CC Filed by Filing Services Canada Inc. 403-717-3898

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OuAv7koxbkTrhdKneWoKi+4w/0OtQioAJxuePNxCHcE6AHc7A8+FqbRTEzxcgiNp SfEo7WRmVVNBrP1OFtUXKA== 0001137171-09-000313.txt : 20090428 0001137171-09-000313.hdr.sgml : 20090428 20090428140626 ACCESSION NUMBER: 0001137171-09-000313 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20090424 FILED AS OF DATE: 20090428 DATE AS OF CHANGE: 20090428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NXT Energy Solutions Inc. CENTRAL INDEX KEY: 0001009922 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 611126904 STATE OF INCORPORATION: A0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24027 FILM NUMBER: 09775126 BUSINESS ADDRESS: STREET 1: 505 3RD STREET, S.W. STREET 2: SUITE 1400, CITY: CALGARY, T2P 3E6 STATE: A0 ZIP: 90035 BUSINESS PHONE: 403-264-7020 MAIL ADDRESS: STREET 1: 505 3RD STREET, S.W. STREET 2: SUITE 1400, CITY: CALGARY, T2P 3E6 STATE: A0 ZIP: 90035 FORMER COMPANY: FORMER CONFORMED NAME: ENERGY EXPLORATION TECHNOLOGIES / DATE OF NAME CHANGE: 20000628 FORMER COMPANY: FORMER CONFORMED NAME: PINNACLE OIL INTERNATIONAL INC DATE OF NAME CHANGE: 20000626 FORMER COMPANY: FORMER CONFORMED NAME: ENERGY EXPLORATION TECHNOLOGIES DATE OF NAME CHANGE: 20000616 6-K 1 nxt6k042809.htm NXT ENERGY SOLUTIONS FORM 6-K CC Filed by Filing Services Canada Inc. 403-717-3898

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934

For the month of April 2009

Commission File Number: 000-24027

NXT Energy Solutions Inc.

(Translation of registrant's name into English)

1400, 505-3rd Street S.W.

Calgary, Alberta T2P 3E6

Canada
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F X Form 40-F _____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes _____ No X

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes _____ No X

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes _____ No X

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

The Issuer is filing material documents not previously filed.

TABLE OF CONTENTS

The following documents are filed as part of this Form 6-K:



Exhibit	Description
32.1	CEO Certification
32.2	CFO Certification
99.1	Year Ended December 31, 2008 Financial Statements
99.2	Management's Discussion & Analysis

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 24, 2009

NXT Energy Solutions Inc.

By:

/s/ Ken Rogers

Name:

Ken Rogers

Title:

Vice-President Finance and Chief Financial Officer

EX-32.1 2 ceocert.htm CERTIFICATION _

Form 52-109FV1

Certification of Annual Filings - Venture Issuer Basic Certificate

I, George Liszicasz, Chief Executive Officer, NXT Energy Solutions Inc, certify the following:

Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of NXT Energy Solutions Inc. (the “issuer”) for the financial year ended December 31, 2008.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

Date: April 24, 2009

Signed “George Liszicasz”

George Liszicasz

Chief Executive Officer

NOTE TO READER

In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of

controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

ii)

a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.

EX-32.2 3 cfocert.htm CERTIFICATION CC Filed by Filing Services Canada Inc. 403-717-3898

Form 52-109FV1

Certification of Annual Filings - Venture Issuer Basic Certificate

I, Ken Rogers, Chief Financial Officer, NXT Energy Solutions Inc, certify the following:

Date: April 24, 2009

Signed “Ken Rogers”

Ken Rogers

Chief Financial Officer

NOTE TO READER

ii)

a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

EX-99.1 4 financials.htm FINANCIALS CC Filed by Filing Services Canada Inc. 403-717-3898

NXT ENERGY SOLUTIONS INC

(Formerly Energy Exploration Technologies Inc)
As at and for the year ended December 31, 2008

KPMG LLP
Chartered Accountants	Telephone	(403) 691-8000
2700-205 5 Avenue SW	Telefax	(403) 691-8008
Calgary AB T2P 4B9	Internet	www.kpmg.ca

AUDITORS’ REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of NXT Energy Solutions Inc. as at December 31, 2008 and 2007 and the consolidated statements of income (loss) and comprehensive income (loss), cash flows and shareholders’ equity for each of the years in the three-year period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of NXT Energy Solutions Inc. as at December 31, 2008 and 2007 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008 in accordance with accounting principles generally accepted in the United States of America.

KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMG Canada provides services to KPMG LLP

NXT ENERGY SOLUTIONS INC
(Formerly Energy Exploration Technologies Inc)
Consolidated Balance Sheets
(Expressed in Canadian dollars except share data)

		December 31, 2008	December 31, 2007
Assets
Current assets:
Cash and cash equivalents	$ 146,065		$ 1,988,296
Short term investments		6,748,105	5,652,666
Accounts receivable		20,569	839,537
Prepaid expenses and other		57,159	122,291
		6,971,898	8,602,790

Oil and natural gas properties [note 3]		7,315	35,585
Property and equipment, net of accumulated depreciation and amortization [note 4]		621,396	504,160
	$ 7,600,609		$ 9,142,535


Liabilities and Shareholders' Equity
Current liabilities:
Trade payables	$ 359,535		$ 516,232
Other accrued liabilities [note 5]		256,624	328,511
Unearned revenue		-	2,232,470
Convertible debentures [note 9]		-	178,540
Current portion of capital lease obligation		10,684	10,684
Asset retirement obligation [note 6]		20,000	-
		646,843	3,266,437
Long term liabilities:
Capital lease obligation		24,811	32,140
Asset retirement obligation [note 6]		28,997	-
		700,651	3,298,577

Commitments and contingencies [note 14]
Future operations [note 1]
Subsequent event [note 16]

Shareholders' equity:
Preferred shares:- authorized unlimited
Issued: 10,000,000 [note 8]		3,489,000	3,489,000
Common shares: - authorized unlimited
Issued: 30,676,796 shares as of December 31, 2008 (2007 - 29,713,381) [note 7]		51,884,121	49,789,695
Contributed capital		3,519,072	3,416,207
Deficit		(52,703,170)	(51,561,879)
Accumulated other comprehensive income		710,935	710,935
		6,899,958	5,843,958
	$ 7,600,609		$ 9,142,535

Signed "George Liszicasz"
Director

Signed "Brian Kohlhammer"
Director

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

NXT ENERGY SOLUTIONS INC
(Formerly Energy Exploration Technologies Inc)
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Expressed in Canadian dollars except share data)

	For the year ended December 31,
	2008		2007		2006
Revenue
Survey revenue	$ 2,944,470	$ 5,608,432		$ 1,206,684
Oil and natural gas revenue	10,592		33,260		41,830
	2,955,062		5,641,692		1,248,514


Expense
Survey cost	211,237		814,343		164,095
Oil and natural gas operating expenses	3,959		3,753		5,390
Administrative	3,678,803		4,016,662		2,816,002
Depletion of oil and natural gas properties [note 3]	4,372		87,291		1,153,576
Amortization and depreciation [note 4]	171,613		128,179		95,844
	4,069,984		5,050,228		4,234,907
	(1,114,922)		591,464		(2,986,393)


Other expense
Gain on sale of oil and natural gas properties [note 3]	(20,325)		-		-
Interest income	(234,007)		(109,374)		(4,411)
Interest on convertible debentures [note 9]	-		100,980		1,290,239
Loss (gain) on foreign exchange	(20,242)		249,427		1,882
Other [note 14]	90,000		-		-
Abandonment of oil and natural gas properties [note 6]	210,943		-		-
	26,369		241,033		1,287,710
Net income (loss)	(1,141,291)		350,431		(4,274,103)
Foreign currency transalation gain	-		-		9,907
Net comprehensive income (loss)	$ (1,141,291)	$ 350,431		$ (4,264,196)


Net income (loss) per share unit [note 7]
Basic	$ (0.04)	$ 0.01		$ (0.17)
Diluted	$ (0.04)	$ 0.01		$ (0.17)

The accompanying notes to these consolidated financial statements are an integral part of these consolidated statements of income (loss) and comprehensive income (loss).

NXT ENERGY SOLUTIONS INC
(Formerly Energy Exploration Technologies Inc)
Consolidated Statements of Cash Flow
(Expressed in Canadian dollars)

	For the year ended December 31,
	2008		2007		2006
Operating activities
Net income (loss)	$ (1,141,291)	$ 350,431		$ (4,274,103)

Amortization and depreciation	171,613		128,179		95,844
Depletion of oil and natural gas properties	4,372		87,291		1,153,576
Non-cash asset retirement obligation	210,943		-		-
Costs settled by issuance of common stock	-		274,977		-
Stock-based compensation expense	653,042		988,664		818,874
Non-cash interest expense convertible debenture	-		24,883		1,290,239
Non-cash interest expense	3,354		2,234		-
Non-cash expense note payable	-		13,371		34,456
Gain on sale of oil and natural gas properties	(20,325)		-
Changes in non-cash working capital
Accounts receivable	818,968		(236,407)		(600,237)
Prepaid expenses	65,132		(57,904)		5,650
Unearned revenue	(2,232,470)		1,949,452		283,019
Trade payables	(156,697)		275,047		(141,352)
Other accrued liabilities	(27,491)		53,866		205,896
Asset retirement obligations paid	(161,946)		-		-
Net cash generated (used) in operating activities	(1,812,796)		3,854,084		(1,128,138)

Financing activities
Repayment of note payable	-		(239,618)		(25,678)
Repayment of capital lease	(10,683)		(6,232)		-
Repayment of registration penalty	(178,540)		(343,824)		-
Issue of common shares, net of issuance costs	-		-		2,354,032
Exercise of options and warrants	1,499,853		2,319,433		102,310
Net cash generated in financing activities	1,310,630		1,729,759		2,430,664

