Blueprint
Exhibit 99.3
NXT ENERGY SOLUTIONS INC.
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED 31 DECEMBER 2018
April 1, 2019
TABLE OF CONTENTS
|
|
FORWARD-LOOKING STATEMENTS
|
4
|
|
1.0
|
CORPORATE STRUCTURE
|
5
|
|
1.1
|
Company Information 5
|
5
|
|
1.2
|
Intercorporate Relationship 5
|
5
|
|
2.0
|
GENERAL DEVELOPMENT OF THE BUSINESS
|
6
|
|
2.1
|
Three Year History 6
|
6
|
|
3.0
|
BUSINESS OVERVIEW
|
9
|
|
3.1
|
Company’s Operations and Principal
Activities 10
|
9
|
|
3.2
|
Seasonality of the Company’s Main
Business 12
|
10
|
|
3.3
|
Sources and Availability of Raw Materials 12
|
10
|
|
3.4
|
Marketing Channels 13
|
11
|
|
3.5
|
Employees 13
|
11
|
|
3.6
|
Patents 13
|
12
|
|
3.7
|
Competition 14
|
12
|
|
3.8
|
Government and Environmental Regulations 14
|
12
|
|
3.9
|
Property, Plant & Equipment 15
|
13
|
|
4.0
|
RISK FACTORS
|
13
|
|
4.1
|
Continued Operations 16
|
13
|
|
4.2
|
Financial Statements 16
|
14
|
|
4.3
|
Commodity Prices 16
|
14
|
|
4.4
|
Foreign Currency Fluctuations 17
|
14
|
|
4.5
|
Interest Rate Fluctuations 17
|
14
|
|
4.6
|
Availability of Aircraft 17
|
14
|
|
4.7
|
Segregation of Duties 17
|
15
|
|
4.8
|
Related Party Transactions 18
|
15
|
|
4.9
|
Conflicts of Interest 18
|
15
|
|
4.10
|
Rights to SFD® Technology 18
|
15
|
|
4.11
|
Reliance on Specialized Equipment 19
|
16
|
|
4.12
|
Geological Conditions 19
|
16
|
|
4.13
|
Technological Improvement 19
|
16
|
|
4.14
|
Reliance on Key Personnel 19
|
16
|
|
4.15
|
Ability to Trade Shares 20
|
17
|
|
4.16
|
Dividends 21
|
17
|
|
4.17
|
Dilution 21
|
17
|
|
4.18
|
Intellectual Property 21
|
18
|
|
4.19
|
Flight Operations 22
|
18
|
|
4.20
|
Foreign Countries 23
|
18
|
|
4.21
|
Flight Permits 24
|
19
|
|
5.0
|
DIVIDEND POLICY 25
|
20
|
|
6.0
|
CAPITAL STRUCTURE
|
20
|
|
6.1
|
Common Shares 25
|
20
|
|
6.2
|
Preferred Shares 25
|
20
|
|
6.3
|
Warrants 25
|
20
|
|
7.0
|
MARKET FOR SECURITIES 26
|
21
|
|
8.0
|
ESCROWED SECURITIES AND SECURITIES SUBJECT TO
CONTRACTUAL
|
21
|
|
9.0
|
DIRECTORS and OFFICERS 27
|
22
|
|
9.1
|
Cease Trade Orders, Bankruptcies, Penalties or
Sanctions30
|
24
|
|
9.2
|
Board Practices 30
|
24
|
|
10.0
|
RELATED PARTY TRANSACTIONS 34
|
27
|
|
10.1
|
Technology Transfer Agreement (TTA) 34
|
27
|
|
11.0
|
TRANSFER AGENT 35
|
28
|
|
12.0
|
MATERIAL CONTRACTS 35
|
28
|
|
13.0
|
LEGAL PROCEEDINGS 35
|
28
|
|
14.0
|
INTEREST OF EXPERTS 35
|
28
|
|
15.0
|
ADDITIONAL INFORMATION 35
|
28
|
|
APPENDICES
|
|
|
|
A
|
AUDIT
COMMITTEE CHARTER 36
|
29
|
|
B
|
BOARD
OF DIRECTORS MANDATE 41
|
33
|
AIF for the year ended December 31, 2018
FORWARD-LOOKING STATEMENTS
Except
for any historical information contained herein, certain statements
contained in this Annual Information Form constitute
“forward-looking statements” or “forward-looking
information” within the meaning of applicable securities
legislation, with respect to our financial condition, results of
operations and business. These statements relate to analyses and
other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements
also relate to our future prospects, developments and business
strategies. These forward-looking statements are identified by
their use of terms and phrases such as “anticipate”,
“believe”, “could”, “estimate”,
“expect”, “intend”, “may”,
“plan”, “predict”, “will” and
similar terms and phrases, including references to assumptions.
These forward-looking statements involve risks and uncertainties,
including current trend information, projections for deliveries and
other trend projections, that may cause our actual future
activities and results of operations to be materially different
from those suggested or described in this Annual Information
Form.
These
risks include:
●
our ability to
generate sufficient ongoing cash flow from operations or to raise
adequate capital to allow us to grow the business and continue
operations;
●
conducting
operations in international markets;
●
the emergence of
alternative competitive technologies;
●
protection of our
intellectual property and rights to our SFD®
technology;
●
reliance on a
limited number of aircraft;
●
the loss of key
personnel;
●
our dependence on a
limited number of clients;
●
foreign currency
and interest rate fluctuations which may affect our financial
position;
●
changes in, or in
the interpretation of, laws, regulations or policies;
and
●
volatility in oil
and natural gas commodity prices which may reduce demand for our
services; and
●
other factors
described herein under “Risk Factors”.
If one
or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, our actual results may vary
materially from those expected, estimated or projected. Given these
uncertainties, users of the information included in this Annual
Information Form, including investors and prospective investors,
are cautioned not to place undue reliance on such forward-looking
statements. We do not intend to update the forward-looking
statements included in this Annual Information Form.
In this
Annual Information Form, except as specified otherwise or unless
the context requires otherwise, “we”, “us”,
“our”, the “Company”, and “NXT”
refer to NXT Energy Solutions Inc. and its subsidiaries. All
references to “fiscal” in connection with a year shall
mean the year ended December 31.
All
financial information contained herein is expressed in Canadian
dollars (“CDN$”) unless otherwise stated.
AIF for the year ended December 31, 2018
4
CORPORATE STRUCTURE
NXT Energy Solutions Inc. is a Calgary-based technology company
whose proprietary SFD® survey system utilizes quantum-scale
sensors to detect gravity field perturbations in an airborne survey
method which can be used both onshore and offshore to remotely
identify areas with exploration potential for traps and reservoirs.
The SFD® survey system enables our clients to focus their
hydrocarbon exploration decisions concerning land commitments, data
acquisition expenditures and prospect prioritization on areas with
the greatest potential. SFD® is environmentally non-intrusive
and unaffected by ground security issues or difficult
terrain. SFD® and NXT® are both registered
trademarks of NXT Energy Solutions Inc.
Our
head office is located at Suite 302, 3320 17th Ave. SW, Calgary,
Alberta Canada. Phone number is (403) 264-7020.
We are
a reporting issuer in Alberta, Ontario and British Columbia and are
principally governed by the Alberta Securities Commission in
accordance with the Securities Act
(Alberta) and the Business
Corporations Act (Alberta). We are a foreign private issuer
under United States securities laws and are subject to the
regulation of the US Securities in accordance with the Securities Exchange Act of 1934,
as amended (the “Exchange Act”).
1.2
Intercorporate
Relationship
The
following table provides a list of all subsidiaries and other
companies controlled by NXT:
|
Subsidiaries
|
Date and Manner
of Incorporation
|
Authorized Share
Capital
|
Issued and
Outstanding Shares
|
Nature of the
Business
|
% of each Class
of Shares owned by NXT
|
|
NXT
Energy USA, Inc.
|
October
20, 1995 by Articles of Incorporation – State of Nevada,
USA
|
20,000,000
common
|
5,000,000
common
|
Inactive
|
100%
|
|
NXT
Aero USA, Inc.
|
August
28, 2000 by Articles of Incorporation – State of Nevada,
USA
|
1,000
common
4,000
preferred
|
100
common
|
Inactive
|
100%
|
|
Cascade
Petroleum Inc. (Formerly Survey Services International
Inc.)¹
|
September
6, 2011 by Articles of Incorporation – Province of
Alberta
|
Unlimited
number of common shares
|
100
common
|
Inactive
|
100%
|
|
NXT
Energy Services (SFD) Inc.
|
December
2008 by Federal Articles of Incorporation –
Canada
|
Unlimited
number of common shares
|
100
common
|
Inactive
|
100%
|
|
PetroCaza
Exploration Inc.
|
May
2015 by Articles of Incorporation – Province of
Alberta
|
Unlimited
number of common and preferred shares
|
100
common
|
Inactive
|
100%
|
¹
On January 16th,
2017 the name of Survey Services International Inc. was changed to
“Cascade Petroleum Inc.”
In
February 2010, NXT registered a wholly owned “Branch”
entity with the tax administration and Chamber of Commerce
authorities in Colombia, (NXT Energy Solutions Inc. Sucursal
Colombia). The formation of this branch became a Colombian legal
requirement following the Company commencing permanent activity in
Colombia in 2010 while conducting commercial survey operations.
This branch was closed in 2017.
In
addition, in March 2015, NXT registered NXT Energy Solutions Inc.
(Sucursal Bolivia) as a wholly owned “Branch” entity
under the laws of the Plurinational State of Bolivia, to contract
and conduct survey operations in Bolivia. Operations have now
ceased in Bolivia and we are in the process of closing the branch
which should be completed in the second quarter of
2019.
2.
GENERAL
DEVELOPMENT OF THE BUSINESS
We have
an opportunity to provide our services in any region of the world
where oil and gas exploration activities are conducted. However, we
choose to be strategic and focus our limited marketing and sales
resources on a limited number of markets in the early stages of
commercialization on a limited number of markets.
A
summary of revenues derived in our primary geographic market
segments for the last 3 fiscal years:
|
Year ended
December 31
|
|
|
|
|
South and Central
America (Bolivia, Belize)
|
$-
|
-
|
$1,447,269
|
|
|
-
|
-
|
-
|
|
Total
|
-
|
-
|
1,447,269
|
2016
In
2014, we invested significant marketing efforts in the emerging
Bolivia market. We were able to leverage our experience in Colombia
and Mexico, and in 2015, we successfully secured our largest single
survey project to date. The contract with Yacimientos
Petrolíferos Fiscales Bolivianos (“YPFB”), the
National Oil Company of Bolivia.
Our
SFD® data acquisition operations commenced in Bolivia in early
June 2015, and the data acquisition phase was completed in August,
with NXT’s related recommendations reports delivered to YPFB
in late October 2015. During the data acquisition phase, YPFB chose
to undertake an additional survey “expansion” project
valued at approximately US$1.0 million. The decision for
YPFB’s expansion was based on the rapid delivery of
preliminary SFD® results, which had excellent correlations
noted between anomalies identified by SFD® and the
clients’ existing ones identified using seismic methods. A
contract amendment was finalized in October 2015 for this project,
the final results for which were delivered by NXT in January
2016.
Effective
March 22, 2016, the Company’s application to graduate from
the TSX-V to the broader Toronto Stock Exchange
(“TSX”), Canada’s premier stock exchange listing,
was approved.
2017
NXT
completed the data acquisition and interpretation of 37,596 line-km
for the first ever SFD® Multi-Client survey in the Gulf of
Mexico in June 2017. The airborne survey was conducted over the
area that was identified by Comision Nacional de Hidrocarburos
(“CNH”) for the shallow water bid round 2.1 covering
the Tampicao-Misantla, Veracruz and Cuencas del Sureste exploration
areas. The survey data provides 100% grid coverage over the
offshore blocks offered in Bid Round 2.1, an area of approximately
8,900 square kilometers and was completed ahead of time and budget.
In addition, NXT acquired incidental data over many of the 35
blocks offered in the recently concluded Bid Round 3.1. Based on
the Five-Year Tender Program for the Exploration and Extraction of
Hydrocarbons 2015 - 2019 by the Mexican Secretary of Energy, much
of the remaining data will also be applicable to future Bid Rounds.
To date, there have been no sales of this proprietary
data.
We also
completed testing of an upgraded SFD® Data Acquisition System.
This system was successfully used on the Gulf of Mexico SFD®
survey project and is more reliable, compact, and expandable to
acquire larger SFD® datasets. It also eliminates the
dependency on custom operating systems.
