NXT Energy (NSFDF) 20-F for FY2019, filed May 5, 2020

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

[ ]

Registration Statement Pursuant To Section 12(b) or (g) of the Securities Exchange Act of 1934

[ X ]

Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019.

[ ]

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __ to __

[ ]

Shell Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of event requiring this shell company report:

Commission file number 000-24027

NXT Energy Solutions Inc.

(Exact Name of Registrant as Specified in its Charter)

Alberta, Canada

(Jurisdiction of incorporation or organization)

Suite 302, 3320 - 17th Avenue SW

Calgary, Alberta, Canada, T3E 0B4

(Address of principal executive offices)

Eugene Woychyshyn

Phone: 403-206-0805

Facsimile: 403-264-6442

Suite 302, 3320 - 17th Avenue SW

Calgary, Alberta, Canada, T3E 0B4

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

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

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

Common Shares

(Title of Class)

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

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

64,406,891 common shares outstanding as of December 31, 2019 (64,406,891 common shares outstanding as of May 5, 2020)

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

Yes	___	No	X

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

Yes	___	No	X

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

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

Yes	X	No	____

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

Yes	X	No	____

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

Large accelerated<br>filer	___	Accelerated<br>filer	___	Non-accelerated<br>filer	X
				Emerging growth<br>Company	___

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

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

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

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

U.S.<br>GAAP	X	International<br>Financial Reporting Standards as issued by the International<br>Accounting Standards Board	___	Other	___

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

Item<br>17	___	Item<br>18	___

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

Yes	___	No	X

20-F for the year ended December 31, 2019

EXPLANATORY NOTE

This Annual Report on Form 20-F for the fiscal year ended December 31, 2019 is being filed pursuant to the order of the Securities and Exchange Commission contained in SEC Release No. 34-88465, dated March 25, 2020 (the “Order”). We filed a Form 6-K on April 28, 2020, prior to the original due date of the Form 20-F, indicating our reliance on the relief granted by the Order.

TABLE OF CONTENTS

PART I
ITEM<br>1.	IDENTITY<br>OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	4
ITEM<br>2.	OFFER<br>STATISTICS AND EXPECTED TIMETABLE	4
ITEM<br>3.	KEY<br>INFORMATION	5
ITEM<br>4.	INFORMATION<br>ON THE COMPANY	16
ITEM<br>4A.	UNRESOLVED<br>STAFF COMMENTS	26
ITEM<br>5.	OPERATING<br>AND FINANCIAL REVIEW AND PROSPECTS	26
ITEM<br>6.	DIRECTORS,<br>SENIOR MANAGEMENT AND EMPLOYEES	38
ITEM<br>7.	MAJOR<br>SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	47
ITEM<br>8.	FINANCIAL<br>INFORMATION	49
ITEM<br>9.	THE<br>OFFER AND LISTING	50
ITEM<br>10.	ADDITIONAL<br>INFORMATION	50
ITEM<br>11.	QUANTITATIVE<br>AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	60
ITEM<br>12.	DESCRIPTION<br>OF SECURITIES OTHER THAN EQUITY SECURITIES	60
PART<br>II
ITEM<br>13.	DEFAULTS,<br>DIVIDEND ARREARAGES AND DELINQUENCIES	61
ITEM<br>14.	MATERIAL<br>MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF<br>PROCEEDS	61
ITEM<br>15.	CONTROLS<br>AND PROCEDURES	61
ITEM<br>16A.	AUDIT<br>COMMITTEE FINANCIAL EXPERT	63
ITEM<br>16B.	CODE<br>OF ETHICS	63
ITEM<br>16C.	PRINCIPAL<br>ACCOUNTANT FEES AND SERVICES	63
ITEM<br>16D.	EXEMPTIONS<br>FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	63
ITEM<br>16E.	PURCHASES<br>OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED<br>PURCHASERS	63
ITEM<br>16F.	CHANGE<br>IN REGISTRANT’S CERTIFYING ACCOUNTANT	64
ITEM<br>16G.	CORPORATE<br>GOVERNANCE	64
ITEM<br>16H.	MINE<br>SAFETY DISCLOSURE	64
PART<br>III
ITEM<br>17.	FINANCIAL<br>STATEMENTS	64
ITEM<br>18.	FINANCIAL<br>STATEMENTS	64
ITEM<br>19.	EXHIBITS	65

FORWARD-LOOKING STATEMENTS

Except for any historical information contained herein, the matters discussed in this Annual Report on Form 20-F contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. 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 Report on Form 20-F.

These risks include:

●

novel coronavirus (2019-nCoV/COVID-19), and the potentially negative effects thereof on the Company's workforce, its supply chain or demand for its products our ability to generate sufficient ongoing cash flow from operations or to raise adequate capital to allow NXT to grow the business and continue operations;

●

the ability of management to execute its business plan;

●

health, safety and the environment (including risks related the novel coronavirus);

●

the emergence of alternative competitive technologies;

●

our ability to protect and maintain our intellectual property and rights to our SFD® technology;

●

our reliance on a limited number of key personnel;

●

our reliance on a limited number of aircraft;

●

our reliance on a limited number of clients;

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counterparty credit risk;

●

foreign currency and interest rate fluctuations;

●

changes in, or in the interpretation of, laws, regulations or policies; and general business, economic and market conditions (including global commodity prices); and

●

other factors described herein under “Risk Factors” (see Item 3. D.).

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

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

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

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

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

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

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

ITEM 3.