Investing activities
Invested in other property and equipment	(288,849)		(337,829)		(195,185)
Invested in oil and natural gas properties	(3,177)		(5,954)		(39,869)
Proceeds on the sale of oil and gas properties	47,400		35,000		-
Increase in short term investments	(1,095,439)		(4,279,380)		(1,263,064)
Net cash used in investing activities	(1,340,065)		(4,588,163)		(1,498,118)
Effect of foreign exchange translation	-		-		(74,556)
Net cash inflow (outflow)	(1,842,231)		995,680		(270,148)
Cash and cash equivalents, beginning of year	1,988,296		992,616		1,262,764

Cash and cash equivalents, end of year	$ 146,065	$ 1,988,296		$ 992,616

Supplemental cash flow information
Cash interest paid	$ 3,354	$ 15,606		$ 16,647

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

NXT ENERGY SOLUTIONS INC
(Formerly Energy Exploration Technologies Inc)
Consolidated Statements of Shareholders' Equity
(Expressed in Canadian dollars except share data)

For the year ended December 31,

2008 2007 2006

Common Shares

Balance at the beginning of the year $ 49,789,695 $ 45,770,651 $ 40,675,882

Issued upon exercise of stock options and warrants 2,050,030 3,497,476 102,310

Issued through conversion of debentures - 246,591 3,256,821

Issued through private placement; net of issue costs and fair market value

of warrants - - 775,732

Shares issued for services 44,396 274,977 959,906

Balance at end of the year 51,884,121 49,789,695 45,770,651

Preferred Shares

Balance at the beginning and end of the year 3,489,000 3,489,000 3,489,000

Contributed Capital

Balance at the beginning of the year 3,416,207 3,605,585 1,175,315

Fair market value of options and warrants 653,042 988,664 798,734

Fair market value of warrants issued pursuant to common share private

placement - - 1,631,536

Contributed capital transferred to shares pursuant to exercise of options

and warrants (550,177) (1,178,042) -

Balance at end of the year 3,519,072 3,416,207 3,605,585

Deficit

Balance at the beginning of the year (51,561,879) (51,912,310) (47,638,207)

Net income (loss) for the year (1,141,291) 350,431 (4,274,103)

Balance at end of the year (52,703,170) (51,561,879) (51,912,310)

Accumulated Other Comprehensive Income

Balance at the beginning of the year 710,935 710,935 701,028

Net other comprehensive income - - 9,907

Balance at end of the year 710,935 710,935 710,935

Total Shareholders' Equity $ 6,899,958 $ 5,843,958 $ 1,663,861

The accompanying notes to the consolidated financial statements are an integral part of the condensed consolidated statements of shareholder's equity (deficit).

NXT ENERGY SOLUTIONS INC
(Formerly Energy Exploration Technologies Inc)
Notes to the Consolidated Financial Statements
As at and for the year ended December 31, 2008
(Expressed in Canadian dollars)

1. Organization and Ability to Continue Operations

NXT Energy Solutions Inc ("we", "company" or "NXT" ) was incorporated under the laws of the State of Nevada on September 27, 1994. NXT was continued from the State of Nevada to the Province of Alberta, Canada on October 24, 2003. The shareholders voted on and approved this change which moved the jurisdiction of incorporation from the U.S. to Canada. In November 2007 at our Annual General Meeting the shareholders voted on and approved changing our name. Effective September 22, 2008 our name changed from Energy Exploration Technologies Inc to NXT Energy Solutions Inc.

We own a proprietary technology called Stress Field Detection (“SFD”). SFD is a remote sensing airborne survey system that is designed to identify areas with oil and natural gas reserve potential. This technology was acquired from its current CEO and President on December 31, 2005 following a ten year period wherein the company controlled the technology through a series of licensing agreements. For the ten year period prior to 2006 the company had engaged in extensive activities that were effective in developing the technology to a stage wherein SFD was both technically ready and had the required industry validation to embark on the commercial phase of the company. These early activities included conducting SFD surveys for oil and gas industry partners on a cost recovery basis and participating as a joint venture partner in SFD identified exploration wells. By December 31, 2005 the company had accumulated approximately $47.6 million of deficits in conducting these activities.

The company is in the early stage of commercializing its SFD technology. Its 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 this early commercialization phase can last for several years. Consistent with this early stage of commercialization the company has a significant economic dependency on a few clients. While the company is in this early stage of commercialization, the company’s financial position is materially impacted by the loss or gain of any one client. The company's ability to continue operations is dependent on attracting future customers through demonstrating the value that the company can bring to their exploration activities.

For the year ended December 31, 2008 the company recognized $2,944,470 in SFD survey revenue, had a net loss of $1,141,291 and used $1,812,796 of cash in operating activities.

The company anticipates generating both net income and cash from operations in future years with this business model; however this outcome cannot be predicted with certainty at this time. The company has an extensive prior history of generating net losses. These consolidated financial statements do not include any adjustments to amounts and classifications of assets and liabilities that may be necessary should we be unable to generate sufficient net income and cash from operations in future years in order to continue as a going concern.

2. Significant Accounting Policies

Basis of Presentation

These consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles of the United States of America in accordance with the same accounting policies and methods used in preparing the consolidated financial statements for the fiscal years ended December 31, 2007 and 2006 and as at December 31, 2007, except as disclosed below.

In the year ended and as at December 31, 2007, the company's Canadian dollar functional currency financial statements were translated into United States dollars for reporting purposes. As of January 1, 2008 the company commenced reporting its financial statements in its Canadian dollar functional currency. The Canadian dollar was adopted for reporting purposes in 2008 as all our operations are now located in Canada.

For periods prior to 2007, when the functional currency of the company was the U.S. dollar, assets and liabilities were translated from the U.S. dollar functional currency to the Canadian dollar using period end exchange rates. The statements of operations and cash flows were translated at period average exchange rates. Any difference was recorded as an adjustment to accumulated other comprehensive income. At January 1, 2008, $710,935 was recorded as an adjustment to accumulated other comprehensive income.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements ”. Statement No. 157 provides a common definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. However, this Statement does not require any new fair value measurements. Statement No. 157 was adopted effective January 1, 2008. The adoption of this standard did not impact the financial position, results of operation or cash flow of the company.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 .” This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costs during the period the change occurred. SFAS No. 159 was adopted effective January 1, 2008. The company did not elect to provide the provisions of SFAS No. 159 to any of its financial instruments; consequently, the adoption of this standard did not impact the financial position, results of operation or cash flow of the company.

Consolidation

We have consolidated the accounts of our wholly owned subsidiaries in the course of preparing these consolidated financial statements. All significant inter-company balances and transactions amongst NXT and its subsidiaries have been eliminated and are therefore not reflected in these consolidated financial statements. On December 22, 2008 the company's fully owned Canadian subsidiaries, NXT Energy Canada Inc. and NXT Aero Canada Inc., were dissolved and all assets and liabilities were wound up into the company. As of December 31, 2008 the company consisted of NXT Energy Solutions Inc. and two inactive subsidiaries in the United States.

Estimates and Assumptions

The preparation of these consolidated financial statements require 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, at the date of these consolidated financial statements as well as revenues and expenses recorded during the reporting periods.

Estimates include allowances for doubtful accounts, estimated useful lives of assets, provisions for contingent liabilities, measurement of stock-based compensation, valuation of future tax assets and valuation of preferred shares including the likelihood that the conversion feature of the preferred shares will be achieved. The estimates and assumptions used are based upon management's best estimate. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period when determined. Actual results may differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and short term securities with original maturity less than 90 days at the date of acquisition.

Short Term Investments

Short term investments include short term securities, held by a major Canadian chartered bank, with original maturities greater than 90 days and less than one year. Investments are recorded at the lower of original cost and market value.

Revenue Recognition

We recognize revenue on SFD survey contracts on a completed contract basis, net of government sales tax. All money received or invoiced in advance of completion of the contract is reflected as unearned revenue and treated as a current liability on our balance sheet. All survey expenditures and obligations related to SFD survey contracts are reflected as work-in-progress and treated as a current asset on our balance sheet. Upon completion of the related contract, unearned revenue and the work-in-progress is moved as appropriate to the statement of earnings (loss) as either revenue or survey cost. Sales commissions are included in survey costs. Survey cost does not include any amortization or depreciation of property and equipment.

Revenue associated with sales of oil and natural gas is recorded when title passes to the customer and collection of the resulting receivable is deemed reasonably assured.

Fair Value of Financial Instruments

Our financial instruments consist of cash equivalents, short term investments, accounts receivable, trade payables and accrued liabilities. The carrying value of these financial instruments approximates their fair values due to their short term to maturity. We are not exposed to significant interest or credit risks arising from these financial instruments. We are exposed to foreign exchange risk as a result of holding of U.S. denominated cash. We have mitigated this risk by reducing the amount of funds we hold in U.S. dollars to $13,121 as at December 31, 2008 ($1,273,347 as at Dec 31, 2007).

Oil and Natural Gas Properties

We follow the full cost method of accounting for oil and natural gas properties and equipment whereby we capitalize all costs relating to our acquisition of, exploration for and development of oil and natural gas reserves. All our oil and natural gas capital assets are located in Canada.

Under the full cost method of accounting, capitalized costs are accumulated in the Canadian cost centers. These costs are then depleted using the unit of production method based on estimated proved oil and gas reserves as determined by independent engineers.

In applying the full cost method of accounting, capital costs in each cost center, less accumulated depletion and depreciation and related deferred income taxes, are restricted from exceeding an amount equal to the sum of the present value of their related estimated future net revenues discounted at 10% less estimated future expenditures, and the lower of cost or estimated fair value of unproved properties included in the costs being amortized, net of related tax effects. Should this comparison indicate an excess carrying value, a write-down would be recorded.