Initiatives
to expand and protect our IP (including patenting and new R&D
initiatives) were very successful in 2017 and 2018. NXT’s
patent applications have been filed in nine (9)
jurisdictions. Thus far seven (7) patents have been granted:
U.S.A. (2), Canada, Japan, Russia, Mexico, and China. Three (3) are
pending: European Patent Office (38 countries), Brazil, and India.
In total NXT has been granted patents or received patent allowance
for SFD® in 48 separate countries.
During
2017 NXT made significant progress in strengthening its liquidity
and working capital position through a series of corporate actions
described below. Nevertheless, liquidity remains a major risk and
concern of the company.
Sale Lease Back: In December 2015, NXT acquired (from its
third party owner), a 1997 Cessna Citation Ultra 560 jet aircraft,
the primary aircraft which had previously been charter hired to NXT
by its operator, Air Partners. In order to enhance the short-term
cash flow of the business, NXT completed a sale and leaseback
agreement with a Calgary based international aircraft services
organization on April 28th, 2017. The terms of
the agreement involved NXT selling its’ Cessna Citation
aircraft that was purchased in 2015 for US$2,000,000 for the sum of
US$2,300,000. NXT leased the aircraft back for a minimum period of
60 months and retains all existing operating rights and
obligations. Net proceeds to NXT from the sale were approximately
CAD $2,700,000, after payment of all commissions and fees. The net
book value of the asset of $2,400,000 was derecognized and the
resulting gain on disposition of $776,504 was deferred ($621,203
included in long term liabilities and $155,301 included in accounts
payable and accrued liabilities). The gain will be recognized as a
reduction to the Company’s lease expense over the 60 month
term of the lease. The resulting leaseback transaction is an
operating lease. NXT is required to make monthly payments to the
lessor of approximately US$39,500. NXT has the option to extend the
term of the lease by an additional two years. Should NXT want to
repurchase the aircraft at the end of the initial lease term, the
purchase price is US$1,450,000.
Reduction in Corporate Costs: Following the completion of
the Leaseback Transaction, NXT took further steps to reduce
corporate costs. The most significant of these steps included a
reduction in non-essential staff and new Human Resource policies to
reduce staffing costs.
Rights Offering: On September 26th, 2017 the Company
announced a Rights Offering to its existing
shareholders.
The
Rights Offering closed on November 3rd 2017 with the
following results:
|
|
Non
Insiders
|
Insiders
|
Total
|
Percentage
|
|
Basic
Subscription
|
1,556,751
|
680,856
|
2,237,607
|
53%
|
|
Over
Subscription
|
1,949,683
|
-
|
1,949,683
|
47%
|
|
Total
Shares Purchased
|
3,506,434
|
680,856
|
4,187,290
|
100%
|
|
Total
Proceeds
|
|
|
$2,093,645
|
|
2018
In July 2018, the company completed the Private Placement.
In total, Alberta Green Ventures purchased 10,264,946 Units at a price of $0.924 per Unit
for total gross proceeds of approximately $9,484,810.
Following
the Company’s participation at the Upstream West Africa
Summit in Senegal in Q2, NXT management traveled twice to Africa to
meet with representatives of the Nigerian National Petroleum
Corporation (“NNPC”) and the Ghana National Petroleum
Corporation (“GNPC”) to discuss the benefits
SFD®
would bring to their current exploration programs. Discussions with
NNPC continued in the fourth quarter of 2018 and have resulted in
the signing of a contract in March 2019 with PE Energy Limited, a
Nigerian oil and gas service company, for the value of
approximately $US8.9 million. PE Energy Limited has a contract with
NNPC, to provide 5,000-line kms of SFD®
Surveys in Nigeria. Data acquisition operations for this contract
are expected to commence in early April 2019 and NXT’s
interpretations and recommendations are expected to be delivered
during the third quarter of 2019.
NXT
received notification of the granting of NXT's
SFD® patent in China on April 13, 2018. In September,
2018, NXT received a United States patent for its new sensor design
we term the “Cascade” configuration. The Cascade sensor
is the result of NXT’s continued research & development
efforts and builds upon our existing US patent. Management believes
the Company’s Cascade sensors will provide enhanced ability
for identifying trapped fluid bodies indicative of potential
hydrocarbon accumulations along with improved reliability and
flexibility during SFD® survey operations.
In October, we signed an MOU with BGP Inc., a subsidiary of China
National Petroleum Corporation, to further explore opportunities
for NXT and BGP Inc. to work together. NXT’s forward strategy
is to secure SFD®
contracts with BGP and its
affiliates.
The MOU
entered into between Generation Resource Discoveries
(“GRD”), NXT’s regional representative and the
Government of Aceh, Indonesia on February 22, 2018, GRD has
expired.
As a
result of recent political changes in the government of Sri Lanka,
our contract negotiations have been put on hold. We will assess
when discussions can be renewed.
Outlook
NXT
intends to continue its business model of providing SFD®
Surveys on a fee for service basis, marketing of multi-client data
and is also beginning to execute its vertical model where it will
share in successful production as a result of SFD®
recommendations. Described below are first quarter 2019 steps in
achieving our strategy.
Nigerian SFD® Survey: In March 2019, the Company has
signed an $8.9 Million USD contract with PE Energy Limited
(“PE”), a Nigerian oil and gas service company that has
a contract with NNPC (National Nigerian Petroleum Company), to
provide 5,000 line kms of SFD®
Surveys in Nigeria. Data acquisition operations for this contract
are expected to commence in early April 2019 and NXT’s
interpretations and recommendations are expected to be delivered
during the third quarter of 2019.
The
Company has received a $300,000 USD mobilization fee from PE Energy
Limited to begin the SFD® Surveys in Nigeria. A $1 Million USD
pre-survey payment must be paid to NXT within five (5) days of
performing a 100-line KM pilot survey. The pilot survey must be
completed to the satisfaction of NNPC to evaluate the response of
the SFD® in the Nigerian
geological environment. Thereafter, payments will be made upon
completion of each of three (3) project milestones: (i) data
acquisition, (ii) interpretation and (iii) delivery of a report
with satisfaction of all performance conditions under the
contracts. The contracts have resulted from more than six months of
negotiations and the exchange of substantial technical information
on the performance of the SFD®.
The Company conducted significant due diligence to ensure we
understand the business environment and comply with Canadian,
United States and Nigerian law. The Company has engaged advisors
such as Norton Rose Fulbright and Kreller Group to provide guidance
to ensure the integrity of these contracts.
Co-operation Agreement: In February 2019, NXT, entered into
a Co-operative Agreement with one of its largest shareholders, AGV,
to propose up to three SFD® surveys within two years. The
Co-operative Agreement is based on a cost plus formula and a gross
overriding royalty interest in oil and gas production arising on
lands subject to the surveys.
Under
the Agreement, NXT and AGV will consider at least two
SFD® Surveys in North
America and an additional one internationally. The first
SFD® Survey is to be
completed by August 31, 2019 and the fees payable by AGV are
partially secured by a $200,000 United States Dollars
non-refundable deposit payable within two months of signing the
agreement. AGV has committed to completing an exploration drilling
program on each of the lands subject to the SFD® surveys within two years of
completion of the surveys.
As part
of the consideration for the agreement, NXT has agreed to seek
approval to a 12-month extension of the expiry date of certain
common share purchase warrants held by AGV. The TSX has granted
conditional approval to the extension, subject to disinterested
shareholder approval. NXT intends to table a resolution for the
approval of disinterested shareholders at the 2019 Annual
Shareholder Meeting of the NXT to ratify a twelve (12) month
extension of AGV’s 3,421,648 warrants
(“Warrants”) to February 16, 2020. If approved each
Warrant entitles the holder to acquire one Common Share at an
exercise price of $1.20 for an additional twelve months to February
16, 2020. The date of the Annual
Shareholder Meeting is to be set for a date in the second quarter
of 2019. Until the extension is approved by disinterested
shareholders at the meeting, the warrants will not be exercisable
by AGV. If the extension is not approved, then the warrants will
terminate.
Sales Representative Agreement and Continent Private
Placement: NXT has
entered into a three year exclusive sales representative agreement
with AGV, in nine jurisdictions in the Middle East and Latin
America. Contingent on achieving a $2,000,000 United States Dollars
sales quota in the first year of the sales representative agreement
term, AGV will be granted an at-market subscription right to
purchase treasury shares of NXT in a dollar amount equal to 25% of
the contracts introduced by AGV to NXT in the first year of the
Agreement, up to a maximum of $5,000,000 United States Dollars,
subject to approval from the TSX.
3.1
Company’s
Operations and Principal Activities
We
utilize our proprietary, airborne SFD® survey system to
provide a service for the oil and gas exploration industry. NXT
provides a rapid and cost-effective method for our clients to
evaluate large land areas for their exploration
potential.
The
underlying technology employed by our SFD® survey system was
invented by George Liszicasz, our President and Chief Executive
Officer (“CEO”), Chairman and one of our largest
shareholders. The technology was initially licensed to the Company
by Mr. Liszicasz until December 31, 2006 through a series of
consecutive license agreements. On December 31, 2006 we obtained
the rights to the technology from Mr. Liszicasz pursuant to the
terms of a Technology Transfer Agreement
(“TTA”).
Upon
execution of the TTA, Mr. Liszicasz transferred to us all his
rights and entitlements to the SFD® technology for use in the
field of hydrocarbon exploration.
For
further details of the TTA, see “Section 10.1”
below.
SFD®
technology for the purposes of the TTA is defined as the theories
of quantum physics and engineering which are utilized in the
operation of stress field detectors used by NXT for the reception,
collection and recording of subsurface geological stresses for
hydrocarbon exploration.
SFD®
sensors remotely respond to gravity perturbations and changes in
subsurface stress regimes that are meaningful for oil and gas
exploration. These responses are captured as raw data that, when
interpreted, can provide an indirect method to detect the presence
of geological features such as structures, faults, fractures and
reefs that are often associated with traps and reservoir
accumulations. SFD® is highly effective in frontier and
under-explored areas, in offshore or onshore environments, and over
any terrain. The SFD® survey system has been demonstrated to
quickly focus exploration resources, offering the benefit of
reducing the risk, time and expense associated with frontier
exploration.
Following
completion of the aerial surveys, we deliver to our clients a
detailed report and maps of the surveyed area that identifies,
ranks and recommends areas with SFD® indications of reservoir
potential.
In
2006, we commenced our current business model and began providing
SFD® survey services to clients on a fee-for-service basis. In
accordance with this model, we have not invested either directly or
indirectly in exploration or development wells or engaged in other
exploration or production activities. Our current business model
minimizes our capital requirements, thereby conserving cash, and
minimizes any perceived or real conflicts between the interests of
NXT and its survey clients.
NXT’s
primary business model is to earn revenues by conducting SFD®
surveys for clients on a fee-for-service basis. Secondly, we may be
able to negotiate to earn revenue from gross overriding royalty
income and/or other incentive fees from clients should they
generate production on areas recommended by SFD® surveys.
Finally, in the future, we may earn a fee by providing other
related geological and geophysical integration services to
clients.
We also
continue to utilize high quality local sales representatives with
key knowledge of their respective areas, potential clients and the
exploration potential of a region allowing us to cover larger areas
and more clients with minimum fixed cost. Our sales representatives
continue to pursue SFD® opportunities in numerous regions
including Latin America, the Middle-East and Southeast Asia.
Furthermore, to ensure our sales representatives follow industry
best practices, each representative is required to annually certify
they adhere to NXT's code of conduct and business
ethics.
In
support of these sales efforts, NXT has also been effective in
positioning the SFD® method as an established geophysical tool
for oil & gas exploration following the successful completion
of projects in Latin America (Bolivia and Mexico) with the
publication of technical papers, creation of project case studies
and the development of a strong list of references and
recommendation letters. In addition, NXT has now been granted
patents or received patent allowance in 48 separate
countries.
Our
overall objective remains to continue to increase industry
awareness and appreciation of the value of our SFD® survey
system and our strategy to achieve this includes maximizing client
endorsement opportunities (such as through joint case studies) and
targeting the most appropriate markets (i.e. where SFD®
provides the maximum benefits). Our specific tactics
include:
1.
Focus
the majority of sales resources on high profile primary markets
which offer the maximum opportunity for success;
2.
Build
upon success in this initial market and step out to other markets
in Latin America, and in South Asia;
3.
Pursue
requests of interest from qualified potential client "bluebirds"
from all other locations in the world. The bluebird model is
defined as an opportunity that arises, not from deliberate targeted
sales initiatives, but in response to unsolicited client
enquiries;
4.
Continue
to conduct pilot surveys to expand our knowledge base and provide
documentation to support the use of SFD® in new applications.
Each new application opens more market opportunities and provides
valuable case studies to support our sales initiatives;
and
5.
