NSFDF 20-F Report ended Dec. 31, 2024

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

Commission file number 000-24027

Alberta, Canada

(Jurisdiction of incorporation or organization)

Suite 302, 3320 - 17th Avenue SW

Calgary, Alberta, Canada, T3E 0B4

(Address of principal executive offices)

Eugene Woychyshyn

Phone: 403-206-0805

Facsimile: 403-264-6442

Suite 302, 3320 - 17th Avenue SW

Calgary, Alberta, Canada, T3E 0B4

(Name, Telephone, E-mail and/or Facsimile number and address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act: None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Common Shares

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

78,495,184 common shares outstanding as of December 31, 2024 (79,482,768 common shares outstanding as of April 29, 2025).

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐   No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Yes ☐   No ☒

Note-Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.  See definition of “accelerated filer”, “large accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ☐    Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ☐    No ☒

TABLE OF CONTENTS

20-F for the year ended December 31, 2024

FORWARD-LOOKING STATEMENTS

NXT Energy Solutions Inc. is a Calgary-based technology company whose proprietary airborne SFD^® survey system, applied in numerous basins around the world, uses 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. The SFD^® survey system enables our clients to focus their exploration decisions concerning land commitments, data acquisition expenditures and prospect prioritization on areas with the greatest potential. SFD^® is environmentally friendly and unaffected by ground security issues or difficult terrain and is the registered trademark of NXT Energy Solutions Inc. NXT Energy Solutions Inc. provides its clients with an effective and reliable method to reduce time, costs, and risks related to exploration.

Except for any historical information contained herein, the matters discussed in this Annual Report on Form 20-F contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business.  These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable.  This information also relates to our future prospects, developments and business strategies.  These forward-looking statements are identified by their use of terms and phrases such as “anticipate”, “believe”, “can”, “continue”, “could”, “would”, “should”, “estimate”, “expect”, “intend”, “seek”, “may”, “plan”, “remain”, “shall”, “will”, “target”, “foresee” and similar terms and phrases, including references to assumptions.  These forward-looking statements involve risks and uncertainties, including current trend information, projections for deliveries and other trend projections, that may cause our actual future activities and results of operations to be materially different from those suggested or described in this Annual Report on Form 20-F.

20-F for the year ended December 31, 2024

Such forward-looking information is based on a number of assumptions which may prove to be incorrect.  Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

Although NXT believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as NXT can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates, and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated by NXT and are described in the forward-looking information. Material risks and uncertainties include, but are not limited to:

If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.  Given these uncertainties, users of the information included in this Annual Report on Form 20-F, including investors and prospective investors, are cautioned not to place undue reliance on such forward-looking statements.  We do not intend to update the forward-looking statements included in this Annual Report on Form 20-F.

In this Annual Report on Form 20-F, except as specified otherwise or unless the context requires otherwise, “we”, “our”, “us”, the “Company”, and “NXT” refer to NXT Energy Solutions Inc. and its subsidiaries.  All references to “fiscal” in connection with a year shall mean the year ended December 31.

All financial information contained herein is expressed in Canadian dollars (“CDN$”) unless otherwise stated.

20-F for the year ended December 31, 2024

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

This Form 20-F is being filed as an annual report under the United States Securities Exchange Act of 1934, as amended, (the "U.S. Exchange Act") and, as such, there is no requirement to provide any information under this item.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

This Form 20-F is being filed as an annual report under the U.S. Exchange Act and, as such, there is no requirement to provide any information under this item.

ITEM 3. KEY INFORMATION

A. [Reserved].

B. Capitalization and indebtedness.

This Form 20-F is being filed as an annual report under the U.S. Exchange Act and, as such, there is no requirement to provide any information under this item.

C. Reasons for the offer and use of proceeds.

This Form 20-F is being filed as an annual report under the U.S. Exchange Act and, as such, there is no requirement to provide any information under this item.

D. Risk factors.

Investing in our common shares involves a high degree of risk. In addition to the other information included in this document, you should carefully consider the risks described below before purchasing our common shares. If any of the following risks actually occur, our business, financial condition and results of operations could materially suffer. As a result, the trading price of our common shares could decline and you might lose all or part of your investment.

Our ability to continue operating.

NXT is still in the process of realizing widespread commercialization of its SFD^® technology. The Company’s ability to generate cash flow from operations will depend on its ability to service its existing clients and develop new clients for its SFD^® services.  Management recognizes that the commercialization phase can last for several years, and that it can have significant economic dependence on a small number of clients, which can have a material effect on the Company’s operating results and financial position.

20-F for the year ended December 31, 2024

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 the 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 the 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 the 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, in 2023 and 2024, the Company completed private placements which resulted in raising an additional net proceeds of $9,757,366. 

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.

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.

If the Company were to default on its office lease, the current month rent plus the next three months become immediately due.  If the Company were to default on the aircraft lease, the Company would be required to deliver the aircraft back to the Lessor (defined below).

We rely on a limited number of key personnel who collectively possess the knowledge and skills to conduct SFD^® surveys and interpret SFD^® data as required to meet contract obligations. 

We rely on a limited number of key personnel who collectively possess the knowledge and skills to conduct SFD^® surveys and interpret SFD^® data as required to meet contract obligations.  Additional or replacement personnel may not be found and trained quickly.  The loss of any of these key persons or increased demand for our services from clients could impair our ability to meet contract obligations, thereby adversely impacting our reputation and our ability to earn future revenue from clients.

The Company’s future success depends, to a significant extent, on the continued service of its key technical and management personnel and on our ability to continue to attract and retain qualified employees.  The loss of the services of our employees or a failure to attract, retain and motivate qualified personnel could have a material adverse effect on our business, financial condition and results of operations.  We do not have “key person” insurance on any of our personnel.

We depend on key staff members that are involved in the SFD^® data interpretation process and to continue to enhance our technology.  We are working to minimize dependency on key personnel.    Currently, a total of four persons, two of which are highly experienced, are trained to interpret SFD^® signals.  A process of formal documentation of the ongoing research and development of the sensor technology, the acquisition/survey methodologies, and the processing and interpretation work flows is ongoing and will be part of the management systems.

Within the Province of Alberta, the skilled personnel that we require may periodically be in short supply and there is specialized training required that can take several months in order for a new employee to become effective.  If we cannot hire these key personnel, we have inadequate time to train them or should we lose current personnel, then our ability to accept contracts or meet contract commitments may be adversely affected, thereby restricting our ability to earn revenue.

20-F for the year ended December 31, 2024

Availability of Aircraft.

In the event that NXT’s aircraft is not available (due to damage, a need for extensive repairs, or other unforeseen events) to conduct survey projects, there is a risk that suitable alternative aircraft may not be available on a timely basis from other charter operators when needed.  This inability to conduct survey operations could have a material adverse effect on the Company’s business, financial condition and results of operations.

Debt Service

NXT has financed a significant portion of its operations through debt.  Amounts paid in respect of interest and principal on debt incurred by NXT may impair NXT’s ability to satisfy its other obligations. All of NXT’s debt is fixed rate.  Lenders have been provided with security over substantially all of the assets of NXT.  If NXT becomes unable to pay its debt service charges or otherwise commits an event of default such as bankruptcy, a lender may be able to foreclose on or sell the assets of NXT.

We rely on specialized equipment, including a limited number of SFD^® sensors and this limitation may affect our ability to conduct business.

NXT relies on specialized data acquisition equipment, including a limited number of SFD^® sensor devices, to conduct our aerial SFD^® survey operations.  We would be at risk if these survey sensors were to become damaged, destroyed, worn out, stolen or in any way became unavailable for use in operations prior to us creating and testing additional sensors.  Should the sensors become unavailable for any reason, our ability to conduct surveys could be delayed for several months as we built new sensors.  During this period, we may become unable to satisfy contractual obligations, which may jeopardize future revenue opportunities and may potentially result in a client making claims against the Company for breach of contract.  In addition, an inability to satisfy contractual obligations may have an adverse effect on our developing reputation within the oil and gas community.  NXT mitigates this risk by researching new designs, constructing additional SFD^® sensor devices and obtaining replacement cost insurance on each SFD^® sensor.

Our financial position is affected by foreign currency fluctuations.

The Company is exposed to foreign exchange risk in relation to its potential holding of significant US$ balances in cash and cash equivalents, deposits, accounts payables, accrued liabilities, and lease obligations, and entering into United States dollar revenue contracts.   The Company does not enter into hedging contracts to mitigate exposure to fluctuations in foreign exchange, but uses strategies to reduce the volatility of US$ assets and liabilities, including converting excess US$ 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.

Changes in currency exchange rates could have an adverse effect on the Company’s business, financial condition and results of operations.

Our net income or loss is impacted by interest rate fluctuations.