KEY INFORMATION

Selected financial data.

The following historical financial information should be read in conjunction with the section entitled “Operating and Financial Review” (see Item 5 herein) and our audited consolidated financial statements and related notes, which are included elsewhere in this document. The consolidated statements of income (loss) data for the years ended December 31, 2019, 2018, and 2017 and selected consolidated balance sheet data as of December 31, 2019 and 2018 are derived from and qualified by reference to, our audited consolidated financial statements that are included elsewhere in this Form 20-F. The consolidated statements of income (loss) data for the years ended December 31, 2016 and 2015 and the selected consolidated balance sheet data as of December 31, 2017, 2016 and 2015, are derived from our previously filed audited consolidated financial statements (which are not included in this Form 20-F).

INCOME (LOSS) & COMPREHENSIVE INCOME (LOSS)

(expressed in Canadian Dollars)	2019	2018	2017	2016	2015
Survey<br>revenues	$11,976,149	$-	$-	$1,447,269	$17,422,151
Operating<br>expenses
Survey<br>costs	2,611,086	1,103,946	1,289,429	1,157,185	5,095,691
General<br>and administrative	3,497,785	3,999,089	4,960,961	5,645,459	5,049,690
Stock<br>based compensation expense	43,809	386,154	581,356	790,500	1,081,000
Amortization<br>expense	1,781,181	1,790,267	1,897,576	2,104,864	704,943
	7,933,861	7,279,456	8,729,322	9,698,008	11,931,324
Other<br>expense (income)
Interest<br>expense (income), net	(20,684)	(62,004)	4,485	(17,254)	(13,910)
Foreign<br>exchange (gain) loss	233,231	(19,852)	69,676	272,713	(712,480)
Other<br>expense (income)	56,833	(43,428)	91,370	218,853	529,081
Gain<br>on extinguishment of liability (Note 20)	-	(185,661)	-	-	-
Increase<br>(decrease) in fair value of US$ Warrants	-	-	-	-	-
	269,380	(310,945)	165,531	474,312	(197,390)
Income<br>(loss) before income taxes	3,772,908	(6,968,511)	(8,894,853)	(8,725,051)	5,688,136
Income<br>tax expense (recovery)	-	-	75,545	374,511	(4,852,092)
Net<br>income (loss) and comprehensive income (loss) for the<br>year	3,772,908	(6,968,511)	(8,970,398)	(9,099,562)	10,540,228
Net<br>income (loss) per share - Basic	$0.06	$( 0.11)	$(0.16)	$( 0.17)	$0.22
Diluted (1)	$0.06	$( 0.11)	$(0.16)	$( 0.17)	$0.21
Weighted<br>average # of common shares outstanding
Basic	68,156,059	65,455,325	54,523,113	53,562,155	47,782,647
Diluted (1)	68,156,059	65,455,325	54,523,113	53,562,155	49,041,383
#<br>of common shares outstanding	64,406,891	68,573,558	58,161,133	53,856,509	53,306,109

(1) In periods with a loss, the diluted total excludes the 8,000,000 convertible preferred shares which were outstanding until converted

on August 31, 2015, as their effect is anti-dilutive.

Balance Sheet Data

(expressed in Canadian Dollars)

	2019	2018	2017	2016	2015
Working capital<br>(deficiency)	$7,129,182	$3,823,832	$(318,166)	$1,703,510	$7,534,128
Current<br>assets	8,445,904	4,365,970	1,284,008	2,316,341	10,691,918
Deposits	535,554	560,341	518,765	-	-
Property and equipment,<br>net	677,647	683,157	778,685	3,348,557	3,678,985
Right of use<br>assets	3,063,769	-	-	-	-
Intellectual property,<br>net	17,970,067	19,654,800	21,339,533	23,024,268	24,709,000
Total<br>assets	30,692,941	25,264,268	23,920,991	28,689,166	39,079,903
Current<br>liabilities	1,316,722	542,138	1,602,174	612,831	3,157,790
Long-term<br>liabilities	2,691,217	510,661	741,408	264,775	300,462
Total<br>liabilities	4,007,939	1,052,799	2,343,582	887,606	3,458,252
Shareholders’<br>equity:
Common<br>shares	95,313,064	96,656,248	88,121,286	85,966,393	85,051,553
Preferred<br>shares	-	-	-	-	-
Contributed<br>capital	$9,306,493	$9,262,684	$8,195,075	$7,613,719	$7,239,089
Deficit	(78,645,489)	(82,418,397)	(75,449,886)	(66,479,487)	(57,379,926)
Accumulated other<br>comprehensive income	710,934	710,934	710,934	710,935	710,935
Total<br>equity	26,685,002	24,211,469	21,577,409	27,811,560	35,621,651
Total liabilities and<br>equity	30,692,941	25,264,268	23,920,991	28,689,166	39,079,903

Throughout the history of the Company there have been no dividends declared.

Capitalization and indebtedness.

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

Reasons for the offer and use of proceeds.

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

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.

Covid-19 (2019-nCoV/COVID-19) Pandemic

The Covid-19 pandemic has not had a material effect on the operations of the Company. The Company has made provisions so employees can work from home, suspended all travel, mandated that international travelers are to self-isolate for 14 days after return to Canada, and implemented hygiene and social distancing policies. NXT continues to communicate with employees and customers via available communication methods such as tele-conferences and on-line video conferencing.