Respond
to opportunities to present at technical conferences, publish
papers in periodicals and generally maximize our opportunities to
educate the industry on SFD® capabilities and document case
study successes.
As we
continue to progress and grow our project pipeline on a Fee for
Survey Project basis, we remain optimistic given our progress
during the year coupled with the steadily improving oil & gas
environment. Notwithstanding, NXT has concurrently sought the
development of an alternative business line though the sale of
“Multi-Client Datasets” focused on IOCs and the
development of their global exploration strategies. The purpose of
this strategy has been to integrate our SFD® technology into
the standard exploration process of such organizations. We believe
this approach will be instrumental in helping us to build an
independent and steady backlog of smaller scale data sales enabling
us to enhance and smooth our revenue flow while we continue to
execute on larger Fee for Survey Projects.
3.2
Seasonality
of the Company’s Main Business
There
is no seasonality to our business. NXT does however, have a very
cyclical business, as revenue activity is dependent upon the level
of capital investment in exploration drilling in the oil & gas
industry and the size and timing of a limited number of survey
contracts each year.
3.3
Sources
and Availability of Raw Materials
We do
not foresee any constraints upon materials or equipment that will
impede our ability to execute our business plan or affect our
ability to conduct and/or expand our business. Our main direct
project input costs are aircraft operating costs and data
interpretation staff. None of these expenses have been subject to
significant price volatility.
In
order to conduct our survey operations, we require the
following:
●
Survey aircraft
– Historically, we have both owned aircraft and chartered
aircraft from independent charter aircraft companies. From 2009 to
December 2015, we utilized an aircraft charter agreement with Air
Partners, a Calgary-based air-charter operator, to provide
aircraft, crew and maintenance services for our survey operations
worldwide In December 2015, we acquired from Air Partners a jet
aircraft which was previously charter hired to NXT. In April, 2017,
NXT completed a sale and leaseback agreement of its aircraft with a
Calgary based international aircraft services organization. The
terms of the agreement resulted in NXT selling its’ 1997
Cessna Citation Ultra 560 jet aircraft. We currently rely on Air
Partners as the manager / operator of the aircraft which we use in
SFD® survey operations.
●
SFD® sensors -
All of the survey sensors are manufactured in-house. Certain
machining is required by third party machine shops, with final
assembly performed by our technical staff. The sensors, once
assembled, require flight testing prior to being considered
acceptable for operational use. Not all sensors meet the
performance criteria for operational use; however, we have
demonstrated our ability to manufacture new functional SFD®
sensors.
●
SFD® assembly -
The units in which the sensors are incorporated are custom
designed, fabricated and assembled in-house or through
subcontracted vendors. We utilize the services of Transport Canada
approved Design Approval Representatives to prepare subsequent type
certificates (“STC”) for the installation of our
SFD® units in each aircraft that we utilize for surveys. The
time to obtain an STC approval for the installation of our
SFD® units into any proposed aircraft type may require several
months.
●
Computer hardware and
software - (Data
Acquisition System, SFD® Signal Conditioning Unit and
data Interpretation
software). During 2016, a new data acquisition system
completed final testing. The software was developed by in-house
personnel and will be utilized on future surveys. The hardware we
use in our SFD® survey systems (other than the SFD®
unit), and the balance of the computer software we use, are all
readily available from retail or wholesale sources.
We are
not dependent upon any other third-party contract manufacturers or
suppliers to satisfy our technology requirements.
We
largely use direct sales methods with some use of independent
commissioned sales representatives in international
markets.
Fiscal year ended December 31, 2018
As of
the fiscal year ended December 31, 2018 we had a total of 11
employees. NXT has no employees that are members of a labor union.
The following summarizes the number of employees and independent
contractors by main job function as at December 31,
2018:
|
|
|
|
|
|
Senior management
team
|
2
|
-
|
2
|
Finance,
administration and sales
|
3
|
-
|
3
|
Operations and
technical development
|
6
|
-
|
6
|
|
|
11
|
-
|
11
|
All of
the above noted staff are based in Calgary, Canada. The 6
operations and technical development staff includes one research
scientist holding a Ph.D. and 3 geoscientists. We periodically
engage other technical and administrative contract personnel as
required on a project basis.
In May
2012, we commenced a “provisional” patent application
process in the U.S. and formally filed a patent on May 22, 2013,
which was subsequently published on November 28, 2013. We intend to
continue expanding the process with additional formal patent
applications in the future. We understand that our right to patent
the SFD® technology is not compromised by our ongoing
commercial use of the technology, as the components of the
SFD® technology have never been disclosed to third parties
(except under very limited and confidential terms) or released in
any manner into the public domain.
Initiatives
to expand and protect our IP (including patenting and new R&D
initiatives) were very successful in 2017. Squire Patton Boggs LLP,
a United States (“US”) based leader in IP protection,
has been advising NXT on our IP strategy, including the prior
filing of an initial US provisional patent application in May 2012.
In November 2014, NXT filed a related patent amendment submission
in the US and since that time has undertaken new patent
applications in select strategic international
markets.
NXT’s
patent applications have been filed in nine (9) jurisdictions
worldwide. Thus far, seven (7) patents have been granted: two
(2) in U.S.A., and one (1) in each of the following countries:
Canada, Japan, China, Russia, and Mexico. In late January 2019, we
received a positive feedback from the examiner of the European
Patent Office (consisting of 38 country members), showing potential
to be allowed in the near future. In addition, two (2) more
applications are pending in Brazil and India. SFD® patents
granted in the U.S.A. and many other countries serve an important
purpose beyond protection of our proprietary SFD® technology.
They also provide multiple independent third-party recognitions of
the technological invention in terms of the practical
applicability, conceptual novelty, and knowledge
advancement.
Our
SFD® airborne survey service is based upon a proprietary
technology, which is capable of remotely identifying, from a survey
aircraft, subsurface anomalies associated with potential
hydrocarbon traps with a resolution that we believe is technically
superior to other airborne survey systems. To our knowledge there
is no other company employing technology comparable to our
SFD® survey system for oil and natural gas
exploration.
Seismic
is the standard technology used by the oil & gas industry to
image subsurface structures. It is our view that the SFD®
survey system is highly complementary to seismic analysis. Our
system may reduce the need for seismic in wide-area reconnaissance
but will not replace the role of seismic in verifying structure,
closure and selecting drilling locations. The seismic industry is
very competitive with many international and regional service
providers.
The
SFD® system can be used as a focusing tool for seismic. With
an SFD® survey a large tract (i.e. over 5,000 square
kilometers) of land can be evaluated quickly to identify locations
with indications of reservoir potential. Seismic surveys, although
effective in identifying these locations, are much more expensive,
require significantly more time and impose a much greater negative
impact on local communities and the environment. An SFD®
survey deployed first can provide necessary information to target a
seismic program over a limited area of locations selected by
SFD®. This approach can result in a more effective seismic
program and reduce the overall cost, time, community resistance and
environmental impact required to locate and qualify a
prospect.
The
industry uses other technologies for wide area oil and natural gas
reconnaissance exploration, such as aeromagnetic and gravity
surveys. These systems can provide regional geological information,
such as basement depth, sedimentary thickness and major faulting
and structural development; however, these other airborne
techniques are not as suitable for identifying areas with reservoir
potential as the SFD® system.
3.8
Government
& Environmental Regulation
SFD®
Survey Flight Operations
The
operation of our business, namely conducting aerial SFD®
surveys and interpreting SFD® data, is not subject to material
governmental or environmental regulation in Canada and the United
States with the exception of flight rules issued by Transport
Canada and the Federal Aviation Authority governing the use of
commercial aircraft, including rules relating to low altitude
flights. The requirements in other countries vary greatly and may
require permits and/or provide other restrictions to conducting
flight operations in the country that may restrict our ability to
perform SFD® surveys as freely as in Canada and the United
States.
For
example, in Colombia, SFD® surveys must comply with three
requirements not encountered in Canada and the United States. These
requirements are i) customs obligations and bonds related to the
importation and exportation of the aircraft into Colombia, ii)
obtaining permits from the local aviation authority, and iii)
obtaining permits from the Colombian Air Force. NXT has
successfully operated in the past in Colombia in accordance with
these requirements.
With
our past experience in Canada, the United States, Bolivia, Mexico,
Colombia and other countries, we do not anticipate any unusual
government controls or regulations that might significantly prevent
timely completion of SFD® surveys. However, we may encounter
unforeseen government regulations or restrictions in other
countries that may impair or restrict our ability to conduct
surveys, which could limit our ability to earn revenue or
potentially expose us to forfeiture of performance
bonds.
3.9
Property,
plant and equipment.
Oil and Gas Properties
We have
minor historical interests in a limited number of acreage holdings
of undeveloped lands in western Canada. These assets are not a
material asset and have been written off in our financial
statements. Additionally, we may in the future become entitled to
receive gross over-riding royalty (“GORR”) interests on
production from portions of certain lands where we conducted past
surveys for clients in Canada, such as in the Horn River shale gas
basin in British Columbia, Canada. There is no certainty that wells
on these lands will become placed on production, or that future
royalty revenues will be earned from these entitlements prior to
the expiry of the landowners’ related mineral leases. No
asset value has been recorded in the financial statements for these
GORRs.
Facilities / office premises
In
August 2015, NXT moved to a new office premises (11,333 square
feet) at 3320 – 17th Avenue SW in
Calgary under a 10-year lease at an initial estimated minimum
monthly lease payment of $48,243 (including building operating
costs) commencing in October 2015.
Equipment
Our
SFD® technology is comprised of three main components,
detailed below, which we collectively refer to as our SFD®
survey system. This system is generally stored at our Calgary
office facility unless deployed during survey operations when this
equipment would travel with the aircraft or be stored in a locked
facility at the survey location when not in use. In addition, there
is extensive interpretation equipment located in Calgary. The main
categories of equipment we use are:
|
●
|
Stress Field Detector - the stress field detector, or
SFD® system, including a unit which houses the SFD®
sensors, is the principal component of our technology. SFD®
sensors respond to changes in subsurface stress. These responses
are transformed through a passive transducer into electronic
digital signals. Airborne surveys are normally conducted utilizing
an array of 22 SFD® sensors, consisting of 6 primary, 8
secondary and 8 development sensors, allowing the acquisition of
multiple independent SFD® signals responses at all points of a
survey.
|
|
●
|
Data Acquisition System - used in conjunction with the
SFD® sensor array on surveys, our data acquisition system is a
compact, portable computer system which concurrently acquires the
electronic digital signals from the SFD® sensor array and
other pertinent client data, including the GPS location information
of the data.
|
|
●
|
SFD® Signal Conditioning Unit - this self-contained
unit contains electronic circuits for stabilizing and conditioning
electronic signals. All sensor output is directly connected to this
unit and after signal conditioning is completed, all output is
forwarded to the computer system.
|
|
●
|
Interpretation Theatre - once returned to our home base, the
SFD® data collected is processed and converted into a format
that can be used by our interpretation staff using systems
consisting of generally off-the-shelf computer equipment, high
definition monitors, projectors and screens. This equipment is
generally permanently set up at our Calgary office facility. A
remote SFD® data interpretation theater is available and may
be deployed during survey operations and would be set up in a
facility at the survey client’s city.
|
We are
not affected by any significant environmental concerns, nor is
there any planned significant capital additions
contemplated.
4.0 RISK
FACTORS
Investing
in our common shares involves a high degree of risk. In addition to
the other information included in this document, you should
carefully consider the risks described below before purchasing our
common shares. If any of the following risks actually occur, our
business, financial condition and results of operations could
materially suffer. As a result, the trading price of our common
shares could decline, and you might lose all or part of your
investment.
NXT is
still in the early stages of realizing wide-spread
commercialization of 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 the
commercialization phase can last for several years and that it can
have significant economic dependence on a small number of clients,
which can have a material effect on the Company's operating results
and financial position.
NXT
anticipates that it will be able to generate both net income and
cash from operations in future years based on its current business
model however, this outcome cannot be predicted with certainty. The
Company has a history of generating net losses and periodic
shortages of current assets less current liabilities. The Company's
consolidated financial statements do not include any adjustments to
amounts and classifications of assets and liabilities that might be
necessary should NXT be unable to generate sufficient revenues, net
income and cash flow from operations in future years in order to
continue as a going concern.
The
preparation of financial statements requires our management to make
estimates and assumptions. These estimates and assumptions affect
the reported amounts of assets and liabilities including the
disclosure of contingent assets and liabilities as well as revenues
and expenses recorded in our financial statements. Estimates made
relate primarily to the measurement of accrued liabilities,
stock-based compensation expense, valuation of future income tax
assets, estimates for asset retirement obligations, and the useful
lives of capital assets and intellectual property.