We periodically invest available cash in short term investments that generate interest income that will be affected by any change in interest rates.  The Company’s long-term debt interest is fixed at 4% until 2031 and the November Debentures, 2024 Debentures, and the Ataraxia Debentures, each defined herein, carry a fixed interest rate of 10% until their maturity date which, in the case of each such convertible debenture, is two years after issuance.  Any refinancing of the convertible debentures, or new debt financing could result in a significantly different interest rate.

20-F for the year ended December 31, 2024

Volatility in oil and natural gas commodity prices may affect demand for our services.

NXT’s customer base is in the oil and natural gas exploration industry, which is exposed to risks of volatility in oil and natural gas commodity prices. As such, demand for our services and prospective revenues may become adversely impacted by fluctuations in oil and natural gas prices. The impact of price changes on our ability to enter into SFD^® survey contracts cannot be readily determined at this time.  However, in general, if commodity prices decline significantly, our opportunity to obtain and execute SFD^® survey contracts may also likely decline, at least in the short term. Therefore, NXT focuses on national oil companies as they have a long-term strategic view and are not as affected by short-term oil fluctuations.

We are a small business with limited personnel and our inability to segregate duties between administrative staff is an internal control weakness.

Certain duties that are most appropriately segregated between different employees are, due to our current limited staff, assigned to one individual.

Standard internal control methodology involves the separation of incompatible functions by assigning these functions to separate individuals and in larger organizations to separate departments.  We often cannot allocate these functions to separate individuals because our administrative staff is limited.

Although we have adopted alternative control methods designed to mitigate our reduced ability to separate incompatible functions, these alternative controls may not operate at the same level of precision and there is more than a remote likelihood that our internal control over financial reporting will not prevent or detect material misstatements if they should exist in our financial statements.  This lack of separation of duties exposes us to potential misappropriation of funds, embezzlement and other forms of fraud and could have a material adverse effect on our business, financial condition and results of operations.  (See also Item 15.)

We may periodically engage in transactions with related parties.

We may periodically enter into related party transactions. One of the members of NXT’s Board, Thomas Valentine, is a partner at the law firm Norton Rose Fulbright Canada LLP, which provides legal services to NXT.  Another Director, Theodore Patsellis, is also a board member of PANA Holdings, the parent company of Ataraxia, which holds US$2,300,000 of convertible debentures.  A third Director, Peter Mork, is an employee of Mork Capital, the general partner of MCAPM LP, which together with Mork Capital holds US$3,375,000 of convertible debentures.

Although we publicly disclose all related party transactions and manage potential conflicts of interest through mandated adherence to our Code of Conduct & Business Ethics and the maintenance of a strong independent Board, all related party transactions have the potential for conflicts of interest that may compromise the ability of Board members to exercise their fiduciary responsibility to the Company.

Our rights to SFD^® technology may be challenged and we may need to defend our rights to the technology in the courts.

For a full history of the Technology Transfer Agreement (the “TTA”) see also Item 4. part A, “Information on the Company - History and development of the Company”, and Item 4. part B. “Information on the Company - Business Overview – Technology Transfer Agreement”.

Our rights to ownership and use of SFD^® technology depend on Mr. Liszicasz’s estate having the lawful right to sell to NXT the exclusive rights to exploit the SFD^® technology for the exploration of hydrocarbons and the Geothermal Rights as agreed to in the TTA.

The SFD^® technology is an essential component of our business plan.  If a third party challenged our lawful entitlement to this technology, the legal defense of our right to the technology may be expensive and could cause a loss of our right to the SFD^® technology, or a protracted legal process to assert our right to the technology would have a material adverse effect on the Company’s business, financial condition and results of operations.

20-F for the year ended December 31, 2024

A risk exists that an unknown party may claim some legal entitlement to our IP, our rights to commercialize this IP or our right to create SFD^® devices and processes.  However, we believe that such a claim would be without merit.

Surveys have not been tested over all potential geological conditions. 

SFD^® surveys have not been tested over all potential geological conditions.  Some geological conditions may subsequently be proven to be unsuited for SFD^® surveys thereby creating unforeseen limitations to the application of SFD^® surveys. 

Any limitation to the application of SFD^® surveys has the potential of restricting future revenue opportunities and if not properly disclosed to industry clients, such limitations may impact the reputation of the Company with these clients.

Unless we pursue ongoing technological improvement and development, we may be unable to respond to changes in customer requirements or new competitive technologies.

We must continue to refine and develop our SFD^® survey system to make it scalable for growth and to respond to potential future competitive pressures. These improvements require substantial time and resources.  Furthermore, even if resources are available, there can be no assurance that the Company will be commercially or technically successful in enhancing the technology. If we are unable to keep pace with new technologies, evolving industry standards and demands, that could have a material adverse effect on our business, financial condition and results of operations.

The financial statements rely upon estimates and assumptions that could be incorrect.

The preparation of financial statements requires our management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, including the disclosure of contingent assets and liabilities as well as revenues and expenses recorded in our financial statements.  Estimates made relate primarily to the measurement of accrued liabilities, stock-based compensation expense, valuation of future income tax assets, estimates for asset retirement obligations, and the useful lives of capital assets and IP.

The estimates and assumptions are reviewed periodically and are based upon the best information available to management; however, we cannot provide assurance that future events will not prove that these estimates and assumptions are inaccurate.  Any revisions to our estimates and assumptions may have a material impact on our future reported net income or loss and assets and liabilities.

In 2024 and 2023, the estimates and judgments included the assessment of impairment indicators of intellectual property.

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, and the assumptions used to measure stock-based compensation expense.

20-F for the year ended December 31, 2024

Cyberattacks or other breaches of our technology hardware and software, as well as risks associated with compliance and data privacy could have an adverse effect on our systems, our service to our customers, our reputation, our competitive position, and financial results. 

Our ability to manage our operations successfully is critical to our success. Our business relies on our ability to electronically gather, compile, process, store and distribute data and other information. Unintended interruptions or failures resulting from computer and telecommunications failures, equipment or software malfunction, power outages, catastrophic events, security breaches (such as unauthorized access by hackers), social engineering schemes, unauthorized access, errors in usage by our employees, computer viruses, ransomware or malware, and other events could harm our business.

We have undertaken efforts and other steps to enhance our data security infrastructure.  Any security breach or failure in our computer equipment, systems or data could result in the interruption of our business operations and adversely impact our financial results.

There is no certainty that an investor can trade our common shares on public markets at a stable market price.

The Company has historically had a limited public market for our common shares on the TSX and the United States OTC Markets Group’s Venture Stage Marketplace (the “OTC”) and there is a risk that a broader or more active public trading market for our common shares will not develop or be sustained, or that current trading levels will not be sustained. 

The market price for the common shares on the exchanges where our common shares are listed has been, and we anticipate will continue to be, very volatile and subject to significant price and volume fluctuations in response to a variety of external and internal factors.  This is especially true with respect to emerging companies such as ours.  Examples of external factors, which can generally be described as factors that are unrelated to the operating performance or financial condition of any particular company, include changes in interest rates and worldwide economic and market conditions, as well as changes in industry conditions, such as changes in oil and natural gas prices, oil and natural gas inventory levels, regulatory and environment rules, and announcements of technology innovations or new products by other companies.  Examples of internal factors, which can generally be described as factors that are directly related to our consolidated financial condition or results of operations, would include release of reports by securities analysts and announcements we may make from time to time relative to our operating performance, clients’ exploration results, financing, advances in technology or other business developments.

Because we have a limited history of profitability to date, the market price for the common shares is more volatile than that of a seasoned issuer.  Changes in the market price of the common shares, for example, may have no connection with our operating results or the quality of services provided to clients.  No predictions or projections can be made as to what the prevailing market price for the common shares will be at any time, or as to what effect, if any, that the sale of common shares or the availability of common shares for sale at any time will have on the prevailing market price.  Given the relatively low historic trading volumes, small trades of common shares can adversely and potentially dramatically affect the market prices for those shares. Accordingly, investors in our common shares should anticipate both a volatile stock price and poor liquidity unless these conditions change.

Our right to issue additional capital stock at any time could have an adverse effect on your proportionate ownership and voting rights.

Our right to issue additional securities at any time could have an adverse effect on a shareholder’s proportionate ownership.

We are authorized under our Articles of Continuance to issue an unlimited number of common shares and unlimited number of Preferred Shares. We may issue common shares and Preferred Shares under such circumstances and in such manner and at such times, prices, amounts and purposes as our Board may, in its discretion, determine to be necessary and appropriate, subject to compliance with all applicable exchange regulations and corporate and securities laws.  Any such issue of common shares or Preferred Shares would dilute the proportionate ownership of the current holders of those securities.

20-F for the year ended December 31, 2024

We may not be able to protect our trade secrets and IP from competitors who would use this knowledge to eliminate or reduce our technological advantage.

Our success and future revenue growth will depend, in part, on our ability to protect our IP.  We have commenced an IP strategy process to obtain patents related to the SFD^® technology, while also utilizing “trade secrets” protection of the proprietary nature of our technology, as applicable.