The carrying amounts of unproved oil and natural gas properties, which are excluded from the depletion calculation, are assessed on a periodic basis to ascertain whether any impairment in value has occurred. Impairment is recorded if this assessment indicates the fair market value of unproven lands is less than carrying amounts.

All recoveries of costs through the sale or other disposition of oil and gas properties and equipment are accounted for as adjustments to capitalized costs, with no gain or loss recorded, unless the sale or disposition involves a significant change in the relationship between costs and the value of proved reserves or the underlying value of unproved property, in which case the gain or loss is recorded.

Any oil and natural gas exploration, drilling, development and production activity we conduct is through joint operations with partners and our consolidated financial statements reflect only our proportionate interest.

Property and Equipment

We carry our other property and equipment at cost and depreciate or amortize them over their estimated service lives using the declining balance method, except for leasehold improvements where we use the straight line method, in accordance with the following annual rates:

Computer and SFD system equipment 30%
Computer and SFD system software 100%
Furniture, fixtures and other equipment 20%
Flight equipment 10%
Leasehold improvements over the remaining term of lease

Management periodically reviews the carrying value of our property and equipment to ensure that any permanent impairment in value is recognized and reflected in our results of operations.

Research and Development Expenditures

We expense all research and development expenditures we incur to develop, improve and test our SFD survey system and related components. Any intellectual property acquired for the purpose of enhancing research and development projects, if there is no alternative use for the intellectual property, is expensed in the period acquired.

Foreign Currency Translation

The Canadian dollar is the company's functional currency in 2007 and 2008. Prior to 2007 only the Canadian subsidiaries used the Canadian dollar as their functional currency whereas all other NXT companies used the United States dollar as their functional currency. We use the following methodology to translate U.S. dollar transactions, assets, liabilities and shareholders equity into Canadian dollars:

all asset and liability accounts are translated into Canadian dollars at the rate of exchange in effect as of the end of the applicable fiscal period;
all shareholders' equity accounts are translated into Canadian dollars using historical exchange rates; and
revenue and expense accounts are translated into Canadian dollars at the average rate of exchange for the applicable fiscal period.

Foreign currency translation adjustments resulting from these translations are included in other comprehensive income (loss). For the three years ended December 31, 2008 foreign currency translation adjustments are the only component of other comprehensive income (loss).

Income Taxes

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

On January 1, 2007 the company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”. Interpretation No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes” . The adoption of Interpretation No. 48 did not have a material impact on the financial statements.

Share-Based Payments

The company follows the fair value method of accounting for stock options. Under this method, an estimate of the fair value of the cost of all stock options granted to employees, directors and consultants is calculated using the Black Scholes option pricing model and charged to income over the vesting period of the option, with a corresponding increase recorded in contributed surplus. Upon exercise of the stock option, the consideraton received by the company and the amount previously recorded in contributed surplus, is recorded as an increase to the share capital of the company.

Stock-based compensation for non-employees is periodically re-measured until the non-employees' performance is complete, or the amortization period is complete. Changes to the re-measured compensation are recognized in the period of change and amortized over the remaining life of the vesting period in the same manner as the original option.

Convertible Debt

We review the terms of convertible debt and equity instruments we issue to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, we may issue freestanding warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date, with changes in the fair value reported as charges or credits to income. When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face amount.

The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

Recent Accounting Pronouncements

SFAS No. 141(R) replaces SFAS No. 141, "Business Combinations" . SFAS No. 141(R) retains the fundamental requirements of SFAS No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination, with the objective of improving the relevance and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS No. 160 clarifies the classification of non-controlling interests in consolidated statements of financial position and the accounting for and reporting of transactions between the reporting entity and holders of such non-controlling interests. The requirements of these standards will be applied to business combinations subsequent to December 31, 2008.

SFAS No. 161, which amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" , requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. SFAS 161 is effective prospectively for periods beginning on or after November 15, 2008. We are currently evaluating the impact that SFAS No. 161 may have on our financial statement disclosures.

In May 2008, FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles ” which codifies the sources of accounting principles and the related framework to be utilized in preparing financial statements in conformity with U.S. GAAP. The adoption of this standard is not expected to impact the financial position, results of operation or cash flow of the company.

3. Oil and Natural Gas Properties

	As at December 31,
	2008		2007
Proved property costs	$ -	$ 28,270
Unproved property costs	7,315		7,315
Balance at the end of year	$ 7,315	$ 130,360

Effective April 1, 2008, the company sold its 22.5% working interest in a well at Entice, Alberta, for a net proceeds of $47,400. As at December 31, 2008 the company's interests in oil and gas properties consists only of undeveloped land and royalty interests.

4. Property and Equipment
	As at December 31,
	2008		2007
Survey equipment	$ 454,595	$ 411,694
Furniture and other equipment	520,364		365,010
Computers and software	936,641		904,715
Vehicles	22,631		22,631
Leasehold improvements	69,986		13,513
Other property and equipment	2,004,217		1,717,563
Less accumulated depreciation, amortization and impairment	(1,382,821)		(1,213,403)
Net other property and equipment	$ 621,396	$ 504,160

Included in other property and equipment are assets acquired under capital lease arrangements with future minimum lease payments of $8,874 over each of the next four years. Amortization of these assets is included in amortization and depreciation on the statement of income. At December 31, 2008 the capitalized cost of the leased assets is $46,822 and related accumulated amortization is $22,381.

5. Other Accrued Liabilities
	As at December 31,
	2008		2007
Legal and accounting	$ 198,570	$ 186,311
Commission on sales	-		64,568
Consultant fees	37,500		2,250
Other	20,554		75,382
	$ 256,624	$ 328,511

The accrued commission on sales for 2007 was satisfied through the issuance of common shares in 2008.

6. Asset Retirement Obligation

In 2008 the company paid $161,946 in abandonment and reclamation expenses plus accrued an additional $20,000 in respect to one well drilled in 2000 and abandoned in 2008 for which no asset retirement obligation had been recorded.

The remaining asset retirement obligations relate to wells where the company has outstanding abandonment and reclamation obligations in accordance with government regulations. Management conducted a review in 2008 of all wells for which NXT had a historical participation and determined that 8 gross (1.1 net) wells drilled in the years 2000 through 2004 still require abandonment. Management has determined the asset retirement obligation based upon estimates of the costs to remediate, reclaim and abandon the wells and the estimated timing of the costs to be incurred. At December 31, 2008, the asset retirement obligation is estimated to be $28,997 (December 31, 2007 – nil), based on a total future liability of $42,454. These obligations are estimated to be settled in five years. This amount has been calculated using an inflation rate of 3.4% and discounted using a credit-adjusted risk-free interest rate of 10.0% .

The following table reconciles the asset retirement obligations:		As at December 31, 2008
Asset retirement obligation, beginning of year		$ -
Additions in the year			208,307
Accretion			2,636
Costs incurred			(161,946)
Asset retirement obligation, end of year		$ 48,997

7. Common Shares

The following table provides a continuity of common shares and value since December 31, 2006.
	Common Shares
	Shares		Amount
As at December 31, 2006	27,177,908	$ 45,987,597
Transactions during the year ended December 31, 2007
Issued through the conversion of convertible debentures and accrued interest	192,401		210,618
Issued on exercise of options	263,000		369,068
Issued in exchange for services provided	90,807		269,416
Issued on exercise of warrants	1,989,265		2,952,996
As at December 31, 2007	29,713,381	$ 49,789,695
Transactions during the year ended December 31, 2008
Issued to discharge accrued liabilities outstanding as at December 31, 2007	9,205		44,396
Issued on exercise of options	276,667		182,099
Issued on exercise of warrants	677,543		1,867,931
As at December 31, 2008	30,676,796	$ 51,884,121

170,000 shares were issued to officers and directors on the exercise of options and warrants in 2008 (82,844 - 2007).

The company has an unlimited number of shares authorized.

Reconciliation of Earnings per Share Calculations

For the year ended December 31, 2008
		Weighted Average
	Net Loss	Shares Outstanding	Per Unit
Basic and diluted	$ (1,141,291)	30,369,586	$ (0.04)

For the year ended December 31, 2007
		Weighted Average
	Net Income	Shares Outstanding	Per Unit
Basic	$ 350,431	27,838,893	$ 0.01
Options assumed exercised		2,048,371
Warrants assumed exercised		2,776,560
Preferred shares assumed converted		2,000,000
Shares assumed purchased		(2,786,045)
Diluted	$ 350,431	31,877,779	$ 0.01

For the year ended December 31, 2006
		Weighted Average
	Net Loss	Shares Outstanding	Per Unit
Basic and diluted	$ (4,264,196)	25,038,200	$ (0.17)

All options, warrants and preferred shares were excluded from the diluted earnings per share calculation for the years ended December 31, 2008 and 2006 as they were antidilutive.

8. Preferred Shares

The company committed to the issue of 10,000,000 series 1 preferred shares to its chief executive officer, president and director on December 31, 2005 pursuant to a 10 year license agreement for the SFD technology. This 2005 license agreement was superseded on December 31, 2006 by the execution of the Technical Transfer Agreement (“2006 TTA”) wherein the company issued the 10,000,000 series 1 preferred shares and purchased outright the SFD Technology. The company is authorized to issue an unlimited number of preferred shares and has authorized the issuance of 10,000,000 series 1 preferred shares.

The 10,000,000 series 1 preferred shares have the following attributes:

Series 1 preferred shares are conditionally convertible into common shares.
2,000,000 of the series 1 preferred shares became convertible into common shares upon issue.
The remaining 8,000,000 series 1 preferred shares may become convertible into common shares in four 2,000,000 share increments should the company achieve specified cumulative revenue thresholds prior to December 31, 2015. These cumulative revenue thresholds are at U.S. $50 million, U.S. $100 million, U.S. $250 million and U.S. $500 million.
Cumulative revenue is defined as the sum of total revenue earned plus proceeds from the sale of assets accumulated since January 1, 2007, all denominated in United States dollars, and calculated in accordance with generally accepted accounting principles.
In the event that the final cumulative revenue threshold of U.S. $500 million is not achieved prior to December 31, 2015, the company has the option to either redeem any unconvertible preferred shares for a price of $0.01 per share and forfeit the SFD
Technology, or retain the ownership of the SFD Technology by making all remain series 1 preferred shares convertible intocommon shares.
Series 1 preferred shares shall not be transferable except with the consent of the board of directors.
Series 1 preferred shares do not participate in dividends.

