office Building

 

September 2030

 

         No

 

 

 10.0 %

Printer

 

November 2026

 

              No

 

 

 10.8 %

 

As of December 31, 2024 the Company’s aircraft lease was a financing lease and the other leases were operating leases.  The Company’s aircraft lease began to be treated as a finance lease as of March 22, 2024.  The Company’s total operating lease expenditures for the year ended December 31, 2024 was $364,712 (2023 - $739,527).  The Company’s total financing lease expenditures for the year ended December 31, 2024 was $ 495,233 (2023 - $nil).

 

 
Page | 21

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

Non-cash lease amortization and accretion

 

 

 

2024

 

 

2023

 

 

2022

 

Amortization of lease incentives and other

 

 $ (9,997 )

 

 $ (8,099 )

 

 $ (4,010 )

ROU asset amortization

 

 

 263,627

 

 

 

 600,911

 

 

 

 608,495

 

Lease liability accretion  

 

 

 99,803

 

 

 

 90,378

 

 

 

 147,664

 

 

 

 

 353,433

 

 

 

 683,190

 

 

 

 752,149

 

 

13. Asset Retirement Obligations

 

Asset retirement obligations ("ARO") relate to minor non-operated interests in oil and natural gas wells in which NXT has outstanding abandonment and reclamation obligations in accordance with government regulations. The estimated future abandonment liability is based on estimates of the future timing and costs to abandon, remediate and reclaim the well sites within the next five years. The net present value of the ARO is as noted below, and has been calculated using an inflation rate of 2.4% and discounted using a credit-adjusted risk-free interest rate of 10%.

 

 

 

2024

 

 

2023

 

 

2022

 

ARO balance, beginning of the year

 

 $ 27,030

 

 

 $ 24,574

 

 

 $ 22,337

 

Accretion expense

 

 

 2,069

 

 

 

 2,069

 

 

 

 2,069

 

Change in ARO estimates

 

 

 (4,338 )

 

 

 387

 

 

 

 168

 

ARO balance, end of the year

 

 

 24,761

 

 

 

 27,030

 

 

 

 24,574

 

 

14. Commitments

 

The table below is the non-lease operating cost components associated with the costs of the building lease. 

 

For the year ending December 31,

 

Office Premises

 

2025

 

 

 163,401

 

2026

 

 

 163,401

 

2027

 

 

 163,401

 

2028

 

 

 163,401

 

2029

 

 

 163,401

 

2030

 

 

 122,551

 

Total

 

 

 939,556

 

 

 
Page | 22

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

15. Common shares

 

The Company is authorized to issue an unlimited number of common shares, of which the following are issued and outstanding:

 

 

 

For the years ended December 31,

 

 

 

2024

 

 

2023

 

 

 

# of shares

 

 

$ amount

 

 

# of shares

 

 

$ amount

 

As at the beginning of the year

 

 

 78,025,237

 

 

 

 98,179,271

 

 

 

 68,949,109

 

 

 

 96,423,648

 

Private placement, net of issuance costs

 

 

 -

 

 

 

 -

 

 

 

 8,510,000

 

 

 

 1,622,057

 

Employee Share Purchase Plan (Note 17)

 

 

 469,947

 

 

 

 83,239

 

 

 

 309,509

 

 

 

 66,755

 

Restricted Stock Units (Note 17)

 

 

 -

 

 

 

 -

 

 

 

 256,619

 

 

 

 66,811

 

As at the end of the year                                            

 

 

 78,495,184

 

 

 

 98,262,510

 

 

 

 78,025,237

 

 

 

 98,179,271

 

 

 

 

For the year ended December 31,

 

 

 

2022

 

 

 

# of shares

 

 

$ amount

 

As at the beginning of the year

 

 

 65,250,710

 

 

 $ 95,779,352

 

Rights offering, net of issuance costs

 

 

 2,149,180

 

 

 

 216,062

 

Private placement, net of issuance costs

 

 

 1,148,282

 

 

 

 216,182

 

Employee Share Purchase Plan (Note 17)

 

 

 188,633

 

 

 

 89,127

 

Restricted Stock Units

 

 

 212,304

 

 

 

 122,925

 

As at the end of the year                                            

 

 

 68,949,109

 

 

 

 96,423,648

 

 

On December 22, 2022 the Company announced a multi-tranche private placement (the “Private Placement”) at $0.195 per share.  At December 22, 2022 the Company issued 1,148,282 common shares for gross proceeds of $223,915 in the first tranche, less issuance costs of $7,732.  On January 25, 2023, the Company closed the Private Placement by issuing an additional 8,510,000 common shares, at $0.195 per common share, for additional aggregate gross proceeds of approximately $1,659,450, less issuance costs of $37,393.