The
estimates and assumptions are reviewed periodically and are based
upon the best information available to management; however, we
cannot provide assurance that future events will not prove that
these estimates and assumptions are inaccurate. Any revisions to
our estimates and assumptions may have a material impact on our
future reported net income or loss and assets and
liabilities.
NXT's
customer base is in the oil and natural gas exploration industry,
which is exposed to risks of volatility in oil and natural gas
commodity prices. As such, demand for our services and prospective
revenues may become adversely impacted by ongoing declines in oil
and natural gas prices. The impact of price changes on our ability
to enter into SFD® survey contracts cannot be readily
determined. However, in general, if commodity prices decline
significantly, our opportunity to obtain and execute SFD®
survey contracts will also likely decline, at least in the short
term.
4.4
Foreign
Currency Fluctuations
We
currently conduct cash transactions and have holdings in Canadian
dollars, U.S. dollars and periodically have holdings of local
currency in other countries. We generally contract to earn revenues
in U.S. dollars and potentially may earn revenues in Canadian
dollars and other foreign currencies.
Our
reporting currency is in Canadian dollars. We currently do not
engage in currency hedging activities, but are reviewing
opportunities to do so. Our cash positions and potential foreign
currency revenue streams in currencies other than Canadian dollars
exposes us to exchange rate fluctuations between the Canadian
dollar and foreign currencies.
Our
financial position will be affected by exchange rate fluctuations.
We may earn revenue and incur expenses denominated in foreign
currencies, yet report our financial results in Canadian dollars.
Furthermore, we intend to enter into contracts to provide services
in foreign countries and may periodically conduct business in other
currencies such as the Euro. Changes in currency exchange rates
could have an adverse effect on the Company's business, financial
condition and results of operations.
4.5
Interest
Rate Fluctuations
We
periodically invest available cash in short term investments that
generate interest income that will be affected by any change in
interest rates.
4.6
Availability
of Aircraft
In
April 2017, NXT completed a sale and leaseback agreement of its
aircraft with a Calgary based international aircraft services
organization (the “Lessor”). The terms of the agreement
resulted in NXT selling its 1997 Cessna Citation Ultra 560 jet
aircraft that was purchased in 2015. NXT has leased the aircraft
over an initial term of 60 months and retains all existing
operating rights and obligations. NXT is required to make monthly
payments to the Lessor of approximately US$39,500. NXT has the
option to extend the term of the lease by an additional two years.
Should NXT want to repurchase the aircraft at the end of the
initial lease term, the purchase price is US$1,450,000. When the
aircraft is not needed for use by NXT, we seek to earn charter hire
revenues from the aircraft through a 3rd party, Air
Partners.
Air
Partners also has access to an alternate, similar model aircraft
(certified for the use of our survey equipment) which could be
charter hired for use by NXT if needed.
In the
event that NXT’s aircraft is not available (due to damage, a
need for extensive repairs, or other unforeseen events) to conduct
survey projects, there is a risk that suitable alternative aircraft
may not be available on a timely basis from other charter operators
when needed. This inability to conduct survey operations could have
a material adverse effect on the Company's business, financial
condition and results of operations.
4.7
Segregation
of Duties
Certain
duties that are most appropriately segregated between different
employees are, due to our current limited staff, assigned to one or
two individuals depending on the task.
Standard
internal control methodology involves the separation of
incompatible functions by assigning these functions to separate
individuals and in larger organizations to separate departments. We
often cannot allocate these functions to separate individuals
because our administrative staff is limited.
Although
we have adopted alternative control methods designed to compensate
for the reduced ability to separate incompatible functions, these
alternative controls are not effective and there is more than a
remote likelihood that our internal control over financial
reporting will not prevent or detect material misstatements if they
should exist in our financial statements. This lack of separation
of duties exposes us to potential misappropriation of funds,
embezzlement and other forms of fraud and could have a material
adverse effect on our business, financial condition and results of
operations.
4.8
Related
Party Transactions
We may
periodically enter into related party transactions with our
officers and directors. The most significant transaction was a
“Technology Transfer Agreement” (the “TTA”)
that was executed on December 31, 2006 between NXT and Mr. George
Liszicasz, our CEO, President and Chairman wherein we issued
10,000,000 convertible preferred shares to him in exchange for the
rights to the SFD® technology for use in hydrocarbon
exploration. In 2013, a total of 2,000,000 of these preferred
shares were converted (on a one-to-one basis) into common shares,
and the remaining 8,000,000 preferred shares were converted in
August 2015.
Although
we manage this potential conflict of interest risk through
maintenance of a strong independent board of directors (the
“Board”), all related party transactions have the
potential for conflicts of interest that may compromise the ability
of Board members to exercise their fiduciary responsibility to NXT
shareholders.
For the
period December 1, 2017 to January 31, 2018, Mr. Selby acted as the
Interim CFO of the Company.
4.9
Conflicts
of Interest
Mr.
George Liszicasz, our CEO, is our largest shareholder, and as of
March 26, 2019 owns approximately 23% of our outstanding common
shares and therefore has a substantial influence in all shareholder
matters.
Controls
do exist to mitigate any potential risks associated with this
conflict of interest. Mr. Liszicasz adheres to a code of conduct
which includes a fiduciary responsibility to the Company and its
shareholders and this conduct is governed by the independent Board
of directors who collectively represent a majority of the Board.
Furthermore, all material related party transactions are disclosed
publicly.
However,
should these conflict of interest controls not be effective,
decisions could be made by the Company that may advantage Mr.
Liszicasz and negatively impact other shareholders.
4.10
Rights
to SFD® Technology
Our
rights to ownership and use of SFD® technology depended on Mr.
Liszicasz having the lawful right to sell to NXT the exclusive
rights to exploit the SFD® technology for the exploration of
hydrocarbons as agreed to in the TTA.
A risk
exists that an unknown party may claim some legal entitlement to
our intellectual property, our rights to commercialize this
intellectual property or our right to create SFD® devices and
processes. However, we believe that such a claim would be without
merit.
The
SFD® technology is an essential component of our business
plan. If a third party challenged our lawful entitlement to this
technology, the legal defense of our right to the technology may be
expensive and could cause a loss of our right to the SFD®
technology, or a protracted legal process to assert our right to
the technology would have a material adverse effect on the
Company's business, financial condition and results of
operations.
4.11
Reliance
on Specialized Equipment
We rely
on specialized data acquisition equipment, including a limited
number of SFD® sensor devices, to conduct our aerial SFD®
survey operations. We would be at risk if these survey sensors were
to become damaged, destroyed, worn out, stolen or in any way became
unavailable for use in operations prior to us creating and testing
additional sensors. Should the sensors become unavailable for any
reason, our ability to conduct surveys could be delayed for several
months as we built new sensors. During this period we may become
unable to satisfy contractual obligations, which may jeopardize
future revenue opportunities and may potentially result in a client
drawing on a contract performance bond posted by the Company or
otherwise making claims against the Company for breach of contract.
In addition, an inability to satisfy contractual obligations may
have an adverse effect on our developing reputation within the oil
and gas community.
NXT
seeks to mitigate this risk by researching new designs and
constructing additional SFD® sensor devices.
4.12
Geological
Conditions
As the
Company is in the early commercialization phase, SFD® surveys
have not been tested over all potential geological conditions. Some
geological conditions may subsequently be proven to be unsuited for
SFD® surveys thereby creating unforeseen limitations to the
application of SFD® surveys.
Any
limitation to the application of SFD® surveys has the
potential of restricting future revenue opportunities and if not
properly disclosed to industry clients, such limitations may impact
the reputation of the Company with these clients.
4.13
Technological
Improvement
Unless
we pursue ongoing technological improvement and development, we may
be unable to respond to changes in customer requirements or new
competitive technologies.
We must
continue to refine and develop our SFD® survey system to make
it scalable for growth and to respond to potential future
competitive pressures. These improvements require substantial time
and resources. Furthermore, even if resources are available, there
can be no assurance that the Company will be commercially or
technically successful in enhancing the technology. Our inability
to keep pace with new technologies and evolving industry standards
and demands could have a material adverse effect on our business,
financial condition and results of operations.
4.14
Reliance
on Key Personnel
We rely
on a limited number of key personnel who collectively possess the
knowledge and skills to conduct SFD® surveys and interpret
SFD® data as required to meet contract obligations. Additional
or replacement personnel cannot be found and trained quickly. The
loss of any of these key persons or increased demand for our
services from clients could impair our ability to meet contract
obligations, thereby adversely impacting our reputation and our
ability to earn future revenue from clients.
The
Company's future success depends, to a significant extent, on the
continued service of its key technical and management personnel and
on our ability to continue to attract and retain qualified
employees. The loss of the services of our employees or a failure
to attract, retain and motivate qualified personnel could have a
material adverse effect on our business, financial condition and
results of operations. We do not have “key man”
insurance on any of our personnel.
The
Company put in place employment agreements with its chief executive
officer, George Liszicasz.
We have
a dependence on Mr. Liszicasz and three other staff members to be
involved in the SFD® data interpretation
process and to continue to enhance our technology. We are working
to minimize dependency on key personnel. Mr. Liszicasz has trained
and continues to train a team of signal interpreters to minimize
our reliance on him to perform these functions. Currently, a total
of four persons, two of which are highly experienced, are trained
to interpret SFD® signals.
Although
we have engaged employees with suitable credentials to work with
Mr. Liszicasz to enhance our interpretation process and further
develop the SFD® technology, if we are unable to reduce
dependence on Mr. Liszicasz and he becomes incapable of performing
or unwilling to perform these functions, then there may be an
adverse effect on our ability to interpret the data from SFD®
surveys or to enhance our technology.
Within
the province of Alberta, the skilled personnel that we require may
periodically be in short supply and there is specialized training
required that can take several months in order for a new employee
to become effective. If we cannot hire these key personnel, we have
inadequate time to train them or should we lose current personnel,
then our ability to accept contracts or meet contract commitments
may be adversely affected, thereby restricting our ability to earn
revenue.
4.15
Ability
to Trade Shares
There
is no certainty that an investor can trade our common shares on
public markets at a stable market price. The Company has
historically had a limited public market for our common shares on
the TSX Venture Exchange (the “TSX-V”), and the United
States (“U.S.”) OTC Markets Group’s Venture Stage
Marketplace (the “OTCQB”) and there is a risk that a
broader or more active public trading market for our common shares
will not develop or be sustained, or that current trading levels
will not be sustained. Effective March 22, 2016, the
Company’s application to graduate from the TSX-V to the
broader Toronto Stock Exchange (“TSX”), Canada’s
premier stock exchange listing, was approved.
The
market price for the common shares on the exchanges where our stock
is listed has been and we anticipate will continue to be, extremely
volatile and subject to significant price and volume fluctuations
in response to a variety of external and internal factors. This is
especially true with respect to emerging companies such as ours.
Examples of external factors, which can generally be described as
factors that are unrelated to the operating performance or
financial condition of any particular company, include changes in
interest rates and worldwide economic and market conditions, as
well as changes in industry conditions, such as changes in oil and
natural gas prices, oil and natural gas inventory levels,
regulatory and environment rules, and announcements of technology
innovations or new products by other companies. Examples of
internal factors, which can generally be described as factors that
are directly related to our consolidated financial condition or
results of operations, would include release of reports by
securities analysts and announcements we may make from time to time
relative to our operating performance, clients exploration results,
financing, advances in technology or other business
developments.
Because
we have a limited operating history and a limited history of
profitability to date, the market price for the common shares is
more volatile than that of a seasoned issuer. Changes in the market
price of the common shares, for example, may have no connection
with our operating results or the quality of services provided to
clients. No predictions or projections can be made as to what the
prevailing market price for the common shares will be at any time,
or as to what effect, if any, that the sale of shares or the
availability of common shares for sale at any time will have on the
prevailing market price. Given the relatively low historic trading
volumes, small trades of NXT’s common shares can adversely
and potentially dramatically affect the market prices for those
shares.
Accordingly,
investors in our common stock should anticipate both volatile stock
price and poor liquidity unless these conditions
change.
We have
never paid any cash dividends on our common shares and we do not
anticipate that we will pay any dividends in the foreseeable
future. Our current business plan is to retain any future earnings
to finance the expansion of our business. Any future determination
to pay cash dividends will be at the discretion of our Board of
directors and will be dependent upon our consolidated financial
condition, results of operations, capital requirements and other
factors as our Board of directors may deem relevant at that
time.
Our
right to issue additional capital stock at any time could have an
adverse effect on your proportionate ownership and voting
rights.