Initiatives to expand and protect our IP (including patenting and new research and development initiatives) have been very successful.  Squire Patton Boggs LLP, a United States-based leader in IP protection, has been advising NXT on our IP strategy, including the prior filing of an initial United States provisional patent application in May 2012.  In November 2014, NXT filed a related patent amendment submission in the United States and since that time has undertaken new patent applications in select strategic international markets.

So far, SFD^® patents have been granted in India (July 2021), Russia (January 2017), Japan (July 2017), Canada (August 2017), Mexico (September 2017), the United States (two patents were granted in November 2017 and September 2018, respectively), China (April 2018), and in the European Patent Office (January 2020).  In summary, the total number countries granting our patents is forty-seven.  In addition, one more patent application in Brazil is pending.  The patents serve an important purpose of the protection for our proprietary SFD^® technology.  The patents also serve as multiple independent third-party recognitions of the technological invention in terms of practical applicability, conceptual novelty, and knowledge advancement.

The patent protection application process requires disclosure of at least some aspects of our SFD^® technology to third parties and ultimately public disclosure.  This disclosure could significantly increase the risk of unlawful use of our technology by third parties.  Furthermore, we have no assurance that, even with patent protection, a patent could be registered to protect our IP in all or any jurisdictions within North America or other countries throughout the world.  If registered, there can be no assurance that it would be sufficiently broad to protect our technology or that any potential patent would not be challenged, invalidated or circumvented or that any right granted thereunder would provide meaningful protection or a competitive advantage to us.  Finally, protection afforded by patents is limited by the financial resources available to legally defend IP rights.  We currently do not possess the required financial resources to fund a lengthy defense of our rights if challenged by a much larger competitor or an oil and gas company.

We enjoy common and contract law protection of our technology and trade secrets.  Employees and contractors are governed by confidentiality agreements as well as a fiduciary responsibility to protect our technology, supporting documentation and other proprietary information.

Our strongest protection of the SFD^® technology comes from restricting access to knowledge concerning the technology.  Only a very limited number of NXT personnel have access to or knowledge of the underlying SFD^® technology and no one employee has access or knowledge of all aspects of the SFD^® system.  Currently, no third party has any significant knowledge of the technology.  As further protection, SFD^® equipment does not leave the direct control of NXT employees, thereby preventing unauthorized replication of the equipment.

The Company reassesses the appropriateness of its IP protection strategy on an ongoing basis and seeks advice from IP advisors as necessary.

It is possible that a third party will copy or otherwise obtain and use the Company’s technology without authorization, develop a similar technology independently or design around the Company’s secrets.  Accordingly, there can be no assurance that the steps taken by the Company to prevent misappropriation or infringement of our IP will be successful.

An inability to protect our IP would make it possible for competitors to offer similar products and services that could have a material adverse effect on our business, financial condition and results of operations.

20-F for the year ended December 31, 2024

Development, Commercialization, and Protection of the Geothermal Rights

With the acquisition of the Geothermal Rights, the Company will continue to refine and develop the SFD^® survey system to commercialize the Geothermal Rights. This development requires substantial time and resources, and continued government assistance is not guaranteed.  Furthermore, even if resources are available, there can be no assurance that the Company will be commercially or technically successful in enhancing the technology. If we are unable to develop and commercialize the geothermal applications of SFD^® technologies, or adapt to evolving industry standards and demands, these could have an adverse effect on our business, financial condition, and results of operations.

We experience operational hazards in our flight operations that may subject us to potential claims in the event that an incident or accident occurs.

We experience operational hazards in our flight operations that may subject us to potential claims in the event that an incident or accident occurs.  The flight operations of SFD^® surveys are subject to the hazards associated with general flight operations.  An aircraft accident may cause personal injury and loss of life, as well as severe damage to and destruction of property or the SFD^® sensors and related equipment.

Independent third parties provide all the services required to maintain and operate the aircraft and they mitigate the primary risks of flight operations.  These services are provided by an organization accredited by Transport Canada to operate aircraft in accordance with Transport Canada’s approved and audited operating procedures.  The aircraft operator employs the required pilots, aircraft maintenance engineers, support personnel and ensures that they operate within their Transport Canada operating certificate.  Our employees do not perform any airworthiness or flight safety operations.

We require the flight contractor to maintain appropriate insurance coverage for the risks associated with aircraft operations and we obtain insurance coverage to provide us with additional risk protection.  In addition, we maintain general business insurance coverage and believe that this insurance and the policy limits are appropriate for the operational risks that we incur.

Despite our policy to not operate the aircraft directly and our insurance coverage, we cannot avoid or alternatively be insured for all risks of flight operations.  In the event of an incident or accident, we may be sued by injured parties in excess of our policy limits or for damages that are not covered by our insurance policy.  The magnitude of a lawsuit of this nature is not determinable.  Furthermore, to the extent that our SFD^® equipment is damaged, we may be unable to conduct SFD^® surveys for several months following an accident.

We conduct operations in foreign countries, which exposes us to several risks that may have a material adverse effect on the Company. 

Criminal Activity and Social Instability – We operate in foreign countries that can experience significant social upheaval and criminal activity.  Systemic criminal activity in a country or isolated criminal acts may disrupt operations, impact our ability to earn revenue, dramatically add to our cost of operations or potentially prevent us from earning any survey revenue in a country.

Political Instability - Any changes in regulations or shifts in political attitudes are beyond the control of the Company and may adversely affect our business.  Exploration may be affected in varying degrees by government regulations which have the effect of restricting exploration and production activities.  These changes may adversely impact the laws and policies governing price controls, export controls, foreign exchange controls, income taxes, expropriation of property, environmental legislation, site safety or other areas.

Currently, there are no restrictions (other than the payment of local withholding taxes) on the repatriation back to Canada of our earnings in foreign countries in which we have operated, such as Nigeria; however, there can be no assurance that significant restrictions on repatriation to Canada of earnings will not be imposed in the future.

Our operations may also be adversely affected by changes in laws and policies in Canada impacting foreign travel and immigration, foreign trade, taxation and investment.

20-F for the year ended December 31, 2024

Commercial Disputes – While operating in a foreign country, we are subjected to local commercial laws which often involve executing contracts in a foreign language.  Although every effort is made to ensure we have access to an accurate English translation, misunderstanding and potential disputes between parties may arise.

In the event of a dispute arising in connection with our foreign operations for any reason, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions.  We may also be hindered or prevented from enforcing our rights with respect to a government instrumentality because of the doctrine of sovereign immunity.

Accordingly, these risk factors have the potential of adversely reducing the level of survey revenue from our clients, our ability to operate effectively or our ability to be paid for our services and may have a material adverse effect on our financial position.

Where possible, NXT utilizes risk mitigation products offered by entities such as Export Development Canada (“EDC”).  EDC financial products include insurance coverage of contract accounts receivable, guarantee support for contract performance bonds and wrongful call insurance for such bonds.  

Corruption and Bribery - Foreign markets may be susceptible to a higher risk of corruption and bribery.  All of NXT’s employees, contractors and independent sales agents are required to adhere to the Company’s code of conduct and business ethics, which prohibits illegal activities, including any acts of bribery or corruption.

We rely upon the right to conduct airborne surveys in foreign countries.  These foreign operations expose us to the risks that we will be prevented from conducting surveys when requested by clients. 

The operation of our business, namely conducting aerial SFD^® surveys and interpreting SFD^® data, is not subject to material governmental or environmental regulation in Canada and the United States with the exception of flight rules issued by Transport Canada and the Federal Aviation Administration governing the use of commercial aircraft, including rules relating to low altitude flights. The requirements in other countries vary greatly and may require permits and/or provide other restrictions to conducting flight operations in the country that may restrict our ability to perform SFD^® surveys.

For example, in South American countries in which we have operated, such as Colombia and Bolivia, SFD^® surveys must comply with additional requirements not encountered in Canada and the United States, including customs obligations and bonds related to the importation and exportation of the aircraft into the country, obtaining permits from the local aviation authority, and obtaining permits from the local Air Force.  We have successfully operated in South America, Africa, Türkiye, and other global regions in accordance with these typical requirements.

Based on our North America and international experience to date, we do not anticipate any government controls or regulations that will prevent timely completion of SFD^® surveys.  However, we may encounter government restrictions in other countries that may impact or restrict our ability to conduct surveys. 

If we encounter government regulation and restrictions that impact or prevent us from conducting surveys in any country, then we will not be able to earn revenue in the country and we may be exposed to forfeiting any performance bonds which may have been issued.

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, short-term investments and accounts receivable. The carrying value of cash and cash equivalents, short-term investments, and accounts receivable reflects management’s assessment of credit risk.  On 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.