 

On December 2, 2022, NXT closed the Rights Offering that had been announced on October 31, 2022. The Company issued 2,149,180 common shares a price of $0.18 per common share, for aggregate gross proceeds of a $386,852. Share issue costs of $170,790 were recorded as a reduction to share capital.

 

 
Page | 23

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

16.  Loss per share

 

 

 

For the years ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Net loss for the year              

 

 $ 9,077,795

 

 $ (5,451,112 )

 

 $ (6,733,076 )

Weighted average number of shares outstanding for the year:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 78,271,095

 

 

 

 77,646,094

 

 

 

 65,602,875

 

Diluted  

 

 

 78,271,095

 

 

 

 77,646,094

 

 

 

 65,602,875

 

Net loss per share – Basic               

 

 $ (0.12 )

 

 $ (0.07 )

 

 $ (0.10 )

Net loss per share – Diluted                          

 

 $ (0.12 )

 

 $ (0.07 )

 

 $ (0.10 )

 

In years in which a loss results, all outstanding stock options, RSUs, deferred share units (“DSUs”) and potential shares from convertible debentures are excluded from the diluted loss per share calculations, as their effect is anti-dilutive.

 

17. Share based compensation

 

The Company has an equity compensation program in place for its executives, employees and directors. Executives and employees are given equity compensation grants that vest based on a recipient's continued employment. The Company’s stock-based compensation awards outstanding as at December 31, 2024, include stock options, DSUs, RSUs, and the employee share purchase plan (“ESP Plan”). The following tables provide information about stock option, RSUs, DSUs, and ESP Plan activity.

 

 

 

For the years ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Stock Option Expense

 

 $ 118,849

 

 

 $ 92,500

 

 

 $ 22,552

 

Deferred Share Units

 

 

 15,000

 

 

 

 -

 

 

 

 -

 

Compensation Expense

 

 

 52,634

 

 

 

 55,821

 

 

 

 -

 

Stock-based compensation expense in Contributed Capital

 

 

 186,483

 

 

 

 148,321

 

 

 

 22,552

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Share Purchase Plan

 

 

 41,619

 

 

 

 30,508

 

 

 

 39,389

 

Restricted Stock Units

 

 

 40,632

 

 

 

 62,442

 

 

 

 153,343

 

Total stock-based compensation expense

 

 

 268,734

 

 

 

 241,271

 

 

 

 215,284

 

 

 
Page | 24

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

Stock Options:

 

The following is a summary of stock options which are outstanding as at December 31, 2024.

 

Exercise price per share

 

 

# of options outstanding

 

 

# of options exercisable

 

 

Average remaining life (in years)

 

$

0.174

 

 

 

 69,200

 

 

 

 69,200

 

 

 

 0.9

 

$

0.200

 

 

 

 166,200

 

 

 

 166,200

 

 

 

 3.4

 

$

0.216

 

 

 

 1,825,200

 

 

 

 55,200

 

 

 

 3.0

 

$

0.252

 

 

 

 115,250

 

 

 

 115,250

 

 

 

 2.9

 

$

0.259

 

 

 

 100,000

 

 

 

 -

 

 

 

 3.7

 

$

0.260

 

 

 

 52,650

 

 

 

 52,650

 

 

 

 3.0

 

$

0.264

 

 

 

 177,200

 

 

 

 177,200

 

 

 

 3.0

 

$

0.440

 

 

 

 21,360

 

 

 

 21,360

 

 

 

 0.9

 

$

0.510

 

 

 

 16,000

 

 

 

 16,000

 

 

 

 0.7

 

$

0.550

 

 

 

 30,000

 

 

 

 30,000

 

 

 

 0.1

 

$

0.620

 

 

 

 18,050

 

 

 

 18,050

 

 

 

 0.9

 

$

0.680

 

 

 

 32,250

 

 

 

 32,250

 

 

 

 0.9

 

$

0.720

 