The preferred shares as reflected in these financial statements were evaluated at fair market value at December 31, 2005. This value did not change following the execution of the 2006 TTA. The preferred shares issued were valued at December 31, 2005 using an option-pricing model and this value was expensed in the year ended December 31, 2005.

9. Convertible Debentures

During 2005 we closed United States dollar denominated private placement bridge-financing contracts. Pursuant to these contracts the company issued financial instruments that converted automatically into U.S. $1,955,342 of debentures and 1,989,265 warrants in exchange for cash proceeds of U.S. $1,649,764 (net of commission paid of U.S. $24,928) and the conversion of note payable and accrued interest of U.S. $280,650 for aggregate net proceeds of U.S. $1,930,414. The debentures were all converted into common shares in 2006 and 2007.

Each debenture had a stated term that defined a termination of the debentures beginning on March 7, 2007 through to June 7, 2007. The debentures earned interest at ten percent per annum. Additionally, debenture holders were entitled to a two percent registration penalty as the underlying shares to the debenture were not made available for resale within 90 days of the original closing date of the debenture financing.

The debentures were assessed under SFAS 133 as containing an embedded derivative liability. Accordingly the company bifurcated the embedded conversion option and accounted for it as a derivative instrument liability because the conversion price of the debt was potentially adjusted if we issued common stock at a lower price than the stated conversion rate. This derivative instrument liability was initially recorded at its fair value and is then adjusted to fair value at the end of each subsequent period, with changes in the fair value charged or credited to income in the period of change. This embedded conversion option was revalued using the binomial option pricing model. The warrants issued along with the convertible debenture were classified as equity in accordance with EITF 00-19 and were valued using a Black Scholes model.

The proceeds received on issuance of the convertible debt during 2005 were first allocated to the fair value of the bifurcated embedded derivative instruments included in the convertible notes and the warrants, with the remaining proceeds allocated to the convertible debentures, resulting in the debentures being recorded at a significant discount from their face amounts as shown in the table below. This discount was then accreted, together with the stated interest on the debenture, using the effective interest method over the term of the debenture.

		U.S. Dollar
Proceeds received on issuance of the convertible debentures		$ 1,913,260
Minus:
Fair value of the conversion options (derivatives)		503,564
Fair value of warrants		963,730
Discount applied to convertible debentures		1,467,294
Convertible debentures discounted carrying value at date of issue		$ 445,966

The fair value of the conversion options was an embedded derivative instrument that required fair market valuation at inception and at the end of each reporting period. This option was valued using an option-pricing model that assumed that the maximum price was the forced conversion feature price inherent in the convertible debenture. The value at inception was $503,564, at December 31, 2005 the value was $1,421,384, $68,994 at December 31, 2006, nil at December 31, 2007 and nil at December 31, 2008. Change in the value of the conversion feature was expensed in the period when it occurred.

Immediately prior to the conversion of a convertible debenture to common shares we amortized the remaining debt discount for that debenture and revalued its conversion feature to fair market value. The resulting change in carrying value of the debenture and conversion feature was recorded as a charge or credit to income. Common shares issued through the conversion of a debenture were valued as the sum of the fair market value at the date of conversion of the fully accreted value of the debenture and value of the conversion feature.

In accordance with this accounting procedure, the value of the convertible debenture and the conversion feature as at December 31, 2008 and 2007 are as follows:

	For the year ended December 31,
	2008	2007
Debenture carrying value, registration penalty and accrued interest at beginning of year	$ 178,540	$ 663,294
Expense including interest, registration penalty and foreign exchange adjustment	-	24,883
Converted to common shares	-	(165,813)
Registration penalty paid	(178,540)	(343,824)
Debenture carrying value, registration penalty and accrued interest at end of year	$ -	$ 178,540

Conversion feature carrying value at beginning of year	$ -	$ 80,406
Converted to common shares	-	(80,406)
Fair value of the conversion feature at end of year	$ -	$ -

During 2007 penalties of $343,824 were paid out and the payment of the remaining $178,540 in penalties was made in the first quarter of 2008.

10. Employee, Directors and Contractor Options

Summarized below are all outstanding options under the Plans as of December 31, 2008:

		Weighted average		Weighted average
		exercise price of		exercise price of
Range of exercise prices in U.S. dollars	Outstanding options	outstanding options	Options exercisable	exercisable options
$0.50 - $0.99	341,741	$ 0.73	335,074	$ 0.71
$1.00 - $1.99	1,451,463	$ 1.51	627,296	$ 1.39
$2.00 - $3.99	177,000	$ 2.35	114,000	$ 2.12
Over $4.00	300,000	$ 4.90	100,000	$ 4.90
Total sum of outstanding	2,270,204	$ 1.90	1,176,370	$ 1.56

Summarized below are all outstanding options under the Plans as of December 31, 2007:

		Weighted average		Weighted average
		exercise price of		exercise price of
Range of exercise prices in U.S. dollars	Outstanding options	outstanding options	Options exercisable	exercisable options
under $0.50	226,667	$0.35	226,667	$0.35
$0.50 - $0.99	381,741	$0.72	298,408	$0.69
$1.00 - $1.99	1,162,963	$1.40	254,463	$1.40
$2.00 - $3.99	277,000	$2.16	235,000	$2.18
Over $4.00	300,000	$4.90	-	$0.00
Total sum of outstanding	2,348,371	$1.72	1,014,538	$1.14

Average contractual life for all outstanding options under the Plans as of December 31, 2008 and 2007:

	Weighted average remaining contractual life
	(years)
Range of exercise prices in U.S. dollars	December 31, 2008	December 31, 2007
under $0.50	-	0.8
$0.50 - $0.99	1.9	2.3
$1.00 - $1.99	2.8	3.6
$2.00 - $3.99	1.6	1.8
Over $4.00	4.0	5.0
Total sum of outstanding	2.7	3.1

Continuity of options for the years ended December 31, 2008 and 2007:

	For the year ended December 31, 2008		For the year ended December 31, 2007
		Weighted average		Weighted average
Exercise prices in U.S. dollars	# of options	exercise price	# of options	exercise price
Outstanding as at beginning of year	2,348,371	$ 1.72	1,588,205	$ 1.15
Granted	403,500	$ 2.05	1,220,500	$ 2.32
Expired or forfeited	(205,000)	$ 2.13	(197,334)	$ 1.57
Exercised	(276,667)	$ 0.44	(263,000)	$ 1.14
Options outstanding as at end of year	2,270,204	$ 1.90	2,348,371	$ 1.72
Exercisable as at end of year	1,176,370	$ 1.56	1,014,538	$ 1.14

In 2008 and 2007 the company's officers and directors had the following options granted, forfeited or exercised:

	For the year ended December 31, 2008		For the year ended December 31, 2007
		Weighted average		Weighted average
Average exercise prices in U.S. dollars	# of options	exercise price	# of options	exercise price
Granted	-	$ -	885,000	$ 2.62
Expired or forfeited	-	$ -	(60,000)	$ 1.18
Exercised	(110,000)	$ 0.35	(70,000)	$ 0.37

The 2006 Stock Option Plan was approved on September 30, 2006 by company shareholders at the Annual General Meeting. The 2006 Stock Option Plan set forth terms and conditions whereby options to purchase common shares of the company can be issued to directors, officers and employees of the company and to consultants retained by the company. The aggregate number of common shares reserved for issuance under this Plan, or any other prior Plan of the company shall not, at time of the stock option grant, exceed ten percent of the total number of issued and outstanding common shares (calculated on a non-diluted basis) unless the company receives permission of the stock exchange or exchanges on which the shares are then listed to exceed such threshold.

Issuance of options to any one participant shall not exceed five percent of the total number of issued and outstanding common shares in any 12 month period with consultants retained for investor relations duties further restricted to two percent in any 12 month period without permission of the stock exchange or exchanges on which the common shares of the company are listed. Furthermore, shareholder approval is required for grants of options to insiders of options that exceed ten percent of the issued common shares within any 12 month period. No options shall be granted for a term exceeding five years without permission of the stock exchange or exchanges on which the shares of the company are listed. All options issued under Plans are issued from treasury.

Unvested options outstanding as of December 31, 2008 and 2007 vest over the three year period starting from the date of grant dependant on the continued provision of services. The options vest one-third at the end of each of the first three years following the grant date. Options generally lapse, if unexercised, five years from the date of vesting.

We received $1,499,853, $2,319,433 and $102,310 cash from the exercise of stock options and warrants during the year ended December 31, 2008, 2007 and 2006 respectively.

Compensation Expense Associated with Grant of Options

In the year ended December 31, 2008 the company recorded stock-based compensation expense of $653,042 (2007 - $505,914 and 2006 - 456,236).

The grant date fair value is calculated in U.S. dollars using the Black Scholes option valuation model utilizing the following weighted average assumptions:

		For the year ended December 31,
	2008	2007	2006
Expected dividends paid per common share	Nil	Nil	Nil
Expected life (years)	3	3	3
Expected volatility in the price of common shares (%)	88%	65%	127%
Risk free interest rate (%)	4%	4%	4%
Weighted average grant date fair market value per share in U.S dollars	$ 1.19	$ 1.96	$ 0.64
Intrinsic value of options exercised in U.S. dollars	$ 2.18	$ 2.87	$ 0.67

As of December 31, 2008 and 2007 there were $985,473 and $1,232,097 respectively of total unrecognized compensation cost related to non-vested share-based compensation awards granted under the stock option plans. This cost will be recognized over the remaining vesting period.