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Tax Matters

The Company and its subsidiaries are subject to income, value added and other taxes in Canada, the United States and numerous foreign jurisdictions. Changes in tax laws or interpretations thereof or tax rates in the jurisdictions in which the Company or its subsidiaries do business could adversely affect the Company’s results from operations, returns to shareholders, and cash flow. Our effective tax rates could also be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. While management believes the Company and its subsidiaries are in compliance with current prevailing tax laws and requirements, one or more taxing jurisdictions could seek to impose incremental or new taxes on the Company or its subsidiaries or the Company or its subsidiaries could be subject to assessment, reassessment, audit, investigation, inquiry or judicial or administrative proceedings by any such taxing jurisdiction. The timing or impacts of any such assessment, reassessment, audit, investigation, inquiry or judicial or administrative proceedings or any future changes in tax laws, including the impacts of proposed regulations, cannot be predicted. Any adverse tax developments, including legislative changes, judicial holdings or administrative interpretations, could have a material and adverse effect on the results of operations, financial condition and cash flows of the Company.

Occurrence of Natural Disasters, Epidemics or Other Events

Our business could be materially and adversely affected by natural disasters, such as fires or floods, the outbreak of a widespread health epidemic or pandemic, or other events, such as wars, including the military conflicts, acts of terrorism, power shortages or communication interruptions. The occurrence of a disaster or similar event could materially disrupt our business and operations. These events could also cause us to close our operating facilities temporarily, which would severely disrupt our operations and have a material adverse effect on our business, financial condition and results of operations. In addition, our net sales could be materially reduced to the extent that a natural disaster, health epidemic or other major event harms the economies of the countries in which we operate. As such, the outbreak of hostilities between Russia and Ukraine could result in more widespread conflict and could have a severe adverse effect on the surrounding regions and the related markets, and on our business, financial condition and results of operations. The duration of the conflicts and related events and whether they escalate further cannot be predicted. Our operations could also be severely disrupted if our customers, partners and other third-party providers or other participants were affected by natural disasters, health epidemics, or other major events, such as wars and military conflicts.

Tariff and Trade Risk

Ongoing geopolitical tensions may lead to trade restrictions or tariffs that may impact NXT’s business.  In February 2025, American President Donald Trump, imposed and then delayed his imposition of tariffs on Canadian products imported to the US, including oil and gas imports and operating and aircraft supplies. Tariffs may disrupt trade, increase energy costs, and strain United States and Canadian relations.  Depending on responses from Canada and the rest of the international community, trade tensions may exacerbate and could potentially escalate into a broader trade war, further impacting the economy and destabilizing markets – including the oil and natural gas market. Trade restrictions and tariffs may also increase volatility in, or have an adverse impact on, exchange rates and interest rates. Such occurrences may materially affect NXT’s business, cashflows and financial position.

You will be subject to the penny stock rules to the extent our stock price on the OTCQB is less than $5.00.

Since the common shares are not listed on a national stock exchange within the United States, trading in the common shares on the OTCQB is subject, to the extent the market price for the common shares is less than $5.00 per share, to a number of regulations known as the "penny stock rules".  The penny stock rules, subject to certain exemptions, require a broker‑dealer to deliver a standardized risk disclosure, the form of which is developed by the U.S. Securities and Exchange Commission (the “SEC”) to provide the customer with additional information, including current bid and offer quotations for the penny stock, the compensation of the broker‑dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer's account, make a special written determination that the penny stock is a suitable investment for the purchaser and to receive the purchaser's written agreement to the transaction.  To the extent these requirements may be applicable, they will reduce the level of trading activity in the secondary market for the common shares and may severely and adversely affect the ability of broker‑dealers to sell the common shares.

20-F for the year ended December 31, 2024

You should not expect to receive dividends in the foreseeable future.

We have never paid any cash dividends on our common shares and we do not anticipate that we will pay any dividends in the foreseeable future.  Our current business plan is to retain any future earnings to finance the expansion of our business.  Any future determination to pay cash dividends will be at the discretion of our Board and will be dependent upon our consolidated financial condition, results of operations, capital requirements and other factors as our Board may deem relevant at that time.

We are a Canadian Company and our nationality may impair the enforceability of a judgment for any person resident outside Canada.

Since we are a Canadian company and most of our assets and key personnel are located in Canada, you may not be able to enforce a U.S. judgment for claims you may bring against us, our assets, our key personnel or many of the experts named in this document.  This may prevent you from receiving compensation to which you may otherwise have a claim.

We are organized under the laws of Alberta, Canada and substantially all of our assets are normally located in Canada.  In addition, all but two of our current members of our Board and all of our officers are residents of Canada.  As a result, it may be impossible for you to affect service of process upon us or these individuals within the U.S. or to enforce any judgments in civil and commercial matters, including judgments under U.S. federal securities laws.  In addition, a Canadian court may not permit you to bring an original action in Canada or to enforce in Canada a judgment of a U.S. court based upon civil liability provisions of the U.S. federal securities laws.

Proposed legislation in the United States Congress, including changes in U.S. tax law, may adversely impact the Company and the value of the common shares.

Changes to U.S. tax laws (which changes may have retroactive application) could adversely affect the Company or holders of the common shares. In recent years, many changes to U.S. federal income tax laws have been proposed and made, and additional changes to U.S. federal income tax laws are likely to continue to occur in the future.

The U.S. Congress is currently considering numerous items of legislation which may be enacted prospectively or with retroactive effect, which legislation could adversely impact the Company’s financial performance and the value of the common shares. Additionally, states in which the Company operates or owns assets may impose new or increased taxes. If enacted, most of the proposals would be effective for the current or later years. The proposed legislation remains subject to change, and its impact on the Company and holders of the common shares is uncertain.

Changes to U.S. tax laws (which changes may have retroactive application) could adversely affect the Company or holders of the common shares. In recent years, many changes to U.S. federal income tax laws have been proposed and made, and additional changes to U.S. federal income tax laws are likely to continue to occur in the future.

The U.S. Congress is currently considering numerous items of legislation which may be enacted prospectively or with retroactive effect, which legislation could adversely impact the Company’s financial performance and the value of the common shares. Additionally, states in which the Company operates or owns assets may impose new or increased taxes. If enacted, most of the proposals would be effective for the current or later years. The proposed legislation remains subject to change, and its impact on the Company and holders of the common shares is uncertain.

We caution that the factors referred to above and those referred to as part of particular forward-looking statements may not be exhaustive and that new risk factors emerge from time to time in our rapidly changing business environment.

20-F for the year ended December 31, 2024

ITEM 4. INFORMATION ON THE COMPANY

A. History and development of the Company.

We are a technology company focused on providing a service to oil and natural gas exploration clients using our proprietary SFD^® remote sensing airborne survey system. SFD^® and NXT^® are both registered trademarks of NXT Energy Solutions Inc.

NXT’s corporate history is summarized as follows:

Our registered office is located at 302, 3320 – 17^th AVE SW, Calgary, Alberta, Canada, T3E 0B4 and our telephone number is (403) 264‑7020.

We are a reporting issuer in Alberta, Ontario, and British Columbia and are principally governed by the Alberta Securities Commission in accordance with the Securities Act (Alberta) and the Business Corporations Act (Alberta). We are a foreign private issuer under United States securities laws and are subject to the regulation of the US Securities and Exchange Commission in accordance with the Exchange Act.

The underlying technology employed by our SFD^® survey system was invented by Mr. Liszicasz, our former Chairman, President and Chief Executive Officer (“CEO”). The technology was initially licensed to the Company by Mr. Liszicasz until December 31, 2006 through a series of consecutive license agreements. On December 31, 2006, we obtained the rights to the technology from Mr. Liszicasz pursuant to the terms of the TTA.

Upon execution of the TTA, Mr. Liszicasz transferred to us all his rights and entitlements to the SFD^® technology for use in the field of hydrocarbon exploration.

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On April 18, 2021 the TTA was amended so that Mr. Liszicasz transferred to us all his rights and entitlements to the SFD^® technology for the use in the field of geothermal resources. All other all rights, title, and interest in and to the SFD^® technologies for all other commercial applications remained with Mr. Liszicasz.

SFD^® technology for the purposes of the TTA is defined as the theories of quantum physics and engineering which are utilized in the operation of SFD^® used by NXT for the reception, collection and recording of subsurface geological stresses for hydrocarbon exploration and geothermal resources.

Our business does not normally rely on significant capital expenditures other than required regulatory additions to the aircraft. For 2025 we do not anticipate further significant upgrades for the aircraft. For the last three fiscal years, the Company made capital expenditures for property and equipment of $27,029 (2024), $32,322 (2023), and $nil (2022).

The Company does not currently have any significant capital expenditures in progress, or planned for the short term.

SEC maintains an internet site (http://www.sec.gov), which contains reports, proxy and statements, and other information regarding NXT that we file electronically with the SEC. Our website is http://www.nxtenergy.com.