Demand for our services and prospective revenues may become adversely impacted the longer the Covid-19 pandemic continues. The impact of the continuation of the Covid-19 pandemic may hamper our ability to deliver SFD® surveys contracts in the following ways. If restrictions on international travel continue, our aircraft and personal will not be able to perform surveys. An outbreak of the virus among our staff or our customers’ personnel would delay any survey in progress. Business development may be delayed when in-person meetings and technical presentations may be a superior delivery method to tele-conferences or on-line video conferencing.

Our ability to continue operating.

The consolidated financial statements for December 31, 2019 have been prepared on a going concern basis. The going concern basis of presentation assumes that NXT will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

NXT's financial statements for December 31, 2018 included disclosure related to the use of the "going concern" basis of presentation. In 2019, NXT has had positive cash flow from operations which has resulted in a significant strengthening of the Company's liquidity and working capital position. As a consequence, management is of the view that removal of the "going concern" disclosure in respect of its December 31, 2019 disclosure is warranted on the basis than the Company currently has sufficient funds to maintain operations for the next 12 months as of the date of the financial statements.

In the preparation of the December 31, 2019 financial statements, management determined that there are no existing conditions or reasonably foreseeable events that raise substantial doubt about the Company's ability to continue as a going concern. However, NXT's future financial results and its longer term success remains dependent upon the ability to continue to attract and execute client projects to build its revenue base. NXT continues to develop its pipeline of opportunities to secure new revenue contracts. However, the Company's longer-term success remains dependent upon its ability to convert these opportunities into successful contracts and to continue to attract new client projects and expand the revenue base to a level sufficient to exceed fixed operating costs and continue to generate positive cash flow from operations. The occurrence and timing of these events cannot be predicted with certainty.

NXT's cash and cash equivalents plus short-term investments at December 31, 2019 totaled $6.64 million. Net working capital totaled $7.13 million.

As NXT is operating on a going concern basis, NXT's short-term ability to generate sufficient cash depends on the success of signing contracts and receiving advance payments pursuant to the terms of such agreements. NXT's longer-term success remains dependent upon our ability to continue to attract new client projects and expand the revenue base to a level sufficient to exceed G&A expenses and generate excess net cash flow from operations. Proceeds from past equity financings have been used to provide NXT with funds to pursue, close and implement commercial transactions currently in negotiation, develop additional revenue streams including multi-client data sales and strategic partnerships and for general corporate and net working capital purposes.

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

As of the date of this 20-F, NXT has sufficient funds to maintain its operations for more than 12 months.

The Company does not have provisions in its leases, contracts, or other arrangements that would trigger additional funding requirements or early payments.

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

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

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

NXT's customer base is in the oil and natural gas exploration industry, which is exposed to risks of volatility in oil and natural gas commodity prices. As such, demand for our services and prospective revenues may become adversely impacted by 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.

Our financial position is affected by 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 NXT 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.

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

We periodically invest available cash in short term investments that generate interest income that will be affected by any change in interest rates. (See Item 11).

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.

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

Certain duties that are most appropriately segregated between different employees are due to our current limited staff, assigned to one 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 NXT to potential misappropriation of funds, embezzlement and other forms of fraud and could have a material adverse effect on our business, financial condition and results of operations. (see also Item 15).

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

We may periodically engage in transactions with related parties.

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. In addition to the related party transactions discussed elsewhere herein (i.e. the Co-operation Agreement, the Loan Arrangement and the Targeted Issuer Bid), one of the members of NXT's Board, Thomas Valentine, is a partner in the law firm Norton Rose Fulbright Canada LLP which provides legal advice to NXT.

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

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.

A single major shareholder who is also a Board member and an officer of the Company retains the ability to influence or control the Company, and this influence or control may result in a conflict of interest.

Mr. George Liszicasz, our CEO, is our largest shareholder and as of May 5, 2020 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, 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.

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

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.

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

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.

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.

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.

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 all of its executive officers, including Mr. Liszicasz, its President and CEO.

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.

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

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

In April 2019, we were the target of a ransomware attack that involved the infiltration and infection of our computer systems. We made no payments relating to the ransomware, and believe we lost no data. Following the ransomware incident, we began undertaking remediation efforts and other steps to enhance our data security infrastructure. In connection with these efforts, we have incurred costs and expect to incur additional costs as we take further steps to prevent unauthorized access to our systems and the data we maintain. We cannot provide any assurance that all potential causes of the incident have been identified and remediated and will not occur again. While we have taken measures to minimize the impact of these problems, the proper functioning of these systems is critical to our business operations. Any security breach or failure in our computer equipment, systems or data could result in the interruption of our business operations and adversely impact our financial results.

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

The Company has historically had a limited public market for our common shares on the TSX 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.

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

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

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

We have never paid any cash dividends on our common shares and we do not anticipate that we will pay any dividends in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion of our business. Any future determination to pay cash dividends will be at the discretion of our Board 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.

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 U.S. 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., and one (1) in each of the following countries: Canada, Japan, China, Russia, and Mexico. NXT has recently received confirmation of a patent granted from the European Patent Office. This brings the total number of countries granting the patent to 44. The final step is for the validation process of the SFD® technology patent in select European countries. This is expected to take several month to complete. 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 and operate the aircraft; 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 and 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 are a Canadian Company and our nationality may impair the enforceability of a judgment for any person resident outside Canada.

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

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

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.

ITEM 4.

INFORMATION ON THE COMPANY

History and development of the Company.