11. Warrants

Continuity of warrants for the years end December 31, 2008 and 2007:

	As at December 31, 2008		As at December 31, 2007
		Weighted average		Weighted average
	# of warrants	exercise price	# of warrants	exercise price
Outstanding as at beginning of the year	2,776,560	$ 1.96 U.S.	4,615,825	$ 1.54 U.S.
Issued for services	-	-	150,000	$ 2.20 Cdn
Exercised	(702,543)	$ 2.00 U.S.	(1,989,265)	$ 1.00 U.S.
Expired	(1,924,017)	-	-	-
Outstanding as at end of the year	150,000	$ 2.20 Cdn	2,776,560	$ 1.96 U.S.

On June 30, 2007 NXT entered into agreements with a member dealer of the TSX Venture Exchange ("TSX-V") to act as sponsoring dealer for NXT's listing application to the TSX-V. Pursuant to the agreement, NXT issued 150,000 common share warrants to the dealer upon becoming listed on the TSX-V on December 3, 2007. The fair market value of these warrants was estimated at $482,750. The warrants have an exercise price of $2.20 and expire on December 3, 2009 unless NXT's common shares close at or above $6.00 per share on the TSX-V for 20 consecutive days at which point the exercise period will expire 30 days following this condition being met.

The company has historically issued warrants in U.S. and Canadian dollars. At December 31, 2008, all warrants outstanding are exercisable in Canadian dollars.

Outstanding warrants as of December 31, 2008 and 2007:

	As at December 31, 2008		As at December 31, 2007
		Weighted average		Weighted average
	Outstanding	remaining contractual		remaining contractual life
Exercise prices	warrants	life (years)	Outstanding warrants	(years)
$1.60 U.S.	-	0.0	350,000	0.3
$2.00 U.S.	-	0.0	2,276,560	0.3
$2.20 Cdn	150,000	1.0	150,000	2.0
Total sum of outstanding	150,000	1.0	2,776,560	0.4

The grant date fair value of warrants issued was calculated using the Black Scholes option valuation model utilizing the following weighted average assumptions:

		For the year ended
		December 31, 2007
Expected dividends paid per common share		Nil
Expected life (years)		2
Weighted average volatility		81%
Risk free interest rate (%)		4%

In 2008 and 2007 the company's officers and directors had the following warrants exercised in U.S. dollars:

	For the year ended December 31, 2008		For the year ended December 31, 2007
	# of warrants	exercise price	# of warrants	exercise price
Exercised	-	$ -	32,844	$ 1.00

12. Income Taxes

Our income tax for accounting purposes is different from the amount computed by applying the statutory Canadian federal and provincial income tax rate to income or loss before taxes.

	For the year ended December 31,
	2008		2007
Canadian statutory income tax rate	29.5%		32.1%
Income tax expense (recovery) at statutory rate	$ (336,681)	$ 120,125
Impact of non deductible expenses on income tax
Stocked-based compensation	192,648		369,200
Forfeited in year	108,133		179,611
Exchange adjustment	(449,071)		275,975
Rate reduction	(85,122)		588,652
Other	(3,203)		(99,276)
Valuation allowance	573,296		(1,434,287)
	$ -	$ -

	As at December 31,
	2008		2007
Deferred income tax assets
Net operating loss carry forward USA (expiration dates: 2009-2028)	$ 2,412,739		1,963,668
Net operating loss carry forward Canada (expiration dates: 2009-2029)	2,749,895		2,709,856
Property and equipment	2,311,416		2,227,230
Valuation reserve	(7,474,050)		(6,900,754)
	$ -	$ -

We have not provided for any amount of current or deferred U.S. or Canadian federal, state or provincial income taxes for the years ended December 31, 2008, 2007 and 2006. We have provided a full valuation allowance on the deferred tax asset and liability, consisting primarily of net operating loss carry forwards and timing differences on property and equipment, because of uncertainty regarding their realization. The increase in the valuation allowance on the deferred tax asset during the year ended December 31, 2008 was $573,296 compared with a decrease $1,434,287 for the year ended December 31, 2007. The 2007 decrease is largely due to the reduction in Canadian income tax rates, exchange fluctuations affecting U.S. net operating loss and to the application of FIT assets to reduce current taxes to zero. All income and losses for tax purposes generated during the three years are substantially in Canada.

Prior to 2008, the company and its subsidiaries had incurred losses since their incorporation and have not been assessed by tax authorities. Accordingly, all taxation years remain subject to review by tax authorities.

13. Related Party Transactions

Summarized below is information concerning related party transactions and balances not disclosed elsewhere in these consolidated financial statements for the years ended December 31, 2008, 2007, and 2006:

	For the year ended December 31,
	2008	2007		2006
Collective wages, fees, bonuses and benefits paid to executive officers
of NXT, who were also directors of NXT	$ 231,244	$ 220,121	$ 183,755
Interest expense recognized or paid to related parties and officers	$ -	$ 13,371	$ 16,647

110,000 shares were issued to officers and directors pursuant to the exercise of options at a strike price of U.S. $0.14 - $0.43 in the year ended December 31, 2008.

In the year ended December 31, 2008, 5,000 shares were issued to the spouse of an officer of the company pursuant to the exercise of warrants at a strike price of U.S. $2.00.

A Director of NXT is also an officer for one of our SFD survey clients. We recorded revenue from this client for the years ended December 31, 2008, 2007 and 2006 of $1,200,000, nil and $600,000, respectively. At December 31, 2006 there was a $300,000 account receivable due from this client that was received in 2007.

In 2006, 582,787 common shares were issued to discharge U.S. $729,341 of accrued liabilities as at December 31, 2005. These obligations were related to services provided by consultants for corporate strategy and planning services provided in 2005. Of these shares, 65,534 were issued to an individual who is currently an officer of the company and 400,000 were issued to an individual who is currently a director of the company. In both cases the services were provided prior to these individuals accepting their positions with the company.

The company's board of directors authorized 403,500 options to be issued to directors, officers, employees and contractors of the company. The options were issued with an exercise price ranging from U.S. $1.90 to U.S. $2.80 based on the closing trading price of the company's common shares on the OTCBB for the date of issue. Of these 294,000 were issued to consultants for services and 109,500 were issued to employees.

The company recorded a liability of $38,310 to an outgoing director for services rendered in a prior year.

14. Commitments and Contingencies

In 2002 we were served a Statement of Claim whereby the plaintiff alleged that NXT failed to pay him compensation of $74,750, plus interest, under a consulting agreement and further alleged that NXT unlawfully obstructed him from trading his shares of NXT. On December 10, 2002 we filed our Statement of Defense. The plaintive is a past president and director of NXT. On August 15, 2008 a settlement was reached on this Statement of Claim wherein we paid $90,000 and the plaintiff provided us with a complete release to any claim against NXT, its directors or officers, or any claim of an interest in the SFD technology.

On March 18, 2003 we were served a Statement of Claim naming NXT and others as defendants. The plaintiffs allege that the defendants were negligent and in breach of a ferry flight contract under which an aircraft was to be delivered to Greece. The aircraft crashed enroute. The Plaintiffs are seeking, among other things, damages in the amount of Cdn. $450,000 or loss and damages to the aircraft and cargo, and damages in respect to search and rescue expenses, salvage, storage, transportation expenses and pollution and contamination expenses. NXT was not party to the Ferry Flight Contract. The outcome of the claim is not determinable. Management believes the claim is without merit and we intend to defend ourselves against the claim.

In May 2008 we entered into a revised lease agreement for expanded office space in our current location. The original lease was for a six year term beginning November 1, 2006 and ending October 31, 2012. The amended lease is effective June 1, 2008 and ends October 31, 2012. The minimum sublease payments will be $29,483 per month beginning June 1, 2008 and $30,729 per month for the final three years of the lease.

15. Comparative Figures

Certain amounts in the consolidated financial statements have been reclassified in the comparative periods to conform to the current year's presentation. All comparative periods have been converted from the company's prior reporting currency, the U.S. dollar, to the current reporting and functional currency the Canadian dollar.

16. Subsequent Event

On April 13, 2009 the company executed a letter of intent from a Colombian subsidiary of a Canadian oil and gas company to conduct a U.S. $2,300,000 SFD survey in Colombia. The final award of this SFD survey contract is subject to the execution of the definitive agreement and approval by NXT's Board of Directors. The letter of intent contemplates a survey that shall commence in the second quarter of 2009.

EX-99.2 5 mda.htm MD&A CC Filed by Filing Services Canada Inc. 403-717-3898

NXT ENERGY SOLUTIONS INC

(Formerly Energy Exploration Technologies Inc)
As at and for the year ended December 31, 2008

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following management's discussion and analysis ("MD&A") was prepared by management based on information available as at April 23, 2009. It should be reviewed in conjunction with the audited year end Consolidated Financial Statements for the year ended December 31, 2008.

As used in this MD&A, the terms "we", "us", "our", "NXT" and "company" mean NXT Energy Solutions Inc.

Our reporting currency is the Canadian dollar. All references to "dollars" in this MD&A refer to Canadian or Cdn. dollars unless specific reference is made to United States or U.S. dollars.

Forward-Looking Statements

Certain statements in this document may constitute "forward-looking statements". These forward-looking statements can generally be identified as such because of the context of the statements including words such as "believes", "anticipates", "expects", "plans", "estimates" or words of a similar nature.

These forward-looking statements are based on current expectations and are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Except as required by law, the company assumes no obligation to update forward-looking statements should circumstances or the company's estimates or opinions change.