B. Business overview.

Description of the nature of the Company’s operations and principal activities

NXT Energy Solutions Inc. is a Calgary-based technology company whose proprietary airborne SFD^® survey system, applied in numerous basins around the world, uses 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. The SFD^® survey system enables our clients to focus their exploration decisions concerning land commitments, data acquisition expenditures and prospect prioritization on areas with the greatest potential. SFD^® is environmentally friendly and unaffected by ground security issues or difficult terrain and is the registered trademark of NXT Energy Solutions Inc. NXT Energy Solutions Inc. provides its clients with an effective and reliable method to reduce time, costs, and risks related to exploration.

We utilize our proprietary, airborne SFD^® survey system to provide a service for the geothermal and oil and gas exploration industry.  NXT provides a rapid and cost-effective method for our clients to evaluate large land areas for their exploration potential.  NXT’s principal markets have been in South America, Africa, the Middle East and Asia.

The underlying technology employed by our SFD^® survey system was invented by Mr. Liszicasz, our former President and Chief Executive Officer, and Chairman.  The technology was initially licensed to the Company by Mr. Liszicasz until December 31, 2006 through a series of consecutive license agreements.  On December 31, 2006 we obtained the rights to the technology from Mr. Liszicasz pursuant to the terms of the TTA.

Upon execution of the TTA, Mr. Liszicasz transferred to NXT all his rights and entitlements to the SFD^® technology for use in the field of hydrocarbon exploration and on April 18, 2021 all his rights and entitlements to the SFD^® technology for geothermal resources. 

For further details of the TTA, see “Exhibit 4.1”.

SFD^® technology for the purposes of the TTA is defined as the theories of quantum physics and engineering which are utilized in the operation of stress field detectors used by NXT for the reception, collection and recording of subsurface geological stresses for hydrocarbon exploration and geothermal resources.

SFD^® sensors remotely respond to gravity perturbations that are associated with subsurface density and stress regimes that are meaningful for hydrocarbon and geothermal exploration.  These responses are captured as raw data that, when interpreted, can provide a qualitative method to detect the presence of geological features such as structures, faults, fractures and reefs that are often associated with fluid accumulations and transport.  The SFD^® technology can be deployed over any terrain in onshore, offshore and near-shore environments and has been used both for prospect level exploration and as a reconnaissance tool in in frontier and under-explored areas. The SFD^® survey system has been demonstrated to quickly focus exploration resources, offering the benefit of reducing the risk, time and expense associated with the upstream cycle.  As part of NXT’s SFD^® services, recommendations with rankings are provided to the customer which helps prioritize their highest value prospects for exploration. 

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Following completion of the aerial surveys, we deliver to our clients a detailed report and maps of the surveyed area that identifies, ranks and recommends areas with SFD^® indications of reservoir potential.

In 2006, we commenced our current business model and began providing SFD^® survey services to clients on a fee-for-service basis.  In accordance with this model, we have not invested either directly or indirectly in exploration or development wells or engaged in other exploration or production activities.  Our current business model minimizes our capital requirements, thereby conserving cash and minimizes any perceived or real conflicts between the interests of NXT and its survey clients. 

NXT’s primary business model is to earn revenues by conducting SFD^® surveys for clients on a fee-for-service basis. Secondly, we may be able to negotiate to earn revenue from gross overriding royalty income and/or other incentive fees from clients should they generate production on areas recommended by SFD^® surveys.  Finally, in the future, we may earn a fee by providing other related geological and geophysical integration services to clients.

We also continue to utilize high quality local sales representatives with key knowledge of their respective areas, potential clients and the exploration potential of a region allowing NXT to cover larger areas and more clients with minimum fixed cost.  Our sales representatives continue to pursue SFD^® opportunities in numerous regions including Africa, Latin America, and Asia.  Furthermore, to ensure our sales representatives follow industry best practices, each representative is required to annually certify they adhere to NXT's code of conduct and business ethics.

NXT has been effective in positioning the SFD^® method as an established geophysical tool for oil and gas exploration following the successful completion of projects in Canada, the United States, Columbia, Argentina, Bolivia, Mexico, Pakistan, Africa and most recently in Türkiye. Our efforts have been supported with the publication of technical papers, creation of project case studies and the development of a strong list of references and recommendation letters.  In addition, NXT has now been granted patents or received patent allowance in forty-seven separate countries.  

Our overall objective remains to continue to increase industry awareness and appreciation of the value of our SFD^® survey system and our strategy to achieve this includes maximizing client endorsement opportunities (such as through joint case studies) and targeting the most appropriate markets (i.e., where SFD^® provides the maximum benefits).  Our specific tactics include:

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As we continue to progress and grow our project pipeline on a fee-for-survey-projects basis, we remain optimistic given our progress during 2024.

Description of the principal markets in which the Company competes

We have an opportunity to provide our services in any region of the world where oil and gas exploration activities are conducted. However, we choose to be strategic and focus our limited marketing and sales resources in a limited number of markets.

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^® related revenue and can vary significantly year-over-year. 

In 2023 and 2024, NXT’s revenue was from SFD^® survey to oil and gas exploration companies in Türkiye.  There were no Revenues in 2022.  Revenues for 2023 and 2024 were generated solely from the Hydrocarbon Right.  There were no revenues from the Geothermal Right in any of the periods.    

A summary of SFD^® related revenues derived in our primary geographic market segments for the last 3 fiscal years, and highlights of global survey operations, follows:

International Markets

SFD^® Survey in Africa

On September 24, 2024 the Company announced that it entered into a contract with its Strategic Alliance Partner, Synergy, to provide a second SFD^® survey for an oil and gas exploration company in Africa (the “African SFD^® Survey”).  NXT completed SFD^® data acquisition over 14 flight days in January of 2025.  NXT’s interpretation of the survey results, and recommendations with respect to such survey, are expected to be delivered during the second quarter of 2025.

SFD^® Survey in Pakistan

On November 4, 2024 the Company announced that it entered into a contract to provide an SFD^® survey for AL-Haj Enterprises Private Limited (the “AL-Haj Enterprises Private Limited SFD^® Survey”). Data acquisition operations, as well as NXT’s interpretation of the survey results and recommendations with respect to such survey are expected to commence and finish in the fourth quarter of 2025.

SFD^® Survey in Southeast Asia

On May 22, 2024 the Company announced that it entered into a contract to provide an SFD^® survey to an independent oil and gas exploration company in Southeast Asia (the “Southeast Asia SFD^® Survey”).  Data acquisition operations, interpretation of the survey results and recommendations with respect to such survey are expected to commence and be completed in Q2-25.  NXT received a mobilization fee of approximately US$175,253 in Q3-24 for this SFD^® survey.  The SFD^® survey was originally expected to be conducted in Q3-24, but was delayed due to aircraft scheduling – which is now resolved. This survey represents the Company’s entry into a new, highly active exploration region.

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SFD^® Survey in Türkiye

On September 5, 2023 the Company announced that it had signed a contract to provide an SFD^® survey to an independent oil and gas exploration company in Türkiye, which is strategically located at the junction of Eastern Europe, Central Asia and the Middle East (the “Turkish SFD^® Survey”).  NXT delivered the final SFD^® survey results to its Turkish customer and performed the integration of SFD^® data with the customers’ existing geological and geophysical data in March 2024.  All flight operations related to the data acquisition survey phase were completed in January 2024. As part of NXT’s SFD^® services, recommendations with rankings are provided to the customer identifying their highest value prospects for exploration.  NXT has been fully paid for this survey and is actively pursuing additional SFD^® survey opportunities in the Turkish region.

Geothermal Update

Geothermal SFD^® Survey in Alberta, Canada

On August 21, 2024 the Company announced that it entered into a contract to provide a geothermal SFD^® survey to Alberta Geothermal Resource Recovery Inc. (“AGRRI”).  The AGRRI survey is an important milestone in NXT’s development of the geothermal application of our SFD^® technology; our first geothermal survey for a client. The value to NXT is to demonstrate the commerciality of SFD^® in the geothermal domain.  The survey has been performed and results are being reviewed.

Acquisition of the Geothermal Right

The Company acquired the SFD® technology rights for geothermal resources (“Geothermal Right”) from NXT’s former Chairman, President and Chief Executive Officer (“CEO”), Mr. George Liszicasz (the “Former CEO”) on April 18, 2021.  One portion of the consideration deliverable by the Company in connection with the acquisition of the Geothermal Right is still outstanding.  A US$200,000 payment 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.  The Board has determined that it is not probable that the milestone will be achieved, and accordingly, it has not been recognized in the financial statements.

Progress continues with respect to the development of the geothermal sensor technology. The Company’s first project related to such technology with AGGRI is testing, identifying, and analyzing the desired elements of the SFD^® geothermal sensor response over known geothermal areas, with the ultimate goal of providing a green upstream geophysical service for advancing renewable power initiatives in Canada and abroad.  As of the date of this 20-F, the Company funding for the next phase of the National Research Council of Canada Industrial Research Assistance Program (“NRC IRAP”) research has not been finalized.