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

NXT’s corporate history is summarized as follows:

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NXT was incorporated under the laws of the State of Nevada on September 27, 1994 as Auric Mining Corporation.

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In January 1996, NXT acquired all of the common stock of NXT Energy USA, Inc. (which was then known as Pinnacle Oil Inc.) from its shareholders in exchange for common shares. As a consequence of this reverse acquisition, NXT Energy USA Inc. became a wholly owned subsidiary and its shareholders acquired a 92% controlling interest in NXT’s common shares.

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Prior to this reverse acquisition transaction, NXT was a corporate shell conducting no active business, and NXT Energy USA Inc. was a development stage research and development enterprise holding the worldwide rights to use what is now our SFD® technology for hydrocarbon exploration purposes.

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Shortly thereafter, on February 23, 1996 we changed our name to Pinnacle Oil International, Inc. and on June 13, 2000, subsequently changed our name to Energy Exploration Technologies.

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On October 24, 2003, our shareholders approved the continuance of the Company from the State of Nevada to the Province of Alberta, Canada under the Business Corporations Act (Alberta) (the “ABCA”). Also, our name was modified to Energy Exploration Technologies Inc. (“EETI”).

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On September 22, 2008 EETI changed its name to NXT Energy Solutions Inc. by way of Articles of Amendment filed pursuant to the ABCA.

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

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

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

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

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.

Our business does not normally rely on significant capital expenditures other than period regulatory additions for the aircraft. As described in below in “Property and equipment and related amortization expense” a significant expenditure was incurred for acquiring and installing in its aircraft a new transponder technology known as ADS-B. For 2020 we do not anticipate further significant upgrades for the aircraft. For the last three fiscal years, the Company made capital expenditures for property and equipment of $216,691 (2019), $10,006 (2018), and $8,727 (2017). These annual expenditures normally relate largely to upgrades to office computer equipment and SFD® survey equipment.

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

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

Business overview.

Description of the nature of the 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 Mr. 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 NXT 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® 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 NXT 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 and the creation of project case studies. 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:

Focus sales resources on high profile primary markets which offer the maximum opportunity for success;

Build upon success in this initial market, and step out to other markets in Latin America, and in South Asia;

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;

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

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.

We continue to progress and grow our project pipeline on a Fee for Survey Project basis. 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 NXT 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.

Description of the principal markets in which the Company competes

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

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

Year ended December 31	2019	2018	2017
African<br>and Middle East Markets	$11,976,149	$-	$-
South<br>and Central America	-	-	-
North<br>America	-	-	-
	$11,976,149	$-	$-

North America Market

In February 2019, NXT entered into a Co-operative Agreement with one of its largest shareholders, Alberta Green Ventures Limited Partnership (“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 Co-operative Agreement, NXT and AGV will consider at least two SFD® surveys in North America and an additional SFD® survey internationally. The first SFD® survey was contemplated to be completed by August 31, 2019 and the fees payable by AGV are partially secured by a US$100,000 non-refundable deposit. NXT has granted AGV an extension of the August 31, 2019 requirement under the Co-operation Agreement to complete at least one of three SFD® survey to June 30, 2020. If the survey is not completed by June 30, 2020, the non-refundable deposit will be forfeited to NXT. 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.

Latin America and Central America Markets

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 National Hydrocarbon Commission (“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.

Recently with respect to our 2017 SFD® Gulf of Mexico survey over the 2.1 bid-round offshore blocks, a lead area, indicated by SFD® as prospective, has now been drilled by third parties and the results confirm that it is a commercial discovery with early estimates of volumes greater than 200 million barrels of oil equivalent (“MMBOE”). Additionally, and perhaps more importantly, from a capital expenditure allocation perspective, another seismic prospect, considered non-prospective by NXT, was drilled as part of the same campaign and was declared unsuccessful. The announcements concerning these drilling activities was reported by internationally recognized upstream data providers starting late 2019. The SFD® data for the 2.1 bid-round offshore blocks was submitted to and has been available from the CNH of Mexico since mid-2018. These results highlight the value of adding SFD® to an upstream work program and evidences the efficacy of our geophysical method in recommending prospects with potential for hydrocarbon traps. Drilling activities over SFD® recommendations are ongoing in numerous countries.

Asia Markets

In October 2018, 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. In addition a distribution agreement has been signed for Malaysia.

African and Middle East Markets

In March 2019, the Company signed an US$8.9 million contract with PE to provide 5,000 line kilometers of SFD® surveys in Nigeria. As the Nigerian SFD® Survey was the Company's first project in Africa, the Company was required to deliver more than 10,000 pages of documents to NNPC and the Department of Petroleum Resources, a department under Nigeria's Ministry of Petroleum Resources, and complete a test flight as part of the qualification process which took seven months. Data acquisition operations were completed on May 1, 2019 and NXT's recommendations were delivered in the third quarter of 2019.

Prior to entering into the Nigerian SFD® Survey contract with PE, the Company conducted significant due diligence to ensure it understood the business environment in Nigeria and was in compliance with applicable laws in each of Canada, the United States of America and Nigeria. The Company also engaged Norton Rose Fulbright Canada LLP and Kreller Group as advisors to provide guidance and to ensure the integrity of its contract with PE, as well as PE's contract with NNPC.

The Company has received payments of US$8.4 million for the Nigerian SFD® Survey as at the date hereof. The contracted holdback amount of approximately US$0.5 million is should be paid to the Company upon the conclusion of negotiations for additional work under the current contract framework.