We are
authorized under our Articles of Incorporation to issue an
unlimited number of common shares and an unlimited number of
preferred shares. We may issue these shares under such
circumstances and in such manner and at such times, prices, amounts
and purposes as our Board of Directors may, in its discretion,
determine to be necessary and appropriate, subject to compliance
with all applicable exchange regulations and corporate and
securities laws. Proportionate ownership and voting rights of
common shareholders could be adversely affected by the issuance of
additional common shares which may result in common share value
dilution.
4.18
Intellectual
Property
We may
not be able to protect our trade secrets and intellectual property
from competitors who would use this knowledge to eliminate or
reduce our technological advantage.
Our
success and future revenue growth will depend, in part, on our
ability to protect our intellectual property (“IP”). We
have commenced an IP strategy process to obtain patents related to
the SFD® technology, while also utilizing “trade
secrets” protection of the proprietary nature of our
technology as applicable.
Initiatives
to expand and protect our IP (including patenting and new R&D
initiatives) have been very successful. Squire Patton Boggs LLP, a
United States (“US”) based leader in IP protection, has
been advising NXT on our IP strategy, including the prior filing of
an initial US provisional patent application in May 2012. In
November 2014, NXT filed a related patent amendment submission in
the US and since that time has undertaken new patent applications
in select strategic international markets.
So far,
SFD® patents applications have been filed in nine (9)
jurisdictions worldwide. Thus far seven (7) patents have been
granted: two (2) in U.S.A., and one (1) in each of the following
countries: Canada, Japan, China, Russia, and Mexico. In late
January 2019, we received a positive feedback from the examiner of
the European Patent Office (consisting of 38 country members),
showing potential to be allowed in the near future. In addition,
two (2) more applications are pending in Brazil and India. The
SFD® patents serve an important purpose beyond the protection
they provide to the proprietary SFD® technology. Our patents
also serve as an independent third-party verification of the
scientific principles that form the basis of the SFD® process
and its application.
The
patent protection application process requires disclosure of at
least some aspects of our SFD® technology to third parties and
ultimately public disclosure. This disclosure could significantly
increase the risk of unlawful use of our technology by third
parties. Furthermore, we have no assurance that, even if we seek
patent protection, a patent could be registered to protect our IP
in all or any jurisdictions within North America or other countries
throughout the world. If registered, there can be no assurance that
it would be sufficiently broad to protect our technology or that
any potential patent would not be challenged, invalidated or
circumvented or that any right granted thereunder would provide
meaningful protection or a competitive advantage to us. Finally,
protection afforded by patents is limited by the financial
resources available to legally defend IP rights. We currently do
not possess the required financial resources to fund a lengthy
defense of our rights if challenged by a much larger competitor or
an oil and gas company.
We do
enjoy common and contract law protection of our technology and
trade secrets. Employees and contractors are governed by
confidentiality agreements as well as a fiduciary responsibility to
protect our technology, supporting documentation and other
proprietary information.
Our
strongest protection of the SFD® technology comes from
restricting access to knowledge concerning the technology. Only a
very limited number of NXT personnel have access to or knowledge of
the underlying SFD® technology and no one employee and only
one officer has access or knowledge of all aspects of the SFD®
system. Currently, no third party has any significant knowledge of
the technology. As further protection, SFD® equipment does not
leave the direct control of NXT employees, thereby preventing
unauthorized replication of the equipment.
The
Company reassesses the appropriateness of its IP protection
strategy on an ongoing basis and seeks advice from IP advisors as
necessary.
It is
possible that a third party will copy or otherwise obtain and use
the Company's technology without authorization, develop a similar
technology independently or design around the Company's secrets.
Accordingly, there can be no assurance that the steps taken by the
Company to prevent misappropriation or infringement of our IP will
be successful.
An
inability to protect our IP would make it possible for competitors
to offer similar products and services that could have a material
adverse effect on our business, financial condition and results of
operations.
We
experience operational hazards in our flight operations that may
subject us to potential claims in the event that an incident or
accident occurs.
The
flight operations of SFD® surveys are subject to the hazards
associated with general flight operations. An aircraft accident may
cause personal injury and loss of life, as well as severe damage to
and destruction of property or the SFD® sensors and related
equipment.
Independent
third parties provide all the services required to maintain,
operate the aircraft and they bear the primary risks of flight
operations. These services are provided by an organization
accredited by Transport Canada to operate aircraft in accordance
with Transport Canada approved and audited operating procedures.
The aircraft operator employs the required pilots, aircraft
maintenance engineers, support personnel and ensures that they
operate within their Transport Canada operating certificate. Our
employees do not perform any airworthiness or flight safety
operations.
We
require the flight contractor to maintain appropriate insurance
coverage for the risks associated with aircraft operations and we
obtain insurance coverage to provide us with additional risk
protection. In addition, we maintain general business insurance
coverage and believe that this insurance and the policy limits are
appropriate for the operational risks that we incur.
Despite
our policy to not operate the aircraft directly and our insurance
coverage, we cannot avoid or alternatively be insured for all risks
of flight operations. In the event of an incident or accident we
may be sued by injured parties in excess of our policy limits or
for damages that are not covered by our insurance policy. The
magnitude of a lawsuit of this nature is not determinable.
Furthermore, to the extent that our SFD® equipment is damaged,
we may be unable to conduct SFD® surveys for several months
following an accident.
We
conduct operations in foreign countries, which exposes us to
several risks that may have a material adverse effect on the
Company.
Criminal Activity and Social Instability – We have
operated in the past in foreign countries such as Colombia, which
over the past two decades experienced significant social upheaval
and criminal activity relating to drug trafficking, kidnapping and
terrorist acts. While the situation has improved dramatically in
recent years, there can be no guarantee that the situation will not
deteriorate again, nor are these risks eliminated as yet.
Furthermore, other potential international survey locations may
have similar or other indeterminate criminal or social instability
risks.
Systemic
criminal activity in a country or isolated criminal acts may
disrupt operations, impact our ability to earn revenue,
dramatically add to our cost of operations or potentially prevent
us from earning any survey revenue in a country.
In
addition, foreign markets may be susceptible to a higher risk of
corruption and bribery. All of NXT’s employees, contractors,
and independent sales agents are required to adhere to the
Company’s code of conduct and business ethics, which
prohibits illegal activities, including any acts of bribery or
corruption.
Political Instability - Any changes in regulations or shifts
in political attitudes are beyond the control of the Company and
may adversely affect our business. Exploration may be affected in
varying degrees by government regulations which have the effect of
restricting exploration and production activities. These changes
may adversely impact the laws and policies governing price
controls, export controls, foreign exchange controls, income taxes,
expropriation of property, environmental legislation, site safety
or other areas.
Currently,
there are no restrictions (other than the payment of local
with-holding taxes) on the repatriation back to Canada of our
earnings in foreign countries in which we have operated, such as
Colombia and Bolivia; however, there can be no assurance that
significant restrictions on repatriation to Canada of earnings will
not be imposed in the future.
Our
operations may also be adversely affected by changes in laws and
policies in Canada impacting foreign travel and immigration,
foreign trade, taxation and investment.
Commercial Disputes – While operating in a foreign
country, we are subjected to local commercial laws which often
involve executing contracts in a foreign language. Although every
effort is made to ensure we have access to an accurate English
translation, misunderstanding and potential disputes between
parties may arise.
In the
event of a dispute arising in connection with our foreign
operations for any reason, we may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdictions of the courts of
Canada or enforcing Canadian judgments in such other jurisdictions.
We may also be hindered or prevented from enforcing our rights with
respect to a government instrumentality because of the doctrine of
sovereign immunity.
Accordingly,
these risk factors have the potential of adversely reducing the
level of survey revenue from our clients, our ability to operate
effectively or our ability to be paid for our services and may have
a material adverse effect on our financial position.
Where
possible, NXT utilizes risk mitigation products offered by entities
such as Export Development Canada (“EDC”). EDC
financial products include insurance coverage of contract accounts
receivable, guarantee support for contract performance bonds and
wrongful call insurance for such bonds.
We rely
upon the right to conduct airborne surveys in foreign countries.
These foreign operations expose us to the risks that we will be
prevented from conducting surveys when requested by
clients.
The
operation of our business, namely conducting aerial SFD®
surveys and interpreting SFD® data, is not subject to material
governmental or environmental regulation in Canada and the United
States with the exception of flight rules issued by Transport
Canada and the U.S. Federal Aviation Administration
(“FAA”) governing the use of commercial aircraft,
including rules relating to low altitude flights. The requirements
in other countries vary greatly and may require permits and/or
provide other restrictions to conducting flight operations in the
country that may restrict our ability to perform SFD®
surveys.
For
example, in South American countries in which we have operated,
such as Colombia and Bolivia, SFD® surveys must comply with
additional requirements not encountered in Canada and the United
States, including customs obligations and bonds related to the
importation and exportation of the aircraft into the country,
obtaining permits from the local aviation authority, and obtaining
permits from the local Air Force. We have successfully operated in
South America and other global regions in accordance with these
typical requirements.
With
our North America and International experience to date, we do not
anticipate any government controls or regulations that will prevent
timely completion of SFD® surveys. However, we may encounter
government restrictions in other countries that may impact or
restrict our ability to conduct surveys.
If we
encounter government regulation and restrictions that impact or
prevent us from conducting surveys in any country, then we will not
be able to earn revenue in the country and we may be exposed to
forfeiting any performance bonds which may have been
issued.
We caution that the factors referred to above and those referred to
as part of particular forward-looking statements may not be
exhaustive and that new risk factors emerge from time to time in
our rapidly changing business environment.
5. DIVIDEND
POLICY
The
Company has not paid dividends since its inception.
6. CAPITAL
STRUCTURE
The
Company is authorized to issue an unlimited number of common
shares. As of April 1, 2019, there were 68,573,558 fully paid and
non-assessable common shares issued and outstanding. The holders of
common shares are entitled to dividends (subject to any prior
rights of the holders of Preferred Shares) if, as and when declared
by the Board of Directors.
The
holders of common shares are entitled to one vote per share at any
meeting of the shareholders of the Company and to receive in the
event of liquidation or dissolution (subject to any prior rights of
the holders of Preferred Shares), all assets of the Company as are
distributable to the holders of shares.
The
complete description of the rights, privileges, restrictions and
conditions of the common shares is included in our articles a copy
of which is available through the Company's issuer profile on SEDAR
at www.sedar.com.
The
Company is authorized to issue an unlimited number of Preferred
Shares, issuable in series. The Board may by resolution fix
before issuance, the designation, rights, privileges, restrictions
and conditions to attach to the Preferred Shares of each
series. The Preferred Shares are entitled to preference over
the common shares with respect to the payment of dividends, if any,
and in the event of liquidation, dissolution or winding-up of the
Company. As of April 1, 2019, there are no Preferred Shares issued
and outstanding.
The
complete description of the rights, privileges, restrictions and
conditions of the Preferred Shares is included in our articles a
copy of which is available through the Company's issuer profile on
SEDAR at www.sedar.com.
On
February 16, 2018, the Company entered into an agreement to
complete a three-tranche Private Placement under which AGV has
committed to purchase 10,905,212 Units at a price of $0.924 per
Unit for total gross proceeds of approximately $10,076,416. Each
Unit consists of one Common Share and one-third of one
Warrant. Each Warrant entitles the holder to acquire one Warrant
Share at an exercise price of $1.20 for twelve (12) months from
closing of the first tranche of the Private Placement.
As of the date of this AIF the Company has received conditional
approval from the TSX to extend the warrants to February 16, 2020,
subject to disinterested shareholder approval. As previously
discussed as part of the Co-operation Agreement, NXT has agreed to
seek approval to a 12-month extension of the expiry date of the
common share purchase warrants held by AGV.
The
Company had 68,573,558 common shares outstanding at the
31st
December 2018. All shares have equal voting rights.