Description of Business

NXT is a Calgary based technology-driven company providing wide-area airborne exploration survey services for the oil and gas industry. The company utilizes its proprietary Stress Field Detection ("SFD") survey system to offer its clients a unique survey service that rapidly identifies areas with oil and gas potential. As an airborne survey system, SFD is environmentally non-invasive and unaffected by ground security issues or difficult terrain. Additionally, surveys can generally be conducted year round both onshore and offshore. NXT offers its services world-wide providing its clients an efficient, accurate and reliable method to explore for hydrocarbons.

On September 22, 2008 the company changed its name from Energy Exploration Technologies Inc to NXT Energy Solutions Inc. This change was approved by shareholders during the company’s November 29, 2007 Annual General Meeting. The name change was implemented to better reflect our principal activities and now aligns with the NXT trademark. The trading symbol for the TSX-V (SFD.V) remained unchanged as does our trading symbol (EFW) for the Frankfurt exchange. In accordance with regulations, our NASDAQ OTCBB symbol was changed to NSFDF.OB (from the old symbol ENXTF.OB).

Overall Performance

Discussion of business and impact of recent worldwide financial crisis

Since the mid-point of 2008, NXT has been adversely affected by economic conditions caused by the rapid decline in the financial markets, downturn in commodity prices, as well as uncertainty related to proposed increases in the Province of Alberta’s royalty rates. These factors collectively have created a business environment that diminished the demand for our services within the western Canadian sedimentary basin; the basin wherein all of NXT’s revenue had been derived since 2006. In the last half of 2008, several clients and potential clients cancelled SFD survey programs, as contemplated in their business plans, due to these economic conditions. As a consequence, NXT had no revenue in the fourth quarter of 2008 and no SFD survey revenue for the first quarter of 2009.

Despite these disappointments, NXT is in an enviable position. With significant cash reserves we have the financial resources to execute our business plan, expand the management team and pursue targeted international opportunities evident in this challenging market. A key advantage of our position today is that we can build on the commercial and technical successes realized from previous client surveys. These surveys provide invaluable case studies; client endorsements and industry recognition that are required to broaden the market adoption of our services.

Our 2009 objective is to focus on revenue growth through the implementation of new marketing, sales and technical strategies that showcase our past achievements. To meet this objective we are expanding our geological and geophysical technical team and establishing a strong sales and marketing organization. NXT is determined to develop a market brand to evolve from the technology company of the past to become a respected service provider with strong geological and geophysical expertise and an industry leading reputation.

We recently announced the appointment of Mr. Murray Christie as our Chief Operating Officer. Mr. Christie’s career includes over 15 years of geological modeling and geophysical survey experience providing leading edge technology solutions to international and domestic oil and gas clients. He offers a track record of impressive revenue growth derived from launching technologies for the oil and gas sector. Mr. Christie’s previous roles include COO of Geomodeling Technology Corporation and Canadian President of Paradigm, a major international geosciences software and service provider. In addition, we have engaged the services of a senior consulting geologist and geophysicist, Mr. Azer Mustaqeem of Petro-Explorer Consulting, who offers over ten years of advanced geophysical modeling and software experience gained throughout North America. Mr. Mustaqeem holds both a Master of Science in Exploration and Development Geophysics from Stanford University and Master of Science in Applied Geology from Azad Jammu & Kashmir University in Pakistan.

These recent management additions, both with strong geosciences backgrounds, shall continue to be complimented by our Geosciences Advisory Board as announced on June 26, 2008. The board has provided invaluable contributions by assisting in the acceptance and application of the SFD survey system as well as the understanding of the underlying science. We are indeed fortunate for the services of our advisory board consisting of Dr. George Iusco, Prof. Arief Budiman and Mr. Leslie Kende.

Furthermore in 2008, to develop a market focus for our business plan, we began assessing various international market opportunities for our services. These initiatives include attending industry conferences, conducting in-house evaluations of potential international markets, consulting with international agents and drawing upon the vast experience of our Board of Directors and Geosciences Advisory Board.

Particularly, our recent attendance at industry conferences has significantly advanced our business plan development. They provided market intelligence, access to key decision makers and advisors and provided excellent forums to introduce and stimulate dialogue on our SFD technology. Since September 2008 we have attended the OIL & MONEY and the APPEX conferences in London, the VENEZUELAN GEOPHYSICAL CONGRESS in Caracas, the SEG (Society of Exploration Geophysicists) conference in Las Vegas, and the NAPE (formerly "North American Prospect Expo") conference in Houston. NXT was represented at these conferences by key members of management, of the Board of Directors and of the Geosciences Advisory Board.

Throughout this process we have formulated clear criterion to evaluate the market potential for any international region or country. This criterion includes an assessment of budgeted expenditures for frontier exploration, fiscal and geo-political stability, general receptiveness of participating companies to new technologies and the relative competitive advantages of SFD within the region. By applying this criterion we have now completed extensive reviews of potential markets consisting of over 12 regions of the world. Through this process we have ranked regions for their potential and identified Colombia as an initial target market.

As well, we have developed a better understanding of the requirements to overcome industry resistance and enable the adoption of SFD by the oil and gas industry at large. Industry requires detailed comparisons between SFD and other geological and geophysical data. We have initiated a major program to conduct these detailed comparative studies. This program is still in its early stage, however, it has provided valuable presentation material to support our sales initiatives.

In preparation for serving an international client base we have secured an option agreement from Air Partners Corporation, a Calgary based air-charter operator, to provide aircraft, crew and maintenance services for our survey operations worldwide. Air Partners is a subsidiary of Morgan Air Services which has been providing aviation services worldwide since 1983. This agreement gives us priority access, on an as needed basis, to multiple Citation 560 series jet aircraft that have been modified to meet our survey requirements. These jets are well suited for international operations as they will provide the additional flying range required as compared to the Piaggio aircraft previously used in our Canadian operations.

These initiatives to develop and execute our business plan have shown early success. We have recently executed a letter of intent to provide U.S. $2.3 million of SFD survey services in Colombia for a Colombian subsidiary of a Canadian oil and gas company. This letter of intent is subject to the execution of the definitive agreements and receiving NXT’s Board approval. In addition, we have engaged in discussions regarding surveys in other locations of the world.

We are encouraged by our early success in identifying qualified international opportunities and will continue to ramp-up our technical sales and operational capacity to pursue both domestic and international opportunities.

Although the recent weakness in our domestic marketplace is unfortunate, we are confident in the future of the company. Client successes from using our technology provide strong assurances of the long term value of our survey system to the oil and gas industry.

Selected Annual Information
	For the year ended December 31,
	2008	2007		2006
Survey revenue	$ 2,944,470	$ 5,608,432	$ 1,206,684
Oil and natural gas revenue	10,592	33,260		41,830
Net comprehensive income (loss)	(1,141,291)	350,431		(4,264,196)
Net income (loss) per share unit; basic	(0.04)	0.01		(0.17)
Net income (loss) per share unit; diluted	(0.04)	0.01		(0.17)
Net cash generated (used) in operating activities	(1,812,796)	3,854,084		(1,128,138)
Cash and short term investments	6,894,170	7,640,962		2,308,015
Total assets	7,600,609	9,142,535		3,433,028
Long term liabilities	53,808	32,140		-

Highlights of 2008

We completed SFD surveys for two clients earning $2,944,470 of revenue in the year and incurred a net loss of $1,141,291.
We used $1,812,796 in cash for operating activities in the year.
$1,499,853 of cash was received as a result of 276,667 options being exercised at an average exercise price of $0.45 and 677,543 warrants being exercised at $2.03 per share.
Our cash and investments held on account as at the end of the year are $6,894,170; a decrease of $746,792 from the beginning of the year. Working capital ended the year at $6,325,055 as compared with $5,336,353 at the end of last year.

Results of Operations

The company reported a loss of $1,141,291 for the year ended December 31, 2008.

Revenue
	For the year ended December 31,
	2008	2007		2006
SFD survey revenue	$ 2,944,470	$ 5,608,432	$ 1,206,684
Oil & gas revenue	10,592	33,260		41,830
Total revenue	$ 2,955,062	$ 5,641,692	$ 1,248,514

Survey Revenue

The SFD survey revenue for the year ended December 31, 2008 is $2,944,470 and is related to two SFD survey contracts that were completed for existing NXT clients. This compares to 2007 survey revenue of $5,608,432 for five surveys completed for three clients (2006 - $1,206,684 for one contract). NXT believes that the decline in 2008 is a result of downward market conditions that have caused a delay or cancellation of surveys planned by two junior oil and gas clients as they attempted to secure financing or reevaluated their capital programs.

Oil and Natural Gas Revenue

Effective April 1, 2008, the company sold its 22.5% working interest in a well at Entice, Alberta for a net proceeds of $47,400. Following the effective date, the company ceased to hold working interests in any producing wells. The company's interests in oil and gas properties consist of undeveloped land and gross overriding royalty ("Royalty") interests.

Currently, the company holds Royalty interests in two producing wells in Alberta and an entitlement to Royalties on future production on much of the land where we have conducted surveys for clients. We are optimistic on generating additional Royalty income from these surveyed areas as one of our clients is actively pursuing exploration programs on these surveyed areas. There is no certainty Royalties will be earned from these entitlements.

	For the year ended December 31,
	2008	2007		2006
Gross overriding royalty	$ 1,168	$ 4,542	$ 1,266
Oil and natural gas revenue; net of royalty	9,424	28,718		40,564
Revenues; net of royalty expense	$ 10,592	$ 33,260	$ 41,830

Income from Operations

We had an operating loss of $1,114,922 in 2008 (2007 - operating income of $591,464 and 2006 - operating loss of $2,986,393), representing an overall decrease of $1,706,386 in the year.