 

 

 24,460

 

 

 

 24,460

 

 

 

 0.9

 

 

 

 

 

 

 2,647,820

 

 

 

 777,820

 

 

 

 2.8

 

 

A continuity of the number of stock options which are outstanding at the end of the current year and as at the prior years ended December 31, 2023 and 2022 are as follows:

 

 

 

For the years ended December 31,

 

 

 

 2024

 

 

 2023

 

 

 

 

 

weighted

 

 

 

 

Weighted

 

 

 

# of stock

 

 

average

 

 

# of stock

 

 

Average

 

 

 

Options

 

 

exercise price

 

 

Options

 

 

exercise price

 

Options outstanding, start of the year

 

 

 2,927,820

 

 

 $ 0.32

 

 

 

 461,320

 

 

 $ 0.51

 

Granted

 

 

 -

 

 

 $ -

 

 

 

 2,716,500

 

 

 $ 0.22

 

Forfeited

 

 

 (180,000 )

 

 $ (0.22 )

 

 

 (100,000 )

 

 $ (0.22 )

Expired

 

 

 (100,000 )

 

 $ (0.52 )

 

 

 (150,000 )

 

 $ (0.59 )

Options outstanding, end of the year

 

 

 2,647,820

 

 

 $ 0.24

 

 

 

 2,927,820

 

 

 $ 0.25

 

Options exercisable, end of the year

 

 

 777,820

 

 

 $ 0.30

 

 

 

 877,820

 

 

 $ 0.32

 

 

 
Page | 25

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

 

 

For the year ended December 31,

 

 

 

 2022

 

 

 

 

 

 

Weighted

 

 

 

# of stock

 

 

Average

 

 

 

Options

 

 

exercise price

 

Options outstanding, start of the year

 

 

 358,660

 

 

 $ 0.56

 

Granted

 

 

 134,060

 

 

 $ 0.40

 

Cancelled

 

 

 (31,400 )

 

 $ (0.51 )

Options outstanding, end of the year

 

 

 461,320

 

 

 $ 0.51

 

Options exercisable, end of the year

 

 

 461,320

 

 

 $ 0.51

 

 

Stock options granted generally expire, if unexercised, five years from the date granted and entitlement to exercise them generally vests at a rate as determined by the Board of Directors.

 

Stock-based compensation expense is calculated based on the fair value attributed to grants of stock options using the Black-Scholes valuation model and utilizing the following weighted average assumptions:

 

For the year ended

 

2024

 

 

2023

 

 

2022

 

Expected dividends paid per common share

 

 

 -

 

 

Nil

 

 

Nil

 

Expected life in years

 

 

 -

 

 

 

 5.0

 

 

 

 5.0

 

Weighted average expected volatility in the price of common shares

 

 

 -

 

 

 

 79 %

 

 

 75 %

Weighted average risk-free interest rate

 

 

 -

 

 

 

 3.32 %

 

 

 3.05 %

Weighted average fair market value per share at grant date

 

 

 -

 

 

 $ 0.22

 

 

 $ 0.40

 

Forfeiture rate

 

 

 -

 

 

 

 18.5 %

 

 

 0 %

 

Deferred Stock Units:

 

A continuity of the number of DSUs which are outstanding at the end of the current year and as at the prior years ended December 31, 2023 and 2022 are as follows:

 

 

 

For the years ended December 31,

 

Opening balance

 

2024

 

 

2023

 

 

2022

 

Opening balance

 

 

 37,354

 

 

 

 37,354

 

 

 

 37,354

 

Granted

 

 

 82,872

 

 

 

 -

 

 

 

 -

 

Closing balance

 

 

 120,226

 

 

 

 37,354

 

 

 

 37,354

 

 

The DSUs plan is a long-term incentive plan that permits the grant of DSUs to qualified directors.  DSUs granted under the DSUs plan are to be settled at the retirement, resignation or death of the Board member holding the DSUs.

 

 
Page | 26

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

Restricted Stock Units: 

 

RSUs entitle the holder to receive, at the option of the Company, either the underlying number of shares of the Company's common shares upon vesting of such units or a cash payment equal to the value of the underlying shares. The RSUs vest at a rate of one-third at the end of each of the first three years following the date of grant.  Historically, the Company settled the RSUs that vested with shares and cash.    