7. MARKET
FOR SECURITIES
The following tables set forth the price history of the
Company’s common shares listed on the OTC in the United
States and on the TSX in Canada.
|
|
|
|
|
Month
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
$0.55
|
$0.22
|
316,613
|
$0.29
|
$0.27
|
592,985
|
|
November 30,
2018
|
$0.70
|
$0.42
|
210,491
|
$0.46
|
$0.43
|
219,790
|
|
October 31,
2018
|
$0.75
|
$0.50
|
160,495
|
$0.47
|
$0.45
|
296,493
|
|
September 30,
2018
|
$0.85
|
$0.50
|
299,341
|
$0.51
|
$0.47
|
201,996
|
|
August 31,
2018
|
$0.80
|
$0.56
|
83,949
|
$0.54
|
$0.49
|
511,652
|
|
July 31,
2018
|
$0.85
|
$0.57
|
137,065
|
$0.57
|
$0.53
|
297,344
|
|
June 30,
2018
|
$0.99
|
$0.76
|
115,047
|
$0.68
|
$0.71
|
193,059
|
|
May 31,
2018
|
$1.19
|
$0.90
|
245,285
|
$0.82
|
$0.77
|
203,686
|
|
April 30,
2018
|
$1.34
|
$0.90
|
112,901
|
$0.93
|
$0.87
|
254,854
|
|
March 31,
2018
|
$1.34
|
$1.12
|
233,790
|
$0.92
|
$0.95
|
429,805
|
|
February 28,
2018
|
$1.27
|
$1.01
|
443,788
|
$0.97
|
$0.89
|
924,845
|
|
January 31,
2018
|
$1.25
|
$0.96
|
541,474
|
$0.94
|
$0.86
|
537,002
|
8.
ESCROWED
SECURITIES and SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON
TRANSFER
As
described in section 6.3, Warrants, the Company completed the final
tranches of a three-tranche Private Placement on July 3,
2018.
In
conjunction with the closing on the final amount of the Private
Placement, the Company and the
AGV
have agreed to enter into an Investor
Rights Agreement pursuant to which: (a) the Subscriber has the
right to nominate one director for election to the board of
directors of the Company (subject to maintaining any equity
ownership of at least 10% in the Company); (b) the Subscriber is
entitled to participate in future equity or convertible security
offerings of the Company in order to maintain its pro rata equity
interest in the Company (subject to maintaining any equity
ownership of at least 10% in the Company); (c) the Subscriber is
entitled to a similar equity offering participation right in
connection with certain new entities that may be created by the
Company to expand the application of its proprietary technologies;
and (d) the Subscriber has agreed to a 18 month standstill
from July 3, 2018 and a 12 month restriction on dispositions of 75%
of the securities acquired in the Private Placement.
There
are no other securities held in escrow or securities subject to a
contractual restriction on transfer.
9. DIRECTORS
and OFFICERS
Our
articles of incorporation provide for a minimum of one director and
a maximum of 15 directors comprising our Board of directors. At
present, our Board of directors consists of five
members.
Our
directors are elected by our shareholders at our annual meeting of
shareholders and hold the position either until the next annual
shareholders’ meeting, the date of their resignation or until
a successor is appointed.
The
following sets forth information, including directorships in other
reporting issuers, as of April 1, 2019, for our directors,
executive officers and key employees:
|
George Liszicasz
Calgary, Alberta, Canada
Director, Chairman
and Chief Executive Officer
since January 1996;
President since
July 2002
|
Mr. Liszicasz is
the inventor of the SFD® Technology and has been Chairman and
Chief Executive Officer since the Corporation's inception in 1996.
Mr. Liszicasz’ primary responsibilities, as the President and
CEO, are to oversee all operations and to further develop the
SFD® technology.
He
holds an Electronics Engineer degree from the Landler Jeno
Technitken in Hungary in 1973 and studied general sciences at the
University of British Columbia between 1979 and 1983. Mr. Liszicasz
has extensive R&D body of work with various technologies, and
52 inventions.
|
|
Charles Selby
Calgary,
Alberta, Canada
Director
since January
2006
|
Mr. Selby holds a
B. Sc. (Hons) in Chemical Engineering, a J.D. degree and is a
registered Professional Engineer in the Province of Alberta. He
previously practiced law for two large Canadian law firms,
specializing in securities and corporate finance matters. Since
leaving the practice of law, Mr. Selby was a
Vice President of Pengrowth Corporation for almost 20 years. He
also has served on the board and in management of a number
of reporting issuers including Arakis Energy, which has operations
in the Sudan, and other issuers in the oil and natural gas
industry.
He is currently the
Chairman and CEO of Montana Exploration Corp. (formerly AltaCanada
Energy Corp.), an oil and gas company listed on the TSX-V, and is
the president of Caledonian Royalty Corporation, Caledonian Global
Corporation and Caledonian Midstream Corporation, private entities
which are involved in oil & gas production and the midstream
business.
Mr. Selby is the
Lead Director of NXT. He is also Chair of NXT’s
Compensation Committee and a member of the Audit, Disclosure, and
Strategic Planning Committees.
Mr. Selby also
served as the Company’s interim CFO from December, 2017 to
January, 2018.
|
|
John
Tilson
Montecito, California, USA
Director since February 2015
|
Mr. Tilson is
retired, and after obtaining MBA and CFA designations, had a
distinguished career as an analyst, portfolio manager,
and advisor in the US investment and financial industry with
such firms as Sutro & Company and EF Hutton & Company.
Mr. Tilson joined Roger Engemann and Associates in 1983 when assets
under management were roughly US$160 million. During
his tenure there, the Pasadena Group of Mutual Funds was
started, with Pasadena Capital Corporation formed as the holding
company for the mutual funds and investment management business.
After working as an analyst and portfolio manager, John later
became Executive Vice President & Managing Director of Pasadena
Capital Corporation. Assets under management had grown to over US$5
billion by the time the firm was sold to Phoenix Companies in 1997.
Mr. Tilson later retired in 2005.
From 2006 to 2012,
Mr. Tilson was a member of the Board of Trustees, including three
years serving as VP and Chairman of the long-range planning
committee, for Lotusland, a Santa Barbara non-profit organization
established by Madame Ganna Walska.
Mr. Tilson is the
Chair of the Board’s Strategic Planning Committee, and a
member of the Compensation, Governance and Audit
Committees.
|
|
Thomas E. Valentine
Calgary, Alberta, Canada
Director since November 2007
Corporate Secretary since April 2014
|
Mr. Valentine is a
Partner with Norton Rose Fulbright Canada LLP, where he has
practiced law, both as a Barrister and a Solicitor, since his call
to the Bar in 1987. He is a member of the firm’s Energy and
Infrastructure Practice Group and is involved in energy and energy
related matters throughout the Middle East, North Africa, the CIS,
Asia and South America.
Mr. Valentine is a
member of the Board of Directors of Touchstone Exploration Inc.,
and formerly was a director of two other Canadian public companies,
Calvalley Petroleum Inc. (to May 2015) and Veraz Petroleum
Ltd.
Mr. Valentine holds
a BA from the University of British Columbia, a LLB from Dalhousie
University, and a LL.M. from the London School of Economics.
Mr. Valentine is
the Chair of the Governance Committee and a member of the
Compensation Committee.
|
|
Bruce G. Wilcox
New York, New York, USA
Director since June
2015
|
Mr. Wilcox has had
a long career as an investment company CEO, analyst and portfolio
manager. He spent most of his career with Cumberland Associates,
LLC, a New York equity fund, from 1986 through retirement in 2010,
progressing from analyst / portfolio manager to partner, and
Chairman of the Management Committee. Mr. Wilcox specialized in
Cumberland’s investments in the energy industry (E&P and
service companies), with an emphasis on value and long-term
holdings. During his tenure, the fund’s assets under
management ranged from US$0.7 to $1.5 billion.
From 1984 to 1986,
Mr. Wilcox was with Central National-Gottesman, Inc. as an analyst
and portfolio manager on a team responsible for a $500 million
listed equity portfolio.
Mr. Wilcox is
presently CEO of E Street Management, LLC which manages a
long/short equity fund of funds. He is also one of the managing
members of Xiling Fund III, LLC, part of a series of private equity
funds (US$100+ million) which specialize in investing in museum
quality Chinese art and collectibles.
Mr. Wilcox obtained
a BA (Honors), in Modern Chinese from the University of California,
Santa Barbara, and a Master of International Management from the
American Graduate School of International Management in
Phoenix.
Mr. Wilcox is a
member of several Boards, including the Teachers College of
Colombia University (2003 to date, including acting as the Chair of
the Investment Committee), the University of California Santa
Barbara Foundation (2003 to date, including as former Chair of the
Board, Investment and Finance Committees), and is a Trustee (2001
to date) of the Manhattan Institute For Policy Research, a leading
urban, state, and national policy institution, which works on
matters such as energy policy.
Mr. Wilcox is the
chair of the Board’s Audit Committee and a member of the
Disclosure, Governance and Strategic Planning Committees.
|
|
Eugene
Woychyshyn
Calgary, Alberta, Canada
Interim CFO and Corporate Controller
since December 2018
|
Mr. Woychyshyn has
been serving as a consultant to NXT since late November 2017
providing controllership services. He has extensive international
experience in North America, Europe and Asia working in numerous
industries and has previous experience in the CFO role of a TSX
Venture listed company. Mr. Woychyshyn is a Chartered Professional
Accountant who holds a Bachelor of Commerce from the University of
Manitoba and a Masters of Business Administration from St.
Joseph’s University, Philadelphia
PA.
Mr. Woychyshyn is a
member of the Disclosure Committee.
|
As of
April 1, 2019, the directors and officers of NXT, as a group,
beneficially owned or controlled or directed, directly or
indirectly 19,281,979 Common Shares or approximately 28.1% of the
issued and outstanding Common Shares.
9.1 Cease Trade Orders, Bankruptcies, Penalties or
Sanctions
None of
the directors or executive officers is, or has been in the last ten
years, a director, chief executive officer or chief financial
officer of any company that: (i) was subject to a cease trade or
similar order or an order that denied the relevant company access
to any exemption under securities legislation for a period of more
than 30 consecutive days that was issued while the director was
acting in that capacity; and (ii) was subject to such an order that
was issued after the proposed director ceased to be a director,
chief executive officer or chief financial officer and which
resulted from an event that occurred while that person was acting
in such a capacity.
None of
the directors or executive officers is, or has been in the last ten
years, a director or executive officer of any company that, while
that person was acting in that capacity, or within a year of that
person ceasing to act in that capacity, became bankrupt, made a
proposal under any legislation relating to bankruptcy or insolvency
or was subject to or instituted any proceedings, arrangement or
compromise with creditors or had a receiver, receiver manager or
trustee appointed to hold its assets, other than as discussed
below.
A cease
trade order was issued by the Alberta Securities Commission on May
4, 2018 against Montana Exploration Corp. (“MEC”) for failing to file its
annual audited financial statements, annual management’s
discussion and analysis and certification of annual filings within
the required time period. Charles Selby is the Chief Executive
Officer of MEC. The TSX Venture Exchange has announced that upon
revocation of the Cease Trade Order, MEC’s shares will remain
suspended until the company meets TSX Venture Exchange
requirements. Charles Selby was previously a member of the board of
directors of Wellpoint Systems Inc. (“Wellpoint”, a
reporting issuer on the TSX-V), which in 2011 had a Receiver
appointed by the Court of Queen’s Bench of the Province of
Alberta on behalf of the holders of secured debts. Wellpoint was
subsequently wound up following a restructuring and sale of its
operating assets. Charles Selby was previously a member of the
board of directors of Idaho Natural Resources Corp., which was
cease-traded by the TSX Venture Exchange in December 2012 for
failing to meet listing requirements.
None of
the directors or executive officers has, within the last ten years,
become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency, or become subject to or instituted any
proceedings, arrangement or compromise with creditors or had a
receiver, receiver manager or trustee appointed to hold their
assets.
Messrs.
Tilson, Valentine, and Wilcox are considered "independent" within
the meaning of Canadian securities law.
Expiration Dates
No
director or member of our administrative, or supervisory bodies has
an expiration date for their current term of office. Directors are
elected by shareholders at the annual meeting of shareholders and
hold the position either until the next annual shareholders’
meeting or until a successor is appointed. The period during which
each individual has served as a director is set out in the table
under Item 9 – “Directors and
Officers”.
Service Contracts
No
directors (other than an employment contract for the CEO, Mr.
Liszicasz) have service contracts with the Company or any of its
subsidiaries that provide benefits upon termination of
employment.
Board of Directors Mandate
The
principal role of the Board is stewardship of the Company through
the creation of shareholder value, including the protection and
enhancement of the value of its assets, as the fundamental
objective. The stewardship responsibility means that the Board
oversees the general operation of the business and management,
which is responsible for the day-to-day conduct of the business.
The Board must assess and ensure systems are in place to manage the
risks of the Company’s business with the objective of
preserving the Company’s assets. The Board, through the CEO,
sets the attitude and disposition of the Company towards compliance
with applicable laws, environmental, safety and health policies,
financial practices and reporting. In addition to its primary
accountability to shareholders, the Board is also accountable to
employees, government authorities, other stakeholders and the
public. The Mandate of the Board is located in Appendix
B.