Expenses
	For the year ended December 31,
	2008	2007		2006
Survey cost	$ 211,237	$ 814,343	$ 164,095
Oil and natural gas operating expenses	3,959	3,753		5,390
Administrative	3,678,803	4,016,662		2,816,002
Depletion and impairment of oil and natural gas properties	4,372	87,291		1,153,576
Amortization and depreciation	171,613	128,179		95,844
	$ 4,069,984	$ 5,050,228	$ 4,234,907

Expenses for the year ended December 31, 2008, 2007 and 2006

The 2008 survey costs of $211,237 ($814,343 - 2007 and $164,095 - 2006) were for two surveys completed in 2008 (2007 - five surveys and 2006 - one survey). These expenses include nil commissions on sales in 2008 (2007 - $339,545 and 2006 - nil). The commission on sales in 2007 was for a finder's fee obligation that affected a one-year period only and was fulfilled with the issuance of company shares.
The administrative cost decrease of $337,859 for 2008 to 2007 related mainly to employee bonuses and TSXV sponsorship and listing costs being incurred in 2007 (nil - 2008). Theses were offset somewhat by increased consultant expenses in 2008 that included fees for electronic design and development, investor relations, an executive compensation study, geoscience advisory services and sales and marketing strategy development.
The 2007 administrative increase of $1,200,660 over 2006 related to the hiring of additional staff, salary reassessments and employee bonuses; upgrades to computer hardware and software; TSX-V sponsorship and listing costs; and the change in auditors necessitating audit costs for outgoing and incoming auditors.
Effective April 1, 2008 the company sold its working interest in a well at Entice, Alberta and therefore will no longer have depletion of oil and natural gas properties.

In 2008, the company expanded its office space in its existing building incurring costs to update and furnish the facilities. We also invested in additional equipment required to develop sensors. This has resulted in an increase in amortization and depreciation costs.

Other Expense
	For the year ended December 31,
	2008	2007		2006
Convertible debenture interest:
Accretion of convertible debenture	$ -	$ -	$ 1,144,280
Change in fair market value of conversion feature	-	-		(456,263)
Interest on convertible debenture including registration penalty	-	100,980		602,222
	-	100,980		1,290,239
Gain on sale of properties	(20,325)	-		-
Interest income	(234,007)	(109,374)		(4,411)
Loss (gain) on foreign exchange	(20,242)	249,427		1,882
Other	90,000	-		-
Abandonment	210,943	-		-
Other expense	26,369	241,033		1,287,710

The registration penalty obligation was incurred through a registration rights agreement provided to all investors in the 2005 convertible debenture. Pursuant to this rights agreement the company was obliged to pay a 2% per month registration penalty for month four and beyond following the close of the convertible debenture private placement. The penalty continued to accrue until the shares became free trading concurrent with the company's TSX Venture Exchange listing on December 3, 2007. For the year ended December 31, 2007, penalties of $343,824 were paid out and the remaining $178,540 in penalty payments were released in the first quarter of 2008.

Interest income was offset by interest expense resulting in $234,007 net income in 2008 as compared to $109,374 net income in 2007 and $4,411 net income in 2006. The year-over-year increase in income is due to increased short term investments generating interest income.

In the third quarter of 2008 the company paid out $90,000 to settle a Statement of Claim that was outstanding since 2002. The plaintive was a past president and director of NXT.

Management conducted a review in 2008 of all wells for which NXT had a historical participation and determined that 8 gross (1.1 net) wells drilled from 2000 through 2004 still require abandonment. Management determined the asset retirement obligation based upon estimates of the costs to remediate, reclaim and abandon the wells and the estimated timing of the costs to be incurred. At December 31, 2008 the abandonment expense is estimated to be $28,997 (December 31, 2007 and 2006 - nil). These obligations are estimated to be settled in five years. In addition, the company recorded an obligation of $160,148 in respect to a well drilled in 2000 and abandoned in 2008 for which no previous significant abandonment obligation had been anticipated.

Loss (Gain) on Foreign Exchange

Loss or gain on foreign exchange is caused by changes in the relative exchange values of the U.S. and Canadian dollars. For example when the Canadian dollar trades higher relative to the U.S. dollar, cash held in U.S. dollars will decline in value and this decline will be reflected as a foreign exchange loss in the period. In 2007 the company held United States dollars in cash and short term investments as well as convertible debenture obligations. In 2008 nearly all cash and investments were converted to Canadian dollars to reduce the impact caused by market volatility.

The equivalent Canadian dollars for a U.S. dollar changed from $0.9928 on January 1, 2008 to $1.218 as at December 31, 2008 resulting in a gain of $20,242 in 2008; the change was from $1.1636 as at January 1, 2007 to $0.9913 as at December 31, 2007 resulting in a 2007 loss of $249,427; the change was from $1.1556 as at January 1, 2006 to $1.1654 as at December 31, 2006 resulting in a loss of $1,882 for 2006.

Summary of Quarterly Results (Unaudited)

		Dec 31, 2008	Sep 30, 2008	Jun 30, 2008	Mar 31, 2008
Revenue	$ 6,153		$ 1,193,250	$ 1,749,076	$ 6,583
Net income (loss) from continuing operations		(945,394)	(290,639)	806,619	(711,877)
Basic earnings (loss) per share		(0.04)	(0.01)	0.03	(0.02)
Diluted earnings (loss) per share		(0.04)	(0.01)	$ 0.02	$ (0.02)

		Dec 31, 2007	Sep 30, 2007	Jun 30, 2007	Mar 31, 2007
Revenue	$ 2,350,497		$ 507,183	$ 2,772,806	$ 11,206
Net income (loss) from continuing operations		208,308	(642,076)	1,665,080	(880,881)
Basic earnings (loss) per share		0.01	(0.02)	0.06	(0.03)
Diluted earnings (loss) per share	$ 0.01		$ (0.02)	$ 0.05	$ (0.03)

In the fourth quarter 2008, the company recognized $207,457 in stock-based compensation expense.

The company is in the early stage of commercializing its SFD technology. Its 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 this early commercialization phase can last for several years. Consistent with this early stage of commercialization, the company has a significant economic dependency on a few clients. In 2006, we had two clients who accounted equally for 100% of our survey revenue. In 2007, the company's largest client accounted for 81% of its survey revenue and three clients accounted for 100% of survey revenue. For the year ended December 31, 2008 we had survey revenue of $2,944,470 from two existing clients. While the company is in this early stage of commercialization, the company’s financial position is materially impacted by the loss or gain of any one client.

In comparing Q4 2008 to Q3 2008; the company recognized nil in survey revenue in Q4 ($1,200,000 in Q3 from one completed survey contract) and recognized $207,457 in stock-based compensation expense ($144,843 - Q3).

In comparing Q3 2008 to Q2 2008; the company recognized $1,200,000 in SFD survey revenue for one completed survey contract in the third quarter ($1,744,470 in Q2) resulting in net income. We settled a Statement of Claim from 2002 for $90,000 wherein the plaintiff was a past president and director. Management conducted a review in 2008 of all wells for which NXT had a historical participation and determined a net 1.1 (8 actual) wells drilled from 2000 through 2004 that still require abandonment. The asset retirement obligation is based upon estimates of the costs to remediate, reclaim and abandon the wells and the estimated timing of the costs to be incurred. The abandonment expense recorded in Q3 2008 is $28,338. In addition, the company recorded an obligation of $160,148 in respect to a well drilled in 2000 and abandoned in 2008 for which no previous abandonment obligation had been anticipated.

In comparing Q2 2008 to Q1 2008; the company recognized $1,744,470 in SFD survey revenue for one completed survey contract in the second quarter (nil in Q1) resulting in net income. We sold our producing well for net proceeds of $47,400 which generated a gain on disposal of $20,325.

In comparing Q1 2008 to Q4 2007; there is no survey revenue recognized in the first quarter of 2008 (Q4 2007 - $2,344,812 for two surveys). $1,220,940 of invoiced services was recorded as unearned revenue at March 31, 2008 and was recognized as revenue in Q2 2008 in addition to the final invoice of $523,530 that was billed in Q2 2008.

In comparing Q4 2007 to Q3 2007; revenue of $2,344,812 for the completion of two SFD survey contracts was recognized in the fourth quarter of 2007 (Q3 - $500,000 from one contract) resulting in a net income. Survey costs were correspondingly higher in the fourth quarter ($439,282) than in the third quarter ($27,317). In addition $174,500 in bonuses were paid out in Q4 (Q3 - nil).

In comparing Q3 2007 to Q2 2007; revenue of $500,000 for the completion of one SFD survey contract was recognized in the third quarter of 2007 while Q2 had survey revenue of $2,763,620 from two contracts. The administrative cost increases in the third quarter over the second quarter of $160,600 are due to increases in stock based compensation plus increased accruals in interim audit and review fees. As well, other expenses increased by U.S. $193,234 on unrealized exchange losses on U.S. denominated cash and short term investments that was partially offset by exchange gains related on the accrued U.S. dollar convertible debentures registration penalty.

In comparing Q2 2007 to Q1 2007; revenue for the completion of two 2007 SFD survey contracts was recognized in the second quarter resulting in a positive cash flow; for the first quarter the survey contracts had been flown, but not completed, so the progress payments were on the balance sheet as unearned revenue. The only revenue recognized for the first quarter was for oil and natural gas and one GORR.

Liquidity and Capital Resources

The company's cash position at December 31, 2008 continues to be healthy. Our cash and equivalents and short term investments held on account as of April 23, 2009 is $5,543,978.

With cash and short term investments we forecast having the required cash to operate for up to two years without any additional sources of cash. However, our ability to continue as a going concern will ultimately be dependent upon our ability to sustain positive cash flow from operations and/or obtain additional financing. The outcome of these matters cannot be predicted with certainty at this time.