The Department of Petroleum Resources (the "DPR"), a department under the Federal Republic of Nigeria's Ministry of Petroleum Resources responsible for the sustainable development of Nigeria's oil and gas resources, provided written confirmation of their recommendation in favour of NXT's SFD® technology based on the recent survey results, noting specifically "in line with federal government aspiration to increase its Oil and Gas reserves base at a considerable reduced cost, risk and optimize exploration cycle, the Stress Field Detection SFD® technology is hereby adopted and recommended to be deployed as an independent data exploration tool for hydrocarbon exploration to identify and rank prospect-level leads to focus exploration efforts in the Nigerian Oil and Gas industry".

In March 2020, the Company signed a memorandum of understanding with an independent oil company with interests in East-Central Africa.

Notes Receivable

In September 2019, NXT advanced to AGV US$250,000 (“the Principal Amount”), as evidenced by, and governed in accordance with the terms of, a promissory note dated September 6, 2019 (the "Notes Receivable"), for the purpose of providing AGV with additional funds necessary to continue advancing the common objectives of NXT and AGV under the Co-operation Agreement (the “Loan Arrangement”). Pursuant to the Notes Receivable, it was agreed and acknowledged, among other things, that:

AGV was indebted to the Company and unconditionally promised to pay to, or to the order of, the Company on or before December 15, 2019 (the "Repayment Date"), the Principal Amount together with all interest payable at a rate of the greater of 2% and the rate prescribed under the Income Tax Act (Canada) from time to time in monthly arrears on the first day of each month commencing October 1, 2019 until the repayment of the Principal Amount in full (the "Interest");

AGV had the right and privilege of prepaying the whole or any portion of the Principal Amount together with the Interest at any time or times without notice, bonus or penalty; and

NXT, in its sole and absolute discretion, was entitled to elect to receive any payment made by AGV in accordance with the Notes Receivable by way of, in whole or in combination: (i) wire transfer or other immediately available funds ("Cash"), or (ii) delivery for cancellation to the Company of the equivalent number of Common Shares having a fair market value equal to the aggregate of such amounts, calculated using the volume weighted average price of the Common Shares as reported and traded on the Toronto Stock Exchange for the five trading days immediately preceding the repayment date (the "5-day VWAP").

On December 13, 2019, the last business and trading day before the Repayment Date, the Company elected to receive and directed AGV to:

in respect of the Principal Amount, deliver to the Company for cancellation 543,673 Common Shares, calculated as the product of US$250,000 being the Principal Amount owing on the last business day before the Repayment Date, and 1.3183, being the daily average US$/CDN$ exchange rate as quoted on the Bank of Canada's website for December 13, 2019, the last business day for which a daily average exchange rate was published before the Repayment Date, divided by $0.6062, being the 5-day VWAP, the delivery of such Common Shares to occur subject to and only upon receipt of confirmation from the Company that all necessary regulatory approvals had been received; and

in respect of the Interest, pay US$1,366.12 by way of Cash. AGV paid this amount.

On April 13, 2020, NXT issued a Direction to Pay to AGV in which NXT has revoked the previous Direction to Pay dated December 13, 2019, and has now directed AGV to deliver US$250,000 as repayment on the Principle Amount. Interest will begin to accrue until the date on which payment in full of all amounts owing pursuant to the Principle Amount are received by NXT.

The Company may change its election if it so decides, in its sole and absolute discretion to receive the Principal Repayment by way of Common Shares by application to the Alberta Securities Commission.

Description of seasonality of the Company’s main business

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

Description of the sources and availability of raw materials

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

Description of marketing channels

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

Summary information on dependence on patents, licenses and contracts

Patents

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 U.S. 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.

SFD® patents have been granted in Russia (January 2017), Japan (July 2017), Canada (August 2017), Mexico (September 2017), U.S. (November 2017 and September 2018), China (April 2018), and European Patent Office consisting of 38 member states (January 2020). These are areas of prime commercial focus for the Company. So far, the total number of countries granting the patent has reached 44. The immediate next step is the validation of the patents in select European countries. This process is expected to take several month to complete. Our patents serve an important purpose beyond the protection for the 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.

Basis for statements made regarding competitive position

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.

Description of material effects of governmental & environmental regulation

SFD® Survey Flight Operations

The operation of our business, namely conducting aerial SFD® surveys and interpreting SFD® data, is not subject to material governmental or environmental regulation in Canada and the U. S. 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 U.S.

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 U.S., 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 NXT to forfeiture of performance bonds.

Organizational structure.

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<br>Nevada	20,000,000 common	5,000,000 common	Inactive	100%
NXT Aero USA, Inc.	August 28, 2000 by Articles of Incorporation – State of<br>Nevada	1,000 common	100 common	Inactive	100%
		4,000 preferred
Cascade Petroleum Inc. (Formerly Survey Services International<br>Inc.)¹	2011-09-06 by Articles of Incorporation – Province of<br>Alberta	Unlimited number of common shares	100 common	Inactive	100%
NXT Energy Services (SFD®)<br>Inc.	2019-12-08 by Federal Articles of Incorporation –<br>Canada	Unlimited number of common shares	100 common	Inactive	100%
PetroCaza Exploration Inc.	May 2015 by Articles of Incorporation Province of<br>Alberta	Unlimited number of common and preferred shares	100 common	Inactive	100%
¹On January 16th, 2017, the name of<br>Survey Services International Inc. was changed to “Cascade<br>Petroleum Inc.”