 

A continuity of the number of RSUs, including fair value (“FV”) which are outstanding at the end of the current year and as the end of the prior years ended December 31, 2023 and 2022 are as follows:

 

 

 

For the years ended December 31,

 

 

 

2024

 

 

2023

 

 

 

# of RSUs

 

 

FV/Unit

 

 

# of RSUs

 

 

FV/Unit

 

RSUs outstanding, start of the year

 

 

 -

 

 

 

 -

 

 

 

 348,334

 

 

 $ 0.21

 

Granted

 

 

 1,035,000

 

 

 $ 0.14

 

 

 

 -

 

 

 

 -

 

Common shares issued

 

 

 -

 

 

 

 -

 

 

 

 (256,619 )

 

 $

(0.26

) 

Payroll withholdings settled in cash

 

 

 -

 

 

 

 -

 

 

 

 (91,715 )

 

 $

(0.23

) 

Forfeited

 

 

 (120,000 )

 

 $

(0.14

) 

 

 

 -

 

 

 

 -

 

RSUs outstanding, end of the year

 

 

 915,000

 

 

 $ 0.155

 

 

 

 -

 

 

 

 -

 

 

 

 

For the year ended December 31,

 

 

 

2022

 

 

 

# of RSUs

 

 

FV/Unit

 

RSUs outstanding, start of the year

 

 

 696,666

 

 

 $ 0.61

 

Granted

 

 

 -

 

 

 

 -

 

Common shares issued

 

 

 (212,304 )

 

 $

(0.58

) 

Payroll withholdings settled in cash

 

 

 (136,028 )

 

 $

(0.58

) 

RSUs outstanding, end of the year

 

 

 348,334

 

 

 $ 0.21

 

 

Employee Share Purchase Plan:

 

The ESP Plan allows employees and other individuals determined by the Board to be eligible to contribute a minimum of 1% and a maximum of 10% of their earnings to the plan for the purchase of common shares in the capital of the Company, of which the Company will make an equal contribution. Common shares contributed by the Company may be issued from treasury or acquired through the facilities of the TSX.  During 2024, 2023, and 2022 the Company has elected to issue common shares from treasury.

 

 
Page | 27

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

A continuity of the number of commons shares under the ESP Plan which are outstanding at the end of the current year and as at the prior years ended December 31, 2023 and 2022 are as follows:

 

 

 

For the years ended December 31,

 

 

 

2024

 

 

2023

 

 

 

# of shares

 

 

$ amount

 

 

# of shares

 

 

$ amount

 

Purchased by employees

 

 

 234,974

 

 

 $ 41,620

 

 

 

 168,515

 

 

 $ 36,246

 

Matched by the Company

 

 

 234,973

 

 

 

 41,619

 

 

 

 140,994

 

 

 

 30,509

 

Total Common Shares issued

 

 

 469,947

 

 

 

 83,239

 

 

 

 309,509

 

 

 

 66,755

 

 

 

 

For the year ended December 31,

 

 

 

2022

 

 

 

# of shares

 

 

$ amount

 

Purchased by employees

 

 

 105,221

 

 

 $ 49,738

 

Matched by the Company

 

 

 83,412

 

 

 

 39,389

 

Total Common Shares issued

 

 

 188,633

 

 

 

 89,127

 

 

If the employee does not withdraw common shares from the ESP Plan in the first year of their participation, the Company will match an additional 100% of the employee contributions, up to $15,000 per employee (the “Bonus Match”).  As at December 31, 2024 the Company has accrued $nil for the Bonus Match ($nil as at December 31, 2023).

 

Compensation Expense:

 

On October 1, 2023 the Company entered into a service agreement with a marketing consultant to provide sales and market services to introduce potential customers to the SFD® technology, attend trade shows, and update the Company’s market systems.  The consultant agreed to be compensated in Common Shares only for approximately US$16,000 per month, based on the five-day volume average price at the end of each month until February 29, 2024.  634,439 common shares were due to the marketing consultant on December 31, 2024. (360,139 common shares at December 31, 2023.)

 

Subsequent Events:

 

On February 24, 2025 the Company granted 1,400,000 incentive stock options at a strike price of $0.203 to directors of the Company. These incentive stock options will vest upon the achieving of a trailing twelve-month free cash flow per share of $0.10.