The following table summarizes the change in cash flow for the year ended December 31, 2008, 2007 and 2006:

	For the year ended December 31,
	2008	2007		2006
Cash generated (used) in operating activities	$ (1,812,796) $	3,854,084	$ (1,128,138)
Cash generated by financing activities	1,310,630	1,729,759		2,430,664
Cash used in investing activities	(1,340,065)	(4,588,163)		(1,498,118)
Effect of foreign exchange translation	-	-		(74,556)
	$ (1,842,231) $	995,680	$ (270,148)

Operating Activities

2008 - the $1,812,796 of cash used in operating activities reflects our net loss of $1,141,291 adjusted for $1,022,999 of non-cash additions and a $1,694,504 net decrease in non-cash working capital.
2007 - the $3,854,084 cash generated in operating activities reflects our net income of $350,431 adjusted for $1,519,599 of non- cash additions and a $1,984,054 net increase in non-cash working capital.
2006 - the $1,128,138 of cash used in operating activities reflects our net loss of $4,274,103 adjusted for $3,392,989 of non-cash additions and a $247,024 net decrease in non-cash working capital.

Financing Activities

2008 - we raised $1,499,853 through the exercise of options and warrants and reduced our capital lease by $10,683. We also paid out the final amount of $178,540 in registration penalty against a convertible debenture from 2005.
2007 - we raised $2,319,433 through the exercise of options and warrants and paid off the note payable of $239,618. We also paid out $343,824 in registration penalty against a convertible debenture from 2005.
2006 - we raised $2,354,032 net through private placements, $102,310 was provided through the exercise of options and $25,678 was used to reduce the Note Payable.

Investing Activities

2008 - $1,095,439 was invested in short-term investments, $288,849 in capital assets and $47,400 was generated through the sale of oil and gas properties in the Entice area of Alberta.
2007 - $4,279,380 was invested in short-term investments, $337,829 in capital assets and $35,000 was generated through the sale of oil and gas properties in the Ladyfern/Drake area of British Columbia.
2006 - there was no sale of land in 2006; the primary use of cash was for other property and equipment $195,185 and oil and natural gas properties $39,869. $1,263,064 was used for short term investments.

Contractual Commitments
Contractual obligations as of December 31, 2008:
			Payments Due by Period
		Total ($)	Less Than 1 Year	1-3 Years		4-5 Years
Copier/scanner lease-to-own agreement	35,495		7,977	27,518		-
Rent or operating lease	1,423,650		362,170	1,061,480		-

Transactions with Related Parties
			For the year ended December 31,
			2008	2007		2006
Collective wages, fees, bonuses and benefits paid to executive officers
of the Company who were also directors of the Company		$ 231,244		$ 220,121	$ 183,755
Interest expense recognized or paid to related parties and officers		$ -		$ 13,371	$ 16,647

Refer to Consolidated Financial Statements note 8, Preferred Shares, for details on the Technical Transfer Agreement that was executed December 31, 2006 between the company and its CEO, President and board member.

A Director of NXT is also an officer for one of our SFD survey clients. We recorded revenue from this client for the years ended December 31, 2008, 2007 and 2006 of $1,200,000, nil and $600,000 respectively. At December 31, 2006 there was a $300,000 account receivable due from this client that was received in 2007.

The company's board of directors authorized 403,500 options to be issued to directors, officers, employees and contractors of the company. The options were issued with an exercise price ranging from U.S. $1.90 to U.S. $2.80 based on the closing trading price of the company's common shares on the OTCBB for the date of issue. Of these, 294,000 were issued to consultants for services and 109,500 were issued to employees.

110,000 shares were issued to officers and directors pursuant to the exercise of options at a strike price of U.S. $0.14 - $0.43 in the year ended December 31, 2008.

In the year ended December 31, 2008 5,000 shares were issued to the spouse of an officer of the company pursuant to the exercise of warrants at a strike price of U.S. $2.00.

The company recorded a liability of $38,310 to an outgoing officer for services rendered for years prior to 2008. The value of the compensation was based on an evaluation by the Compensation Committee. The company has no further contractual obligations to this individual.

582,787 common shares were issued in 2006 to discharge liabilities accrued as at December 31, 2005 for obligations incurred related to services provided by consultants for corporate strategy and planning services. Of these, 65,534 common shares were issued to an individual who is currently an officer and 400,000 were issued to an individual who is currently a director of the company. In both cases the services were provided prior to these individuals accepting their positions with the company.

Critical Accounting Estimates

The preparation of these consolidated financial statements is in accordance with accounting principles generally accepted in the United States of America and 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 at the date of these consolidated financial statements as well they affect revenues and expenses recorded during the reporting periods. Estimates include allowances for doubtful accounts, valuation of the note receivable, estimated useful lives of assets, provisions for contingent liabilities, and measurement of stock-based compensation, valuation of future tax assets, valuations of convertible debentures and estimates for asset retirement obligations. All estimates and assumptions reflect management's best estimate. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined necessary. Actual results may differ from those estimates.

Changes in the accounting estimates or assumptions could have a significant impact on the reported Consolidated Statement of Income (Loss).

The key elements and assumptions that we have made under these principles and their impact on the amounts reported in the consolidated financial statements remain substantially unchanged from those described in our 2007 audited consolidated financial statements.

Income tax accounting

The determination of the company's income and other tax liabilities requires interpretation of complex laws and regulations. All tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded by management.

Stock-based compensation

Change in Accounting Policies Including Initial Adoption

Recent accounting pronouncements

SFAS No. 161, which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. SFAS 161 is effective prospectively for periods beginning on or after November 15, 2008. We are currently evaluating the impact that SFAS No. 161 may have on our financial statement disclosures.

In May 2008, FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles” which codifies the sources of accounting principles and the related framework to be utilized in preparing financial statements in conformity with U.S. GAAP. The adoption of this standard is not expected to impact the financial position, results of operation or cash flow of the company.

Risk Factors

Estimates and assumptions

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 include allowances for doubtful accounts, valuation of the convertible debentures, estimated useful lives of assets, provisions for contingent liabilities, measurement of stock-based compensation, valuation of future tax assets, determination of proved reserves, valuation of undeveloped land, valuation of preferred shares including the likelihood that the conversion feature of the preferred shares will be achieved.

The estimates and assumptions 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, assets or liabilities.

Related party transactions

We have related party transactions between NXT and its officers and directors. The most significant transaction was the Technical Transfer Agreement executed on December 31, 2006 between NXT and its CEO, President and Director wherein the NXT issued 10,000,000 preferred shares in exchange for the acquisition of the SFD Technology. All related party transactions have the potential for conflicts of interest that may undermine the board's fiduciary responsibility to NXT shareholders.

NXT manages this conflict of interest risk through maintenance of a strong independent board of directors. Four of the five directors are independent. All transactions between officers and or directors of the company are negotiated on behalf of NXT and voted upon by disinterested directors to protect the best interest of shareholders.

Oil and gas price fluctuations

We incur a risk of market changes in oil and natural gas prices. Prospective revenues from the sale of products or properties will be impacted by oil and natural gas prices. The impact of price changes on any potential sale of the our existing oil and natural gas property or our ability to enter into SFD survey contracts cannot be readily determined, however, in general if commodity prices decline our opportunity to sell properties or execute SFD survey contracts will also decline.

Currency fluctuations

We currently hold our cash in Canadian as well as in U.S. dollars. At December 31, 2008 we are exposed to foreign exchange fluctuation on approximately $13,121 of U.S. dollar cash. Additionally, most of our operating expenses are incurred in Canadian dollars. We do not engage in currency hedging activities.

Interest rate fluctuations

As at December 31, 2008 we had $6,748,105 of our available cash in short term investments that generate interest income that can be adversely affected by any material changes in interest rates.

Management

Our success is currently largely dependent on the performance of our directors and officers. The loss of the services of any of these persons could have an adverse effect on our business and prospects. There is no assurance we can maintain the services of our directors, officers or other qualified personnel required to operate our business.

Charter aircraft availability

NXT, since the sale of its aircraft in 2003, has relied upon the availability of aircraft from charter operators. Charter operators provide the required aircraft for SFD survey operations on an as required basis for an hourly charter fee. NXT is not required to make a capital investment in a chartered aircraft. The only potential prepayment is the purchase of blocks of aircraft time.

Additional Disclosures

Outstanding share data
		2008	2007	2006
Weighted average shares outstanding
Basic and diluted		30,369,586	31,877,779	25,038,200

Outstanding securities	As at April 1, 2009
Common shares	30,676,796
Preferred shares	10,000,000
Options	2,270,204
Warrants	150,000
Total	43,097,000

Disclosure Controls, Procedures and Internal Controls over Financial Reporting

The company's Chief Executive Officer and Chief Financial Officer (the "Responsible Officers") are responsible for establishing and maintaining disclosure controls and procedures, or causing them to be designed under their supervision, for the company to provide reasonable assurance that material information relating to the company is made known to the Responsible Officers by others within the organization, particularly during the period in which the company's quarterly and year-end financial statements and MD&A are being prepared. However, any internal control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Disclosure controls and other procedures are designed to ensure that information required to be disclosed in reports filed or submitted is recorded, processed, summarized and reported within the time periods specified by the relevant security authority in either Canada or the United States of America. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports is accumulated and communicated to management, including our Responsible Officers, to allow timely decisions regarding required disclosure.

As of December 31, 2008 an evaluation was carried out under the supervision of, and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the company's disclosure controls and procedures as defined under the rules adopted by the Canadian securities regulatory authorities and by the SEC. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as at December 31, 2008.

During the year ended December 31, 2008 there have been no changes in the company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting.

We continue to monitor the following areas that we believe are most susceptible to control weaknesses common to many companies of our size:

Due to the limited number of staff at the company it is not feasible to achieve complete segregation of incompatible duties. The company has mitigated this concern in controls by adding management review procedures of the areas where segregation is an issue; and
The company does not retain staff with specialized and current income tax, financial reporting and complex accounting expertise. The company prepares their best estimate of complex accounting calculations and relies on reviews by management, external consultants and the audit committee for quality assurance.

Notwithstanding the foregoing, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

For additional information on NXT Energy Solutions Inc. please consult our web page at www.nxtenergy.com, or the SEDAR webpage at http://www.sedar.com.

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