Description of seasonality of the Company’s main business

There is no seasonality to our business.  NXT does however, have a very cyclical business, as revenue activity is dependent upon the level of capital investment in exploration drilling in the oil & gas industry and the size and timing of a limited number of SFD^® survey contracts each year.

Description of the sources and availability of raw materials

We do not foresee any constraints upon materials or equipment that will impede our ability to execute our business plan or affect our ability to conduct and/or expand our business.  Our main direct project input costs are aircraft operating costs and data interpretation staff.

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In order to conduct our survey operations, we require the following:

We are not dependent upon any other third-party contract manufacturers or suppliers to satisfy our technology requirements.

Description of marketing channels

We largely use direct sales methods with use of independent commissioned sales representatives in international markets.

Summary information on dependence on patents, licenses, and contracts

Patents

NXT has been granted SFD^® patents in Brazil (February 2022), India (July 2021), Russia (January 2017), Japan (July 2017), Canada (August 2017), Mexico (September 2017), the United States (two patents were granted in November 2017 and September 2018, respectively), China (April 2018), and in the European Union (January 2020).  In total, NXT has obtained SFD^® patents in forty-seven jurisdictions.  These patents protect our proprietary SFD^® technology and serve as independent third-party recognition of our technological invention in terms of practical applicability, conceptual novelty, and knowledge advancement.

Basis for statements made regarding competitive position

NXT’s SFD^® airborne survey service is based upon a proprietary technology, which is capable of remotely identifying, from a survey aircraft, subsurface anomalies associated with potential hydrocarbon traps with a resolution that it believes is technically superior to other airborne survey systems. To the Company’s knowledge, there is no other company employing technology comparable to its SFD^® survey system for oil and natural gas and geothermal exploration.

Seismic is the standard technology used by the oil and gas industry to image subsurface structures. It is our view that the SFD^® survey system is highly complementary to seismic analysis. NXT’s system may reduce the need for seismic in wide‑area reconnaissance but will not replace the role of seismic in verifying structure, closure, and selecting drilling locations. The seismic industry is competitive with many international and regional service providers.

The SFD^® system can be used as a focusing tool for seismic. With an SFD^® survey, a large tract (that is, a tract over 5,000 square kilometers) of land can be evaluated quickly to identify locations with indications of reservoir potential. Seismic surveys, although effective in identifying these locations, are much more expensive, require significantly more time, and impose a much greater negative impact on local communities and the environment. Deploying an SFD^® survey first can provide necessary information to target a seismic program over a limited area of locations selected by SFD^®. This approach can result in a more effective seismic program and reduce the overall cost, time, community resistance, and environmental impact required to locate and qualify a prospect.

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The energy industry uses other technologies for wide area oil and natural gas reconnaissance exploration, such as aeromagnetic and gravity surveys. These systems can provide regional geological information, such as basement depth, sedimentary thickness and major faulting, and structural development.

Description of material effects of governmental & environmental regulation

SFD^® Survey Flight Operations

The operation of our business, namely conducting aerial SFD^® surveys and interpreting SFD^® data, is not subject to material governmental or environmental regulation in Canada or the United States with the exception of flight rules issued by Transport Canada and the Federal Aviation Authority governing the use of commercial aircraft, including rules relating to low altitude flights.  The requirements in other countries vary greatly and may require permits and/or provide other restrictions to conducting flight operations in the country that may restrict our ability to perform SFD^® surveys as freely as in Canada and the United States.

SFD^® surveys in other countries must often comply with three requirements not encountered in Canada and the United States.  These requirements usually include, but are not limited to:

NXT has successfully operated in several different countries in accordance with these requirements.

With our past experience in Canada, the United States, Türkiye, Nigeria, Bolivia, Mexico, Colombia and other countries, we do not anticipate any unusual government controls or regulations that might significantly prevent timely completion of SFD^® surveys.  However, we may encounter unforeseen government regulations or restrictions in other countries that may impair or restrict our ability to conduct surveys, which could limit our ability to earn revenue or potentially expose us to forfeiture of performance bonds.

C. Organizational structure.

The following table provides a list of all subsidiaries and other companies controlled by NXT:

¹ On January 16^th, 2017, the name of Survey Services International Inc. was changed to “Cascade Petroleum Inc.” 

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In addition, in March 2015, NXT registered NXT Energy Solutions Inc. (Sucursal Bolivia) as a wholly owned “Branch” entity under the laws of the Plurinational State of Bolivia, to contract and conduct survey operations in Bolivia. Operations have now ceased in Bolivia and we closed the branch in 2021.

D. Property, plant and equipment.

Facilities / Office Premises

NXT leases 7,300 square feet of office premises at 3320 – 17th Avenue SW in Calgary, Alberta, Canada.  The lease expires in September 2030.

Aircraft

In order to perform our survey services, NXT requires to fly the survey area in a jet aircraft.   On March 22, 2024 the Company extended its aircraft lease for three years, until March 28, 2027.  The aircraft lease was converted to a capital lease and the Company will own the aircraft at the end of the lease.  Terms of the extension include a principal of US$1,210,000, 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 date, March 28, 2025, September 28, 2025, March 28, 2026 or September 28, 2026.

Equipment

Our SFD^® technology is comprised of three main components, as detailed in the first three items below, which we collectively refer to as our SFD^® survey system. This system is generally stored at our Calgary office facility unless deployed during survey operations when this equipment would travel with the aircraft or be stored in a locked facility at the survey location when not in use. In addition, there is extensive interpretation equipment located in Calgary. The main categories of equipment we use are:

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Oil and Gas Properties

We have minor historical interests in a limited number of acreage holdings of undeveloped lands in western Canada. These assets are not a material asset and have been written off in our financial statements. We are not affected by any significant environmental concerns, nor is there any planned significant capital additions contemplated. We have accrued approximately $24,761 for asset retirement obligations related to the minor non-operating interest in these oil and 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.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations should be read in conjunction with the accompanying consolidated Financial Statements and the notes to those statements incorporated by reference elsewhere in this Form 20-F. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report, particularly under the caption “Risk Factors”.

A. Operating results.

Overall Operational Performance

Summary financial highlights for the last three fiscal years are as follows:

Financial Highlights for 2024

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Financial Highlights for 2023

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Financial Highlights for 2022

Revenue and expenses for the years ended December 31, 2024, 2023 and 2022

SFD^® related revenues –In 2024 and 2023 the Company recorded revenues from Turkish SFD^® surveys.  No revenue was recorded in 2022.

SFD^® related costs – SFD^® related costs include aircraft charter costs (net of charter hire reimbursements), lease expenses and aircraft operation and maintenance costs.

In 2024, 2023 and 2022, the Company incurred aircraft operation costs for aircraft handling and maintenance costs.  In 2024 and 2023 additional costs were incurred for SFD^® survey operations.  During 2024, aircraft operations were $647,939 (approximately 74%) higher as pilot training and required maintenance were performed before the mobilization of upcoming SFD^® Surveys.  Survey projects were $602,521 lower due to costs incurred to perform the Turkish SFD^® Survey in Q4-23.  Aircraft lease costs were approximately 75% lower due to the conversion of the lease from an operation lease to a finance lease.

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In 2023 the Company incurred increased SFD^® related costs due to the Turkish SFD^® survey.  Aircraft operations were higher in 2022 due to the timing of routine major preventive maintenance costs in Q1-22 and preparing the aircraft for up to 300 hours of flight hours to conduct SFD^® surveys, but overall survey project costs were $118,441 lower due to the costs incurred for the Pre-existing Data Sale in 2021.

G&A - G&A is a major component of NXT's total expenses.  The categories included in G&A are as follows:

G&A increased $282,667 or 36%, in 2024 compared to 2023 for the following reasons: 

G&A expenses decreased $316,288, or 8%, in 2023 compared to 2022 for the following reasons: 

20-F for the year ended December 31, 2024

Stock-based compensation

SBCE varies in any given year as it is a function of several factors including the number of units of each type of stock-based compensation plan issued in the period and the amortization term (based on the term of the contract and/or number of years for full vesting of the units, which is normally three years) of the resultant expense.  Also, SBCE is a function of periodic changes in the inputs used in the Black-Scholes option valuation model, such as volatility in NXT's trailing share price and for cash-settled stock-based compensation awards variability will occur based on changes to observable prices.  Stock options granted generally expire, if unexercised, five years from the date granted and entitlement to exercise them generally vests at a rate of one-third at the end of each of the first three years following the date of grant.  On January 6, 2023 the Company granted 2,050,000 incentive stock options at a strike price of $0.216 to employees, officers and directors (the “2023 Options”).  The 2023 Options will vest upon the occurrence of several milestones relating to the cash received for SFD^® services performed:  (i) one-third of the 2023 Options will vest upon the collection of US$6.5 million for SFD^® services performed; (ii) one-third of the 2023 Options will vest upon the collection of the next US$7.0 million for SFD^® services performed; and (iii) the final one-third of the 2023 Options will vest upon collection of an additional US$7.5 million for SFD^® services performed.  In Q2-24 the Company determined that reaching the first vesting milestone of collecting US$6.5 million for the 2023 Options is probable.  In Q4-24 the Company also determined that reaching the second vesting milestone of collecting an additional US$7.0 million was probable.  Therefore, NXT began to recognize the stock option expense related to the 2023 Options first vesting level in Q2-24 and the second vesting level in Q4-24.  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 (the “2025 Options”). The 2025 Options will vest upon the achieving of a trailing twelve-month free cash flow per share of $0.10.