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 2020.

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. 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. See also Item 5.F “Contractual Obligations”.

Aircraft

In order to perform our survey services, NXT requires to fly the survey area in a jet 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 third 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.

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<br>stress field detector, or SFD®<br>system, including a unit which houses the SFD®<br>sensors, is the principal component of our technology. The<br>SFD®<br>sensors respond to fine-scale perturbations in the gravitational<br>field caused by changes in subsurface density and stress<br>distribution. These responses are transformed through<br>electromechanical transduction into electronic digital signals as<br>the output. The SFD®<br>method has proven highly effective at identifying potential<br>hydrocarbon traps in a wide variety of geological settings onshore<br>and offshore. Airborne SFD®<br>surveys are currently conducted utilizing an array of 22<br>SFD®<br>sensors, consisting of 6 primary, 8 secondary and 8 research and<br>development sensors, allowing multiple independent SFD®<br>signals to be acquired at all points of a designed<br>survey.
●	Data Acquisition System - used in conjunction with the<br>SFD®<br>sensor array on surveys, our data acquisition system is a compact,<br>portable computer system which concurrently acquires the electronic<br>digital signals from the SFD®<br>sensor array and other pertinent client data, including the GPS<br>location information of the data.
●	SFD®<br>Signal Conditioning Unit - this self-contained unit contains<br>electronic circuits for stabilizing and conditioning electronic<br>signals. All sensor output is directly connected to this unit and<br>after signal conditioning is completed, all output is forwarded to<br>the computer system.
●	Interpretation Theatre - once returned to our home base, the<br>SFD®<br>data collected is processed and converted into a format that can be<br>used by our interpretation staff using systems consisting of<br>generally off-the-shelf computer equipment, high definition<br>monitors, projectors and screens. This equipment is generally<br>permanently set up at our Calgary office facility. A remote<br>SFD®<br>data interpretation theater is available and may be deployed during<br>survey operations and would be set up in a facility at the survey<br>client’s city.

We are not affected by any significant environmental concerns, nor is there any planned significant capital additions contemplated.

ITEM 4A.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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

Operating results.

Overall Operational Performance

Selected Annual Information	For the year ended December 31
	2019	2018	2017
Survey revenue $	$ 11,976,149	$-	$-
Net<br>comprehensive income (loss)	3,772,908	(6,968,511)	(8,970,398)
Net<br>income (loss) per common share - basic	$ 0.06	$(0.11)	$(0.16)
Net<br>income (loss) per common share - diluted	$ 0.06	$(0.11)	$(0.16)
Net<br>cash generated by (used in) operating activities	4,078,427	(6,043,919)	(5,464,679)
Cash<br>and short term investments	6,639,757	4,239,532	1,116,618
Total<br>assets	30,692,941	25,264,268	23,920,991
Long<br>term liabilities	2,691,217	510,661	741,408

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

Financial Highlights for 2019

●

In Q3 the Company completed its Nigerian SFD® survey for approximately US$8.9 Million with PE Energy Limited (“PE”), a Nigerian oil and gas service company. PE had a contract with the Nigerian National Petroleum Company (“NNPC”), to provide 5,000-line kilometers of SFD® surveys in Nigeria.

●

As of the date of this 20-F, the Company has received a total of US$8.4 million payments in cash from PE for the SFD® survey in Nigeria, including US$1.9 million in Q4 and an additional US$0.47 million in the first quarter of 2020. The final payment for contracted holdbacks amount to approximately $0.5 million USD.

●

NXT received confirmation of a patent granted from the European Patent Office. This brings the total number of countries granting the patent to 44. The final step is for the validation process of the SFD® technology patent in select European countries.

●

In February 2019, NXT entered into a Co-operative Agreement with AGV, for AGV to bring to proposal up to three SFD® surveys for cooperation with the Company 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. The Company received a US$100,000 non-refundable deposit paid in connection with the Co-operative Agreement in Q2. Pursuant to the Co-operation Agreement, the deadline to complete at least one of three SFD® surveys is June 30, 2020.

●

In Q3, the Company advanced US$250,000 to AGV for the purpose of furthering the shared objectives of NXT and AGV under the Co-operation Agreement. On April 13, 2020, NXT elected to receive and directed AGV to deliver US$250,000 as repayment of the Principal Amount.

●

During Q4 the Company completed the C$1,250,000 targeted issuer bid, purchasing for cancellation 4,166,667 common shares in the capital of the Company representing approximately 6.08% of the total outstanding Common Shares as of November 14, 2019, at a price of C$0.30 per Common Share.

●

Common share purchase warrants held by AGV have expired as of October 31, 2019.

●

Cash and short-term investments at the end of the 2019 were $6.64 million.

●

There was $11.98 million of survey revenues recorded in 2019.

●

Net income of $3.77 million was recorded for 2019, including amortization expense of $1.78 million.

●

Operating activities provided $4.08 million of cash during 2019 and net cash used for financing activities was $1.39 million.

●

Net income per common share for 2019 was $0.06 basic and $0.06 fully diluted.

●

General and administrative costs for 2019 as compared to 2018 have been reduced by $0.50 million or 13% mostly due a reduction in business development costs, lower headcount and costs and certain expenditures being recognized as direct survey costs, offset by higher professional fees and information technology costs.

Financial Highlights for 2018

●

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.

●

NXT has entered into a three year exclusive sales representative agreement with AGV, in nine jurisdictions in the Middle East and Latin America. This agreement has expired in 2020.