Board Committees
CORPORATE
GOVERNANCE COMMITTEE
The
Company and the Board recognize the importance of corporate
governance to the effective management of the Company and to its
shareholders. The Company’s approach to significant issues of
corporate governance is designed with a view to ensuring that the
business and affairs of the Company are effectively managed so as
to enhance shareholder value. The Mandate of the Corporate
Governance Committee is posted on the Company website and may be
viewed at www.nxtenergy.com or you may request a copy be mailed to
you by writing to our offices at Suite 302, 3320 - 17th Avenue SW
Calgary, Alberta, Canada, T3E 0B4.
The
Board and management endorse the need to establish forward-looking
governance policies and to continuously evaluate and modify them to
ensure their effectiveness.
Composition of the Corporate Governance Committee
Mr.
Valentine (Chair), Mr. Wilcox and Mr. Tilson are members of the
Corporate Governance Committee and are independent.
Responsibilities of the Corporate Governance Committee
The
Corporate Governance Committee’s duties, as outlined in its
charter, are to deal with the Company’s approach to corporate
governance and the promotion of compliance with industry and
regulatory standards. The committee is responsible for overseeing
and assessing the functioning of the Board and the committees of
the Board and for the development, recommendation to the Board,
implementation and assessment of effective corporate governance
principles and guidelines. The Committee’s responsibilities
also include identifying new candidates for director and
recommending that the Board select qualified director candidates
for election at the next annual meeting of
shareholders.
DISCLOSURE
COMMITTEE
Composition of the Disclosure Committee
The
Disclosure Committee currently consists of Mr. Wilcox who is
independent and Mr. Selby and Mr. Woychyshyn.
Responsibilities of the
Disclosure
Committee
The
Disclosure Committee’s duties are to ensure that the Company
provides timely, accurate and balanced disclosure of all material
information about the Company and to provide fair and equal access
to such information. All news releases, including but not limited
to releases of material information, are managed by the Disclosure
Committee. If the information has been determined by the Disclosure
Committee to be material, news releases will be prepared, reviewed
and then disseminated through a news-wire service that provides
simultaneous service to widespread news services and financial
media. Additionally, the Disclosure Committee is responsible for
ensuring public disclosure through filing these news releases on
SEDAR, EDGAR, and our website.
AUDIT
COMMITTEE
Composition of the Audit Committee
The
Audit Committee consists of Messrs. Wilcox (Chair), Tilson and
Selby. Messrs. Wilcox and Tilson are independent. Each member is
financially literate. The Company’s Audit Committee Charter
is attached in “Appendix A”.
Bruce Wilcox
Mr.
Wilcox holds a Master of International Management from the American
Graduate School of International Management in Phoenix. His career
as an investment company CEO, analyst and portfolio manager was
spent primarily with Cumberland Associates, LLC, a New York equity
fund, where he was a partner, and served as Chairman of the
Managing Committee.
John Tilson
Mr.
Tilson is retired, and after obtaining
MBA and CFA designations, had a distinguished career as an analyst,
portfolio manager, and advisor in the US investment and
financial industry with such firms as Sutro & Company
and EF Hutton & Company.
Charles Selby
Mr.
Selby is both a lawyer and
Professional Engineer, with past legal experience specializing in
securities and corporate finance matters. He has served on
the board or in senior management roles with a number of private
firms as well as reporting issuers in the oil and natural gas
industry.
Mr.
Selby has previously served on the audit committees of Alta Canada
Energy Corp. and served as the audit committee chairman for Idaho
Natural Resources Corp. (formerly Bridge Resources
Corp.).
All
members of the Audit Committee have the educational background and
experience that provides them with the knowledge and ability to
understand accounting policies and related financial reporting and
disclosure issues, in order to fulfill their duties and
responsibilities as an Audit Committee member.
Audit Committee Oversight - The Company’s Board has adopted all
recommendations by the Audit Committee with respect to the
nomination and compensation of the external auditor.
Pre-Approval Policies and Procedures - The Audit
Committee has adopted a formal policy requiring the pre-approval of
all audit and non-audit related services to be provided by
the Company’s principal
auditor prior to the commencement of the engagement, subject to the
following:
●
the Audit Committee
will review annually a list of audit, audit related, recurring tax
and other non-audit services and recommend pre-approval of those
services for the upcoming year. Any additional requests will be
addressed on a case-by-case specific engagement basis;
●
for engagements not
on the pre-approved list, the Audit Committee has delegated to the
Chair of the Committee the authority to pre-approve individual
non-audit service engagements with expected costs of up to $50,000
(annual aggregate total) subject to reporting to the Audit
Committee, at its next scheduled meeting; and
●
for engagements not
on the pre-approved list and with expected costs greater than
$50,000 (annual aggregate total), the entire Audit Committee must
approve this service, generally at its next scheduled
meeting.
The
following table sets forth the aggregate audit fees, audit-related
fees, tax fees of our principal accountants and all other fees
billed for products and services provided by our principal
accountants for each of the fiscal years ended December 31, 2018
and 2017.
|
|
|
|
|
Audit
fees
|
$87,250
|
103,860
|
|
Audit related fees
– Colombia branch
|
-
|
-
|
|
Audit related fees – Bolivian
branch
|
-
|
9,800
|
|
Tax
fees
|
87,250
|
113,660
|
|
|
5,510
|
-
|
|
Other Audit Related
Fees
|
39,560
|
56,280
|
|
Total
fees
|
132,320
|
169,940
|
Audit Committee’s Pre-approval Policies and
Procedures
Our
Audit Committee nominates and engages our independent auditors to
audit our financial statements. Our Audit Committee also requires
management to obtain the Audit Committee’s approval on a
case-by-case basis before engaging our independent auditors to
provide any audit or permitted non-audit services to the Company or
any of our subsidiaries. All fees shown have been pre-approved by
the Audit Committee.
COMPENSATION
COMMITTEE
Composition of
the Compensation Committee
Messrs.
Selby (Chair), Tilson, and Valentine are members of the
Compensation Committee. Messrs. Tilson and Valentine are
independent. The charter or mandate of the Compensation Committee
is posted on the Company website and may viewed at
www.nxtenergy.com or you may request a copy be mailed to you by
writing to our offices at Suite 302, 3320-17th Ave. SW, Calgary,
Alberta, Canada, T3E 0B4.
Responsibilities of
the
Compensation Committee
The
Compensation Committee's duties, as outlined in its charter, are to
deal with the assessment of management and succession to key
positions and compensation within the Company. The Compensation
Committee shall assist the Board in discharging the Board’s
oversight responsibilities relating to the compensation and
retention of key senior management employees, and in particular the
CEO, with the skills and expertise needed to enable the Company to
achieve its goals and strategies at fair and competitive
compensation and appropriate performance incentives. In discharging
its responsibilities, the Compensation Committee will report and,
where appropriate make recommendations to the Board in respect of
the matters identified in the charter.
STRATEGIC
PLANNING COMMITTEE
Composition of
the Strategic
Planning Committee
Messrs.
Tilson (Chair), Selby and Wilcox are members of the Strategic
Planning Committee. Messrs. Tilson and Wilcox are independent. The
Committee was formed in 2015 to assist the Company with addressing
long range planning considerations, including plans for growth and
management succession.
10. RELATED
PARTY TRANSCTIONS
Summarized
below are certain other transactions and business relationships
between NXT and persons who are related parties, for the current
fiscal year ended December 31, 2018:
●
Details of stock
options which have been granted to related parties during the above
noted period are included above. Details of stock options which
have been exercised by related parties are noted
below.
●
One of the members
of NXT’s Board of directors, Mr. Thomas Valentine is a
partner in the law firm Norton Rose Fulbright, which provides legal
advice to NXT. In 2018, NXT incurred legal expenses of $249,218
with this firm, for which a total of $5,999 is included in accounts
payable as at December 31, 2018. Norton Rose Fulbright continues to
provide legal services to NXT.
●
Accounts payable
and accrued liabilities at December 31, 2018 includes a total of
$7,461 related to re-imbursement of expenses owing to the CEO of
NXT.
●
There were no stock
options to acquire common shares of the Company exercised in 2018
by persons who were directors or officers of NXT as at the date of
their exercise.
10.1
Technology
Transfer Agreement (TTA)
Upon execution of the TTA on December 31, 2006, Mr. Liszicasz
transferred all his rights and entitlements to the SFD®
technology for use in the field of hydrocarbon exploration to NXT
in exchange for receiving 10,000,000 non-voting, convertible
preferred shares. Effective May 22, 2013, Mr. Liszicasz
formally converted 2,000,000 of these preferred shares into
2,000,000 common shares. NXT’s independent members of the
Board of Directors elected to retain the SFD® technology by
converting the remaining outstanding preferred shares to common
shares effective August 31, 2015.
Following
the conversion, Mr. Liszicasz has continued to retain the rights to
utilize the SFD® technology in all other potential
field-of-use applications.
Our Transfer Agent is of Computershare Trust Company of Canada,
located in Calgary, Alberta, Canada, and the Company's
transfer agent for its common shares.
The
Company has not entered into any material contracts outside its
normal course of business.
To the
best of the Company's knowledge, there are no legal or arbitration
proceedings existing or pending which have had or may have,
significant effects on the Company's financial position or
profitability and no such proceedings are pending or known to be
contemplated by governmental authorities.
KPMG
LLP are the auditors of NXT Energy Solutions Inc. and have
confirmed with respect to the Company, that they are independent
within the meaning of the relevant rules and related
interpretations prescribed by the relevant professional bodies in
Canada and any applicable legislation or regulations.
15.
ADDITIONAL
INFORMATION
The
Company’s consolidated financial statements are stated in
Canadian dollars and are prepared in accordance with U.S. generally
accepted accounting principles. Additional information relating to
NXT can be found on SEDAR at www.sedar.com.
AIF for the year ended December 31, 2018
28
APPENDIX
“A”
NXT ENERGY SOLUTIONS INC.
AUDIT COMMITTEE CHARTER
INTRODUCTION
This charter (the “Charter”) has been adopted to govern the
composition, mandate, responsibilities and authority of the Audit
Committee (the “Committee”) of the Board of Directors (the
“Board”) of NXT Energy Solutions Inc. (the
“Company”).
COMPOSITION
AND PROCEDURES
1.
The Committee shall be appointed by the Board and
shall be composed of three directors, with at least two of whom
being “independent” as required by the Business
Corporations Act (Alberta) (the “Act”).
2.
The
Board will appoint the chair of the Committee.
3.
The
quorum for meetings shall be a majority of the members of the
Committee, present in person or by telephone or other
telecommunication device that permits all persons participating in
the meeting to speak and to hear each other.
4.
Meetings
of the Committee shall be conducted as follows:
(a)
the
Committee shall meet, in person or by teleconference, at least four
times annually at such times and locations as may be requested by
the chair of the Committee. Notice of meetings to the members shall
be the same as set out in the by-laws of the Company for meetings
of the Board. The Auditors or any member of the Committee may
request a meeting of the Committee; and
(b)
management
representatives may be invited to attend meetings (except private
sessions with the Auditors as defined below).
PRIMARY RESPONSIBILITIES OF THE COMMITTEE
The
primary responsibilities of the Committee are:
1.
To
recommend to the Board:
(a)
the external auditor (the
“Auditors”) to be nominated for appointment by the
shareholders of the Company for the purpose of preparing or issuing
the Auditor’s report or performing other audit, review or
attest services for the Company; and
(b)
the
compensation of the Auditors.
2.
To
oversee the work of the Auditors in preparing or issuing the
Auditor’s report on the Company’s annual consolidated
financial statements or performing other audit, review or attest
services for the Company including the resolution of disagreements
between management of the Company and the Auditors regarding
financial reporting.
3.
To
pre-approve, as required by the Act and subject to the exemptions
in the Act, all non-audit services to be provided to the Company by
the Auditors. The Committee may, in accordance with the
requirements of the Act, delegate to one or more members of the
Committee the authority to pre-approve non-audit services to be
provided by the Auditors, provided that all such pre-approvals of
non-audit services shall be presented to the Committee at its first
scheduled meeting following such pre-approval.
(a)
the Company’s unaudited quarterly
consolidated financial statements for the first, second and third
quarters of the Company’s fiscal year
(“quarterly
statements”) and the
Company’s audited annual consolidated financial statements
(“annual
statements”);
(b)
the Management’s Discussion and Analysis
(“MD&A”) prepared in conjunction with the
quarterly and annual statements; and
(c)
all
press releases to be issued by the Company with respect to its
annual and quarterly earnings and press releases on other material
financial reporting matters.
5.
To
satisfy itself that adequate procedures are adopted by the Company
for the review of the Company’s public disclosure of
financial information extracted or derived from the Company’s
financial statements other than the public disclosure referred to
in Section 4 above, and to regularly assess the adequacy of such
procedures.
6.