 

On February 24, 2025 the Company granted 1,875,000 RSUs to employees and officers which will vest over a three-year period.

 

634,439 common shares were issued to the marketing consultant on January 29, 2025.

 

 
Page | 28

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

18. Income Tax Expense

 

Payments made to NXT for services rendered to clients and branch offices in certain countries may be subject to foreign income and withholding taxes. Such taxes incurred are only recoverable in certain limited circumstances, including potential utilization in Canada as a foreign tax credit, or against future taxable earnings from the foreign jurisdictions.

 

Income tax expense is different from the expected amount that would be computed by applying the statutory Canadian federal and provincial income tax rates to NXT's income (loss) before income taxes as follows:

 

 

 

For the years ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

Net loss before income taxes

 

 $ (9,077,795 )

 

 $ (5,451,112 )

 

 $ (6,733,076 )

Canadian statutory income tax rate

 

 

 23.0 %

 

 

 23.0 %

 

 

 23.0 %

Income tax (recovery) at statutory income tax rate

 

 

 (2,087,893 )

 

 

 (1,253,756 )

 

 

 (1,548,607 )

Effect of non- deductible expenses and other items:

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation and other expenses

 

 

 92,142

 

 

 

 58,801

 

 

 

 53,379

 

Change in statutory tax rates

 

 

 -

 

 

 

 -

 

 

 

 (11,997 )

Foreign exchange adjustments

 

 

 160,597

 

 

 

 2,754

 

 

 

 -

 

True-up

 

 

 (14,841 )

 

 

 (10,060 )

 

 

 (3,280 )

US loss expiry and Other

 

 

 1,530

 

 

 

 437,330

 

 

 

 (33,113 )

Change in valuation allowance

 

 

 1,848,465

 

 

 

 764,931

 

 

 

 1,543,618

 

Income tax expense (recovery)

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

A valuation allowance has been provided for the Company’s deferred income tax assets due to uncertainty regarding the amount and timing of their potential future utilization, as follows:

 

 

 

For the years ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Net operating losses carried forward:

 

 

 

 

 

 

 

 

 

Canada (expiration dates 2027 to 2044)

 

 $ 11,076,403

 

 

 $ 9,594,511

 

 

 $ 9,136,353

 

USA (expiration dates 2025 to 2026)

 

 

 3,921

 

 

 

 5,631

 

 

 

 169,359

 

Timing differences on property & equipment, Right

 

 

 

 

 

 

 

 

 

 

 

 

of Use of Assets, Lease obligations and Financing

 

 

 1,784,071

 

 

 

 1,806,446

 

 

 

 1,726,603

 

SRED Expenditures

 

 

 676,518

 

 

 

 676,518

 

 

 

 676,518

 

Foreign Tax Credit

 

 

 285,772

 

 

 

 285,772

 

 

 

 285,772

 

 

 

 

 13,826,685

 

 

 

 12,368,878

 

 

 

 11,994,605

 

Intellectual property

 

 

 (2,247,441 )

 

 

 (2,638,099 )

 

 

 (3,028,757 )

Less valuation allowance

 

 

 (11,579,244 )

 

 

 (9,730,779 )

 

 

 (8,965,848 )

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 
Page | 29

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

19. Financial instruments

 

Non-derivative financial instruments:

 

The Company's non-derivative financial instruments consist of cash and cash equivalents, accounts receivable, accounts payables and accrued liabilities, convertible debentures, and long-term debt. The carrying value of these financial instruments, excluding long-term debt, approximates their fair values due to their short terms to maturity. The Company has determined that long-term debt approximates its fair value as may be settled early at face value at the Company’s discretion.

 

Credit Risk

 

Credit risk arises from the potential that the Company may incur a loss if counterparty to a financial instrument fails to meet its obligation in accordance with agreed terms. The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The carrying value of cash and cash equivalents and accounts receivable reflects management’s assessment of maximum exposure to credit risk. At December 31, 2024, cash and cash equivalents included balances in bank accounts placed with financial institutions with investment grade credit ratings. The Company manages accounts receivable credit risk by requiring advance payments before entering into certain contract milestones and when possible, accounts receivable insurance.