●

NXT received notification of the granting of NXT's SFD® patent in China on April 13, 2018.

●

In September 2018, NXT received a U.S. 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 2018, we signed an MOU with BGP Inc., a subsidiary of China National Petroleum Corporation, to further explore opportunities for NXT and PGP 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.

●

NXT completed a Private Placement financing on July 3, 2018 of $9,484,810 through the issuance of an aggregate of 10,264,946 units at $0.924 per unit (the "Private Placement"). Each unit consisted of one common share and one-third of one common share purchase warrant (each whole warrant, a "Warrant"), and each Warrant entitles the holder to acquire one common share at an exercise price of $1.20 for twelve (12) months from closing of the first tranche of the Private Placement on February 16, 2018. The Warrants expired on October 31, 2019.

●

No survey revenues were recorded in 2018.

●

A net loss of $6.97 million was recorded for 2018, including amortization expense of $1.79 million and stock-based compensation expense of $0.39 million.

●

Losses per common share was $0.11 for 2018 (basic and diluted).

●

Operating activities used $6.04 million as at 2018 and net cash from financing activities was $9.18 million.

●

General and administrative costs for 2018 as compared to 2017 have been reduced by $0.96 million or 19% mostly due to a reduction in headcount, public company costs and partially offset by increased business development activity.

●

Cash and short-term investments at the end of the 2018 were $4.24 million.

Financial Highlights for 2017

●

No survey revenues were recorded for 2017.

●

NXT completed its first ever SFD® Multi-Client survey in the Gulf of Mexico.

Acquired 37,596 line km of SFD® data in June 2017 for the shallow water Bid Round 2.1 covering the Tampicao-Misantla, Veracruz and Cuencas del Sureste exploration areas. The SFD® survey data provides 100% grid coverage over the offshore blocks, an area of approximately 8,900 km2. In addition, NXT acquired incidental data over many of the 35 blocks offered in the recently concluded Bid Round 3.1 and believe the remaining data will also be applicable to future bid rounds.

●

Successfully tested the upgraded SFD® Data Acquisition System during the Gulf of Mexico survey.

●

Significantly expanded protection of IP through multiple patent grants globally.

SFD® patents granted in Russia (January 2017), Japan (July 2017), Mexico (July 2017), Canada (August 2017) and the U.S. (November 2017); and notices of allowance received from China (February 2018).

●

A net loss of $8,970,398 for the year including amortization expense of $1,897,576.

●

Operating activities used $5,464,679 of cash during the year and net cash utilization was $323,878.

●

Losses per common share were $0.16 (basic and diluted).

●

Significant progress made in 2017 and the first quarter of 2018 to reduce corporate costs and execute on financing options significantly strengthening the Company’s liquidity and working capital position.

$2.7 million sale and leaseback arrangement on our airplane completed in April 2017.

Rights offering completed on November 3rd for gross proceeds of $2,093,645.

●

Cash and short-term investments at the end of 2017 were $1,116,618.

Net Income (Loss)
	2019	2018	2017
Survey<br>revenue	$11,976,149	$-	$ -
Expenses
Survey<br>costs	2,611,086	1,103,946	1,289,429
General<br>and administrative	3,497,785	3,999,089	4,960,961
Stock<br>based compensation expense	43,809	386,154	581,356
Amortization<br>expense	1,781,181	1,790,267	1,897,576
	7,933,861	7,279,456	8,729,332
Other<br>expense (income), net	269,380	(310,945)	165,531
Income<br>(loss) before income taxes	3,772,908	(6,968,511)	(8,894,853)
Income<br>tax expense (recovery)
Current	-	-	75,545
Deferred	-	-	-
	-	-	75,545
Net<br>income (loss) for the year	3,772,908	(6,968,511)	(8,970,398)

Expenses for the years ended December 31, 2019, 2018 and 2017

Survey costs – Survey expenses relate entirely to the direct survey costs and aircraft handling and maintenance costs, net of charter hire revenue.

In 2019, survey expenses included direct incremental survey costs for the Nigerian SFD® Survey incurred which include aircraft and hanger operating costs, staff costs to support the survey, and mobilization/demobilization costs. Also these costs include staff costs to interpret and integrate the survey, and their travel costs. Aircraft operations costs in 2019 were higher than 2018 as additional scheduled maintenance was required after the Nigerian SFD® Survey, net of charter hire revenue.

The aircraft is available for charter to third parties through our aircraft manager when it is not being used by NXT. Any charter fees received are used to offset aircraft costs.

In comparing 2018 with 2017, costs for aircraft operations are higher because of the Phase 5 major maintenance performed on the aircraft. This was offset by increased charter hours for all of 2018 which offset operating costs. Aircraft lease costs in 2018 are $202,085 higher than 2017 as the lease payments started in May 2017, which resulted in 4 months less of lease costs in 2017. Correspondingly, amortization costs are lower in 2018.

For most of 2017, the survey costs related entirely to the aircraft lease and maintenance costs, net of charter hire revenue. During Q2 2017, NXT completed its first ever SFD® Multi-Client survey in the Gulf of Mexico. There have been no sales for the SFD® data that was recorded and therefore the direct costs of the survey have been expensed. Survey costs only represent the direct costs that were incurred during operations of this survey and exclude any indirect costs associated with the use of the technology.