The deferred share unit ("DSUs") plan (the "DSU Plan") is a long-term incentive plan that permits the grant of DSUs to qualified directors.  DSUs granted under the DSU Plan are to be settled at the retirement, resignation or death of the Board member holding the DSUs.  RSUs entitle the holder to receive, at the option of the Company, either the underlying number of shares of the Company's common stock 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.  In the year ended December 31, 2020, the Company granted 1,200,000 RSUs to employees and officers and an additional 1,875,000 RSUs on February 24, 2025.  In 2023 and 2022, the Company settled the RSU vesting with shares and cash.  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.

SBCE in 2024 was higher compared to 2023 by $27,463 or approximately 11%. The Company began to recognize expense for the first two milestones of the 2023 Options in 2024. Stock option expense in 2023 was for director fees reimbursed via stock options.  In addition, $15,000 of director fees were reimbursed by DSUs during Q4-24, but there were zero DSUs issued in Q4-23.  The ESP Plan expense increased as employee participation in the plan increased in 2024 versus 2023.  The RSU expense decreased year over year as the 2024 RSU grant versus the 2023 RSU grant accrued a lower cost due to the lower share price and less units in the 2024 grant versus the previous 2020 RSU grant which had its final vesting period in 2023.

SBCE in 2023 was higher compared to 2022 by $25,987 or 12% due to the compensation owed to the marketing consultant and that options were granted in lieu of cash payments to certain directors.  The RSU expense was lower as the Company’s share price at the vesting date of September 20, 2023 was lower versus the share price at September 30, 2022 and the 2022 vesting date and there were no RSUs in Q4-23.  In addition, there was lower ESP Plan participation during 2023 due to two less participants.

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.  On December 31, 2024, a total of 634,439 common shares were due to the marketing consultant (360,139 common shares at December 31, 2023). On January 29, 2025, 634,439 common shares were issued to the marketing consultant.

20-F for the year ended December 31, 2024

Amortization Expense

Property and equipment and Intellectual property is recorded at cost, less accumulated amortization, which is recorded over the estimated service lives of the assets using annual rates and methods which are also subject to ongoing tests of potential impairment of the recorded net book value.

Property and equipment and related amortization expense. Property and equipment depreciation was higher in 2024 versus 2023 as the Company converted its aircraft lease to a finance lease, and as a result, began to record the amortization of the aircraft as a depreciating expense over the estimated remaining useful life of the aircraft.  Property and equipment amortization was lower in 2023 compared to 2022 due to additional assets becoming fully amortized during the period and the Company not acquiring significant new assets in the periods.  Amortization also decreases each year as the Company uses the declining balance method of amortization, thereby having the effect of lowering amortization each year on existing assets.

IP and related amortization expense. NXT acquired specific rights to utilize the proprietary SFD^® technology in global hydrocarbon exploration applications from the inventor of the SFD^® technology, NXT's former Chairman, President and Chief Executive Officer, on August 31, 2015.  The value attributed to the acquired IP assets was $25.3 million.  The IP assets are amortized on a straight-line basis over a 15-year period (future amortization expense of $1,685,000 per year) and are also being subject to an ongoing assessment of potential indicators of impairment of the recorded net book value.    

As discussed in Item 4.B., the Company acquired the SFD^® technology for the Geothermal Right from NXT’s Chairman, President and Chief Executive Officer on April 18, 2021.  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 five-year aggregate total of $68,902.

No impairments were recognized in 2024, 2023, or 2022.

20-F for the year ended December 31, 2024

Interest expense, net. This category of other expenses includes interest income earned on short-term investments net of interest expense from the convertible debentures, and long-term debt. Interest expense increased in 2024 versus 2023, due to the Company issuing the Debentures during 2023 and 2024.

Interest expense increased in 2023 versus 2022 due to less short-term investments during 2023 and the Company issuing the two debentures in.    

Foreign exchange loss (gain). This category of other expenses includes losses and gains caused by changes in the relative currency exchange values of US$ and CDN$.  The Company held net US$ liability at December 31, 2024, 2023 and 2022, including accounts receivable, cash and cash equivalents, short-term investments, US$ lease obligations, convertible debentures and the security deposit for the aircraft, all of which have an effect on the unrealized foreign exchange gain and loss.  For 2024 the exchange loss was the result of (i) the 8.7% weaker CDN$ to US$ between December 31, 2024 and December 31, 2023 and (ii) the Company having a net liability of US$7,130,144.  For 2023, the exchange gain was the result of (i) the 2.4% stronger CDN$ to US$ rate between December 31, 2022 and December 31, 2023 and (ii) the Company having a net liability of US$1,179,649.  At December 31, 2022, the CDN$ to US$ exchange rate was 6.3% lower as compared to the CDN$ to US$ exchange rate at December 31, 2021 and the Company had a net US$ asset for most of the year, resulting in the corresponding foreign exchange gain for 2022.

The Company does not currently enter into hedging contracts, but does however use alternative strategies to reduce the volatility of US dollar assets including converting excess US dollars to CDN dollars.

Intellectual property and other.  In 2024, 2023 and 2021, the Company's IP and other expenses were associated with periodic patent maintenance and renewal fees required during these time periods.

We currently have no outstanding derivative financial instruments, such as foreign currency hedges.

Loss on fair value remeasurement. The Company recognized a loss of $296,534 in the 2024 financial year on the fair value remeasurement of the November Debentures and 2024 Debentures (each as defined herein) due to changes in the US$/CDN$ exchange rates and the Company’s share price. 

Loss on disposal of assets & lease modifications. During Q2-24, the Company reduced its office space by approximately 31% and extended its office lease until September 2030.  In Q1-24, the Company extended its aircraft lease for three years, until March 28, 2027.  As a result of the office space reduction and the extensions of the aircraft and office leases, the Company recognized the following losses during 2024:

In Q1-22, the Company surrendered 826 square feet of office space. As a result of the space surrender, the Company recorded a loss on disposal of leasehold improvement assets and lease modifications.

Income tax expense – There was no income tax expense in 2024, 2023 or 2022. 

At the end of 2024, NXT has available for future Canadian income tax deduction purposes significant unrecorded deferred income tax assets, the benefit of which has not been recorded in the Company’s financial statements due to uncertainty regarding the amount and timing of their potential future utilization.  These deferred income tax assets include non-capital losses carried-forward (expiring in 2027 to 2044) and other resource deductions totaling approximately $13.8 million.

20-F for the year ended December 31, 2024

Summary of Quarterly Results (Unaudited)

A summary of operating results for each of the trailing 8 quarters (including a comparison to each respective prior quarter) follows.  The extent of the profit or loss each quarter is mainly due to the timing and the number of survey contracts that are underway, and variances in such non-cash items as SBCE, which can occasionally be a significant expense in any given quarter

Significant or Unusual Items Impacting Net Loss:

During Q4-24, the Company’s net loss increased due to unrealized foreign exchange losses due to the weakening CDN$ and interest increases due to the issuance of the 2024 Ataraxia Debenture.  In Q3-24, the Company incurred additional G&A costs in anticipation of increased commercial activity, recognized a gain for the fair value remeasurement of the convertible debentures, and unrealized foreign exchange loss (gain) improved due to a strengthening CDN$.  In Q2-24, the Company wrote off leasehold improvements due to the 31% office space reduction, recognized a loss for the fair value remeasurement of the convertible debentures, related increased interest expense, and unrealized foreign exchange loss increased due to the net US$ liabilities held by the Company.  In Q1-24, SFD^® related-revenues were from the Turkish SFD^® Survey.  Net loss reflected higher SFD^®-related costs, net due to the Turkish SFD^® Survey an additional headcount, sales commissions and higher business development travel costs as well as interest expense due to the Debentures issued during 2023 and 2024 financial years.  In Q4-23, the Company earned SFD^®-related revenue and incurred SFD^®-related costs due to the Turkish SFD^® Survey, which reduced its net loss versus the previous six quarters.  During Q3-23, the Company decreased G&A spending due to less professional fees as there was minimal incremental financing during the quarter.  This was offset by costs incurred to plan for the upcoming Turkish SFD^® Survey and foreign exchange losses due to the weakening CDN$. In Q2-23, the Company incurred G&A costs due to increased business development activity and professional fees related to the Ataraxia Debentures. In Q1-23, the Company incurred lower SFD^®-related costs as there was no unplanned maintenance on the aircraft, and lower G&A as the Company reduced its headcount by one.  In each quarter between Q1-23 and Q4-24, the Company incurred net losses due to incurred SFD^®-related costs related to aircraft lease and aircraft maintenance costs, G&A expenses, and non-cash items such as SBCE, which can be a significant expense in any given quarter.  More details are provided below:

20-F for the year ended December 31, 2024

Strategic Investment

On May 24, 2023 the Company entered into a ten-year strategic alliance and associated financing with Synergy which grants Synergy an exclusive license to use, distribute, sub-license, market and sell NXT’s SFD^® solutions in Africa.  In addition, on September 30, 2023, NXT extended the exclusive license to include Ataraxia, an affiliate of Synergy.