 

Foreign Exchange Risk

 

The Company is exposed to foreign exchange risk in relation to its holding of significant US$ balances in cash and cash equivalents, accounts receivable, deposits, accounts payables, accrued liabilities, deferred revenue, convertible debentures, and lease obligations, and entering into SFD® survey contracts which are priced in US$. The Company does not currently enter into hedging contracts, but to mitigate exposure to fluctuations in foreign exchange the Company uses strategies to reduce the volatility of United States Dollar assets including converting excess United States dollars to Canadian dollars. As at December 31, 2024, the Company held net United States dollar liabilities totaling approximately US$7,130,144. Accordingly, a hypothetical 10% change in the value of one United States dollar expressed in Canadian dollars as at December 31, 2024 would have had an approximately $1,025,671 effect on the unrealized foreign exchange gain or loss for the year.

 

20. Change in non-cash operating working capital

 

The changes in non-cash operating working capital balances are comprised of:

 

 

 

For the years ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Accounts receivable

 

 $ 1,722,665

 

 

 $ (1,835,922 )

 

 $ 784,502

 

Prepaid expenses

 

 

 (221,126 )

 

 

 (17,516 )

 

 

 229,279

 

Accounts payable and accrued liabilities

 

 

 (438,199 )

 

 

 559,351

 

 

 

 741,326

 

Deferred revenue

 

 

 805,656

 

 

 

 -

 

 

 

 -

 

 

 

 

 1,868,996

 

 

 

 (1,294,087 )

 

 

 1,755,107

 

 

 
Page | 30

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

21. Geographic information

 

The Company generates revenue from its SFD® survey system that enables the clients to focus their exploration decisions concerning land commitments, data acquisition expenditures and prospect prioritization on areas with the greatest potential. NXT conducts all of its survey operations from its head office in Canada, and occasionally maintains administrative offices in foreign locations if and when needed. Revenue fluctuations are a normal part of SFD® survey system sales and can vary significantly year-over-year.

 

Revenues for the years ended December 31, 2024 and 2023 was generated solely from the Hydrocarbon Right.  Revenues for the year ended December 31, 2023 was generated from one customer. 

 

 

 

2024

 

 

2023

 

 

2022

 

International

 

 $ 644,294

 

 

 $ 2,145,716

 

 

 $ -

 

Canada

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 

 644,294

 

 

 

 2,145,716

 

 

 

 -

 

 

22. Other related party transactions

 

One of the members of NXT’s Board of Directors is a partner in a law firm which provides legal advice to NXT. Accounts payable and accrued liabilities include a total of $55,455 ($36,938 as at December 31, 2023) payable to this law firm.

 

Another member of Board is a board member of Pana Holdings Mauritius, the parent company of Ataraxia, which holds convertible debentures (Note 10). Accounts payable and accrued liabilities include a total of $40,011 (US$27,814), ($19,699 or US$14,890, as at December 31, 2023) to Ataraxia for accrued interest.

 

A third member of Board is an employee of MCAPM LP, which holds convertible debentures (Note 10). Accounts payable and accrued liabilities include a total of $57,063 (US$39,669) to Mork Capital for accrued interest.

 

All members of the Board elected to have most of their Board fees payable at December 31, 2023 (Note 10) converted into the November Debentures, for a total of US$147,000 (CDN$196,686). Accounts payable and accrued liabilities include a total of $4,680 (US$3,253), ($nil as at December 31, 2023) to Board members for accrued interest.

 

Accounts payable and accrued liabilities include $201,218 ($228,199 as at December 31, 2023) for Board fees and $35,250 ($98,708 as at December 31, 2023) for management compensation.

 

 
Page | 31

 

 

NXT ENERGY SOLUTIONS INC.

 

Notes to the Consolidated Financial Statements

As at and for the years ended December 31, 2024, 2023 and 2022

(Expressed in Canadian dollars unless otherwise stated)

 

Related party expenses

 

 

 

For the years ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Legal Fees

 

 $ 164,373

 

 

 $ 129,600

 

 

 $ 92,308

 

Interest Expense1.

 

 $ 441,986

 

 

 $ 107,792

 

 

 $ -

 

Board of director fees

 

 $ 182,500

 

 

 $ 158,199

 

 

 $ 185,000

 

Management Compensation

 

 $ 436526

 

 

 $ 389,451

 

 

 $ 544,929

 

1. US$322,905 for 2024 and US$79,356 for 2023. Includes interest expense for Ataraxia, Mork Capital and board of directors.

 

 
Page | 32