To
satisfy itself that adequate procedures are adopted and oversee the
maintenance of procedures for:
(a)
the
receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or
auditing matters; and
(b)
the
confidential anonymous submission by employees of the Company and
its subsidiaries of concerns regarding questionable accounting or
auditing matters.
7.
To
review and approve the Company’s and its subsidiaries’
hiring policies regarding partners, employees and former partners
and employees of the current and former Auditors of the Company and
its subsidiaries.
AUTHORITY OF THE COMMITTEE
Subject to prior consultation with the Chief Executive Officer or
the Chief Financial Officer (except in unusual circumstances), the
Committee is authorized to:
1.
engage
independent counsel and other advisors it determines necessary to
carry out the Committee’s duties and
responsibilities;
2.
set
and require the Company to pay the compensation and charged
expenses for any advisors engaged by the Committee;
and
3.
communicate
directly with any internal audit staff of the Company and its
subsidiaries (if any) and the Auditors.
ADDITIONAL RESPONSIBLITIES AND DUTIES OF THE COMMITTEE
Auditors
1.
The
Committee shall ensure that the Company requires and instructs the
Auditors to report directly to the Committee.
2.
The
Committee is responsible for ensuring the independence of the
Auditors. On an annual basis, the Committee shall obtain a formal
written statement from the Auditors delineating all relationships
between the Auditors and the Company and confirming the
independence of the Auditors. This written statement shall be
obtained in conjunction with the audit of the annual financial
statements after each fiscal year end.
Review of Annual Financial Statements
The Committee shall review the annual financial statements and
related MD&A of the Company prior to their public release and
shall report the results of its review to the Board and make
recommendations to the Board with respect to Board approval of the
financial statements and related MD&A. At the Committee meeting
at which the Company’s annual financial statements are to be
reviewed, the Committee shall meet, in person or by teleconference,
with representatives of the Auditors and with the Company’s
management to assess and understand the annual financial statements
and the results of the audit including, but not limited
to:
1.
that
the Company’s system of internal controls and financial
reporting systems are adequate to produce fair and complete
disclosure of its financial results;
2.
that
the Company’s reporting is complete and fairly presents its
financial condition in accordance with generally accepted
accounting principles;
3.
that
accounting judgments and estimates used by management are
reasonable and do not constitute earnings management;
4.
that
risk management policies are in place to identify and reduce
significant financial and business risks; and
5.
that
the Company has in place a system to ensure compliance with
applicable laws, regulations and policies.
Review of Quarterly Financial Statements
The Committee shall review the interim quarterly financial
statements and related MD&A of the Company prior to their
public release and shall report the results of its review to the
Board and make recommendations to the Board with respect to Board
approval of the quarterly statements and related MD&A unless
the Board has delegated to the Committee the authority to approve
the quarterly statements and related MD&A, in which case the
Committee shall also approve the quarterly statements and related
MD&A. The review by the Company shall be substantially
completed prior to the issuance of a press release respecting the
quarterly financial results. The Committee shall meet with the
Company’s management to assess and understand the interim
quarterly financial statements and to discuss the results of their
preparation and review.
Other Responsibilities and Duties
1.
As
part of the quarterly and annual reviews described above, the
Committee will:
(a)
meet
with management in the absence of the Auditors for the annual
review;
(b)
meet
with the Auditors in the absence of management for the annual
review;
(c)
review
with management and the Auditors any proposed changes in major
accounting policies, the presentation and impact of significant
risks and uncertainties, and key estimates and judgments of
management that may be material to financial
reporting;
(d)
review
with management and the Auditors any significant financial
reporting issues discussed during the fiscal period and the method
of resolution;
(e)
review
any problems experienced by the Auditors in performing the annual
audit, including any restrictions imposed by management or
significant accounting issues on which there was a disagreement
with management;
(f)
obtain
an explanation from management of all significant variances between
comparative reporting periods;
(g)
review
the post-audit or management letter, containing the recommendations
of the Auditors and management’s response and subsequent
follow up to matters raised by the Auditors;
(h)
review
any evaluation of internal controls by the Auditors; together with
management’s response; and
(i)
review
and reassess the Charter for adequacy at least annually and make
changes as it deems necessary.
2.
In
addition to the quarterly and annual reviews, the Committee
will:
(a)
prior
to the commencement of each annual audit, meet with the Auditors to
review the Auditors’ audit plan for the ensuing
audit;
(b)
review
with management and the Auditors all material accounting and
financial issues affecting the Company not dealt with in annual and
quarterly reviews; and
(c)
review
annually and recommend changes to the Company’s Code of
Conduct & Business Ethics.
3.
The
Committee shall perform such other duties as may be required by the
Board or as may be delegated to the Committee by the
Board.
AIF for the year ended December 31, 2018
32
APPENDIX B
Board of Directors Mandate
PURPOSE
The
principal role of the Board of Directors of NXT Energy Solutions
Inc. (the “Company”) is stewardship of
the Company through the creation of shareholder value, including
the protection and enhancement of the value of its assets, as the
fundamental objective. The stewardship responsibility means that
the Board oversees the conduct of the business and management,
which is responsible for the day-to-day conduct of the business.
The Board must assess and ensure systems are in place to manage the
risks of the Company’s business with the objective of
preserving the Company’s assets. The Board, through the Chief
Executive Officer (“CEO”), sets the attitude
and disposition of the Company towards compliance with applicable
laws, environmental, safety and health policies, financial
practices and reporting. In addition to its primary accountability
to shareholders, the Board is also accountable to employees,
government authorities, other stakeholders and the
public.
PRIMARY RESPONSIBILITIES
The
principal responsibilities of the Board, which are required to
ensure the overall stewardship of the Company are as
follows:
1.
The Board must
ensure that there are long-term goals in place and must adopt a
strategic planning process. The CEO, with the approval of the
Board, must establish long-term goals for the Company. The CEO
formulates the Company’s strategy, policies and proposed
actions and presents them to the Board for approval. The Board
brings objectivity and judgment to this process. The Board
ultimately approves, on an annual basis, the strategic plan which
takes into account, among other things, the opportunities and risks
of the Company’s business.
2.
The Board must
identify and have an understanding of the principal risks
associated with the Company’s businesses and must ensure that
appropriate systems are in place which effectively monitor and
manage those risks.
3.
The Board must
ensure that processes are in place to enable it to monitor and
measure management’s, and in particular the CEO’s,
performance in achieving the Company’s stated objectives.
These processes should include appropriate training, development
and succession planning of management.
4.
To the extent
feasible, the Board shall satisfy itself as to the integrity of the
CEO and other executive officers and that the CEO and other
executive officers create a culture of integrity throughout the
Company.
5.
The Board must
ensure that the necessary internal controls and management systems
are in place that effectively monitor the Company’s
operations and ensure compliance with applicable laws, regulations
and policies.
6.
The Board must
monitor compliance with the Company’s Code of Business
Conduct and Ethics.
7.
The Board must
ensure the Company has adopted a communication policy which
effectively communicates with and receives feedback from
shareholders. The Board must also ensure that the Company has
appropriate processes in place to effectively communicate with
employees, government authorities, other stakeholders and the
public.
NON-DELEGABLE RESPONSIBILITIES
Pursuant
to the Business Corporations Act (the “Act”), certain matters are
considered to be of such importance, so as to warrant the attention
of all Directors and, accordingly, the Act prescribes that the
following matters either cannot be delegated or may only be
delegated in a qualified or partial manner:
●
the submission of
items to shareholders for their approval;
●
the filling of a
vacancy among the directors or in the office of
auditor;.
●
the appointment of
additional directors;
●
the issue of
securities;
●
the declaration of
dividends;
●
the purchase,
redemption or other acquisition of the Company’s own
shares;
●
the payment of
certain commissions prescribed by the Act;
●
the approval of a
management proxy circular;
●
the approval of
annual financial statements; and
●
the adoption,
amendment or repeal of by-laws.
CUSTOMARY BOARD MATTERS
The
following typifies matters customarily considered by the Board in
fulfilling its responsibility for stewardship of the Company. The
Board may determine it appropriate to delegate certain of these
matters to committees of the Board:
●
the appointment of
officers, other than executive officers;
●
adopting a process
to consider the competencies and skills the Board, as a whole,
should possess and assess the competencies and skills of each Board
member and consider the appropriate size of the Board, with a view
to facilitating effective decision-making;
●
determining the
remuneration of directors and auditors;
●
reviewing and
recommending to shareholders, changes to capital
structure;
●
approving the
Company’s long-term strategy and the annual capital
expenditure plan of the Company and its subsidiaries and where
appropriate any supplementary capital plan;
●
approving banking,
borrowing and investment policies;
●
determining
dividend policy;
●
developing the
Company’s approach to corporate governance including, without
limitation, developing a set of corporate governance principles and
guidelines;
●
approving the
holding, location and date of meetings of
shareholders;
●
appointment of
members to committees of the Board of Directors and approving terms
of reference for and the matters to be delegated to such
committees;
●
granting any
waivers from the Company’s Code of Business Conduct and
Ethics for the benefit of the Company’s directors or
executive officers;
●
granting and
delegating authority to designated officers and employees including
the authority to commit capital, open bank accounts, sign bank
requisitions and sign contracts, documents and instruments in
writing;
●
determining the
number of directors and recommending nominees for election by the
shareholders;
●
approving
amendments to the Company’s existing plans: Stock Option
Plan, employee benefits plans, or such other plans as the Company
approves from time to time;
●
approving the
acquisition or disposition or certain corporate assets;
and
●
appointing the
Company’s transfer agents and registrars.
BOARD COMMITTEES
The
Board of Directors has the authority to appoint a committee or
committees of the Board and may delegate powers to such committees
(with the exceptions prescribed by the Act). The matters to be
delegated to committees of the Board and the constitution of such
committees are assessed annually or more frequently as
circumstances require. The following committees have been
constituted:
1.
the Audit
Committee, to deal with financial reporting and control
systems;
2.
the Compensation
Committee, to deal with the assessment of management and succession
to key positions and compensation within the Company;
3.
the Disclosure
Committee, to deal with the Company’s approach to disclosure
and the promotion of compliance; and
4.
the Corporate
Governance Committee, to deal with the Company’s approach to
corporate governance and the promotion of compliance.
COMPOSITION & PROCEDURE
The
Board of Directors is elected annually by shareholders. The number
of Directors to be elected at shareholders meetings is fixed by the
by-laws. While the election of directors is ultimately determined
by the shareholders, it is the policy of the Board that a majority
of the Directors be independent (as defined under applicable stock
exchange rules and securities laws).
The
Chairman of the Board presides as Chair at all meetings of the
Board and shareholders of the Company. The Corporate Secretary or
the Recording Secretary attends all meetings of the Board and
shareholders and records the proceedings thereof. The Corporate
Secretary prepares and keeps minutes and records of all meetings of
the Board.
Meetings
of the Board of Directors, including telephone conference meetings,
are to be held at such time and place as the Chairman of the Board,
or any two Directors, may determine. Notice of meetings shall be
given to each Director in accordance with the by-laws. Meetings of
the Board of Directors may be held without formal notice if all of
the Directors are present and do not object to notice not having
been given, or if those absent waive notice in any manner before or
after the meeting.
Notice
of meeting may be delivered personally, given by mail, facsimile or
other electronic means of communication.
Each
Board member is expected to attend Board meetings and meetings of
committees of which he or she is a member and to become familiar
with deliberations and decisions as soon as possible after any
missed meetings. In that regard, members of the Board are expected
to prepare for Board (and committee) meetings by reviewing meeting
materials distributed to members of the Board, to the extent
feasible, in advance of such meetings. Matters of a confidential or
sensitive nature may be discussed at Board (or committee) meeting
without advance distribution of meeting materials to members of the
Board. It is expected that members of the Board will actively
participate in determining and setting the long and short-term
goals and interests of the Company.
In
recognition of its independence, the Board shall regularly hold
discussions without management present.
A
resolution in writing signed by all the Directors entitled to vote
on that resolution at a meeting of the Directors is as valid as if
it had been passed at a meeting of the Directors. A copy of any
such resolution in writing is kept with the minutes of the
proceedings of the Directors.
At
meetings of the Board, any matter requiring a resolution of the
Directors is decided by a majority of the votes cast on the
question; and in the case of an equality of votes, the Chair of the
meeting is entitled to a second or casting vote.
The
Board shall ensure that there is a process in place for annually
evaluating the effectiveness of the Board, the committees of the
Board and individual directors.
COMPENSATION
No
Director, unless he or she is an officer of the Company, should
receive remuneration from the Company other than compensation
received in his or her capacity as a Director.
AIF for the year ended December 31, 2018
36