PE Energy Limited, an affiliate of Synergy and Ataraxia, has performed several commercial projects with NXT in Africa in the past, in addition to the African SFD^® Survey. 

Synergy and Ataraxia, with this arrangement, will be advancing the SFD^® technology to address energy security and transition in the African continent for both oil and gas and geothermal sources.  Synergy, Ataraxia and NXT have and will continue to work closely together to train local technical teams and regulatory authorities on the patented SFD^® technology.  The local content is a commercial advantage for NXT and has shown early signs of increasing our operational efficiency.

Building upon a record of successful collaborations underpinned by the continued market demand in Africa, in 2023 Ataraxia executed a subscription agreement pursuant to which Ataraxia agreed to subscribe for an aggregate of US$2.3 million convertible debentures (collectively, the “Ataraxia Debentures”), with a subscription price to be advanced in instalments, of which it completed US$1.4 million during Q3-23.  In November 2024 Ataraxia funded the remaining balance of US$900,000.   Please see ITEM 5B “Ataraxia Debentures” for further information on the Ataraxia Debentures.

B. Liquidity and capital resources.

Going Concern

The audited consolidated financial statements for 2024 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 the audited 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 the audited 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 this 20-F, 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. 

20-F for the year ended December 31, 2024

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.

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.

NXT’s cash and cash equivalents and short-term deposits as at December 31, 2024 totaled $0.73 million.  Net working capital totaled $(6.68) million.  See the information in the section “Liquidity and Capital Resources – Net Working Capital” for further information.

Risks related to having sufficient ongoing net working capital to execute survey project contracts are mitigated through NXT’s normal practice of obtaining advance payments and progress payments from customers throughout the course of projects, which often span three to four months. In addition, where possible, risk of default on client billings are mitigated through the use of export insurance programs offered by Export Development Canada.

The Company does not have provisions in its leases, contracts, or other arrangements that would trigger additional funding requirements or early payments except if the Company were to default on its office lease, where the current month’s rent plus the next three months would become immediately due. If the Company were to default on the aircraft lease, the Company would be required to deliver the aircraft back to the lessor.

The Ataraxia Debentures are for a term of two years, payable on demand.  The Ataraxia Debentures are secured by a general security agreement, subordinate to the long-term debt.  See ITEM 5B “Ataraxia Debentures” for more information.

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 (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 (approximately CDN$0.3428) per common share, which provides MCAPM LP with the right to obtain up to 8,000,000 common shares of the Company.

The proceeds from the Debenture were used to support the working capital needs of SFD^® surveys and other G&A costs, which include business development and marketing activities required to transform the existing pipeline of SFD^® opportunities into firm contracts.

20-F for the year ended December 31, 2024

November Debentures

On November 8, 2023, the Company issued the first tranche 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 of the November Debentures.  The November Debentures are convertible into common shares in the capital of NXT at a fixed conversion price of US$0.1808 (CDN$0.25).  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).  Including the final tranche, the Company issued a total of US$1,872,000 (approximately CAD$2,543,636) of the November Debentures, which will allow the subscribers to obtain an aggregate of up to 10,353,982 common shares.  Insiders, which include MCAPM LP, Michael P. Mork (“Mork Capital”) and all of the directors of NXT, were issued November Debentures valued, in the aggregate principal amount, at US$1,522,000 (approximately CDN$2,076,776). 

Mork Capital has the right to own, after conversion of all of its 2024 Debentures and November Debentures, 30,526,321 common shares. This represents approximately 32.5% of the issued and outstanding common shares of the Company as of the date of the financial statements (after giving effect to the conversion of the full amount of their 2024 Debentures and the November Debentures).

Ataraxia Debentures

In May 2023, the Company signed a subscription agreement with 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.  The convertible debentures 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 two years after the issue date and are secured by a general security agreement, subordinate to the long-term debt.

On May 31, 2023, the Company issued a two-year term convertible debenture for US$1,200,000 (approximately CDN$1,631,954) to Ataraxia and an additional US$200,000 (approximately 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 (approximately CDN$676,995) to Ataraxia and an additional US$400,000 (approximately 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.  The proceeds from the 2024 Ataraxia Debentures have been used to support the working capital needs of the SFD^® surveys in Africa.

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).

As of the date of this 20-F, no preferred or common shares have been issued pursuant to the conversion of the 2023 Ataraxia Debentures or the 2024 Ataraxia Debentures.

On May 31, 2023, the Company and Ataraxia entered into an Investor Rights Agreement (the “Investor Rights Agreement”) pursuant to which Ataraxia has been granted the right: (i) to nominate one person for election or appointment as a director of the Company; (ii) to have one representative of Ataraxia attend the Company’s Board meetings as an observer (except any portion of a Board meeting where the Company’s relationship with Ataraxia is to be a subject of discussion); (iii) to purchase up to its pro rata portion (calculated on a fully diluted basis) of any securities offered by the Company, subject to certain limitations set forth in the Investor Rights Agreement; and (iv) receive certain information regarding the Company, including annual and quarterly financial statements, annual budgets, the capitalization tables, and access to its premises upon reasonable notification. In each case, Ataraxia will retain the rights set forth in the Investor Rights Agreement for so long as Ataraxia holds (i) any principal amount of the Ataraxia Debentures or (ii) common shares or preferred shares (as applicable), representing at least 5% of the outstanding common shares of the Company (on an as-converted basis, if Ataraxia holds Preferred Shares).

20-F for the year ended December 31, 2024

Both the Ataraxia subscription agreement, and the Investor Rights Agreement, are publicly available under the Company’s profile on SEDAR+ at www.sedarplus.ca.

Private Placement

On December 22, 2022, the Company announced a multi-tranche private placement (the “Private Placement”) at $0.195 per share.  On 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. The proceeds from the Private Placement were used to support G&A, which include business development and marketing activities required to transform the pipeline of SFD® survey opportunities into firm contracts.  Mork Capital purchased 8,750,000 common shares or $1,706,250 of the Private Placement along with two members of the Board for a total of $83,515.

Rights Offering

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.

The proceeds from Rights Offering were used for G&A expenses.

Non-GAAP Measure: This discussion includes references to the term “net working capital”, which does not have a standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other entities.  NXT management uses this non-GAAP measure to improve our ability to assess liquidity at a point in time.  Net working capital is defined as total current assets less total current liabilities, excluding amounts accumulated in work in progress and deferred revenue.  Management excludes these amounts from the calculation as they do not represent future cash inflows or outflows to the Company.

NXT had net working capital of $(6,683,656) as at December 31, 2024 broken down as follows:

Net working capital as at December 31, 2024 compared to December 31, 2023 decreased by $4,833,634, or 261%.  Funds were received from the 2024 Debentures, 2024 Ataraxia Debentures, accounts receivable payments on the Turkish SFD^® Surveys and deposits on the other 2025 SFD^® Surveys.  These funds were used to settle accounts payable, accrued liabilities long-term debt, and lease obligations.  Current lease obligations increased as the Company’s building and aircraft leases were extended in 2024. In addition, most of the November Debentures are due within one year as of December 31, 2024.

20-F for the year ended December 31, 2024

Long-term Debt (HASCAP Loan)

On May 26, 2021, the Company received $1,000,000 from the BDC's HASCAP Loan.  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.

Sources and uses of cash 

The overall net changes in cash balances in each of the years noted below is a function of several factors including any inflows (outflows) due to changes in net working capital balances and net of any cash transferred into/out of short-term investments.  Further information on the net changes in cash, by each of the operating, financing, and investing activities, for the last three fiscal years is as follows:

Operating Activities

Net cash flow from operating activities listed above is a function of net income (loss) for the year, an add back of the net non-cash revenue and expense items (such as SBCE, amortization expense, deferred tax expense / (recovery) and the net change in year-end working capital items (for example, a net decrease in working capital in the year gives rise to a source of cash), with these components each year as follows:

20-F for the year ended December 31, 2024

Operating cash flow increased by $862,359 in 2024 as compared to 2023 due to payment of outstanding accounts receivable from the Turkish SFD^® Survey, net of accounts payable and accrued liability payments related to the Turkish SFD^® Survey and deposits received on the 2025 SFD^® Surveys.