General and administrative (“G&A”) expense - G&A is a major component of NXT's total expenses. All salaries and overhead costs related to SFD® data interpretation staff (other than out of country per diem allowances) are included in G&A, and not included with direct survey expenses. The categories included in G&A expense are as follows:

For<br>the year ended December 31	2019	2018	2017
Salaries,<br>benefits and consulting charges	$ 1,599,247	$ 2,046,886	$2,709,194
Board,<br>professional fees, and public company costs	857,556	781,330	873,864
Indirect<br>financing costs	-	-	35,865
Premises<br>and administrative overhead	800,626	753,380	842,994
Business<br>development	240,356	382,146	257,465
Bolivia/Colombia<br>overhead	-	35,347	241,579
Total<br>G&A	3,497,785	3,999,089	4,960,961

G&A expenses decreased by $501,304, or 13%, in 2019 compared to 2018 for the following reasons:

●

salaries, benefits and consulting charges decreased $447,639, or 22%, due primarily to a change to a lower cost mix in corporate staff, two less headcount and allocation of direct salary costs to survey costs;

●

board and professional fees and public company costs increased $76,226, or 10%, due primarily to higher professional fees paid in connection with the Nigerian SFD® Survey and higher insurance costs given the increased business activity (partially offset by termination costs to suspend the Advisory Board in 2018);

●

premises and administrative overhead increased $47,246, or 6%, due primarily to increased costs related to the improvement of the Company's information systems security;

●

business development costs decreased $141,790, or 37%, due primarily to Company resources focused on first the negotiation and then the implementation of the Nigerian SFD® Survey; and

●

Bolivian overhead costs decreased by $35,347, or 100%, as the Company officially closed its offices and ceased operations in that country in Q4-18.

G&A expenses decreased by 19% or $961,872 in 2018:

●

The main reason for salaries, benefits and consulting charges being lower in 2018 than 2017 is due to a reduction in corporate headcount. In addition, focus was put on reducing vacation liabilities.

●

Board, professional fees and public company costs, were 14% lower in 2018 compared to 2017 as the Advisory Board was indefinitely suspended and there was one less Director on the Board of Directors. Also, professional fees were higher in 2017 as there were two significant transactions, the Rights Offering and the Sale Leaseback transaction which required significant legal assistance. In 2018, the significant transaction was the Private Placement.

●

Premises and administrative overhead was 11% lower in 2018 compared to the prior year, mostly due to lower property taxes and lower maintenance costs early in the year. In addition, there was significant cost reduction efforts in office overhead costs like supplies and subscriptions.

●

Business development costs increased $124,681 as the Company increased marketing efforts for the SFD® technology during 2018.

●

2018 YTD Bolivian overhead costs of $35,347 are related to closing of the branch.

Total G&A for 2017 was $5.0 million which was $0.7 million lower than 2016. G&A within the six individual expense categories noted above reflect several factors:

●

2017 salaries, benefits and consulting charges are lower than 2016 levels due to lower staffing levels.

●

For 2017 the full year costs were slightly down due to 2 less board members and other cost controls.

●

Indirect financing costs in 2017 were higher due to work focused on obtaining new financing and negotiating the aircraft leaseback.

●

Premises and administrative overhead where lower in 2017 versus the 2016 due to cost reduction and deferred spending efforts.

●

Business development costs were lower for the year as marketing costs were reduced.

●

Before 2017, Bolivian overhead costs were classified as consolidated survey costs as the sole purpose of the office opening was to administer the YPFB survey. At the beginning of Q1 2017, Bolivian overhead costs were presented as G&A to reflect the fact the office has been maintained to facilitate periodic operating activities in Bolivia that are anticipated from time to time. In Q2 2017, a previously held “fiscal tax credit” of $127,798 was expensed as the recoverability of this receivable was no longer considered certain. The credit related to the Bolivian equivalent of input sales tax and is usually offset against output sales tax. It is not refundable if input tax exceeds output tax.

Stock-Based Compensation Expense (“SBCE”) –

SBCE varies in any given quarter or year as it is a function of several factors including the number of stock options issued in the period and the period of amortization (based on the term of the contract and/or number of years for full vesting of the options, which is normally three years) of the resultant expense. Also, SBCE is a function of periodic changes in the inputs used in the Black-Scholes option valuation model, such as volatility in NXT's trailing share price.

SBCE in 2019 was lower compared to 2018 by $342,345. In Q1 2018, 333,333 options vested resulting in substantial SBCE. In 2019, most options previously issued by the Company had vested resulting in minimal SBCE, partially offset by 100,000 options awarded to a consultant.

SBCE was lower in 2018 versus 2017 as significant unvested options were forfeited and almost all remaining options were fully vested early 2018.

There was a lower average number of options outstanding at the end of 2017 (total of 1,648,667 as compared to 3,321,001 at the end of 2016).

Amortization expense – consists of the following amounts:

	2019	2018	2017
Amortization<br>of:
Property<br>and equipment	$96,448	$105,534	$212,841
Intellectual<br>property	1,684,733	1,684,733	1,684,735
	1,781,181	1,790,267	1,897,576

Property and equipment and related amortization expense. Property and equipment additions in 2019 was for acquiring and installing in its aircraft a new transponder technology known as ADS-B. The U.S. Federal Aviation Administration (the "FAA") and European Aviation Safety Agency have mandated that all aircraft flying in designated controlled airspaces must be equipped with ADS-B by January 1, 2020 (US airspace) and June 7, 2020 (European airspace). Total costs for installing the ADS-B was approximately $208,000. This amortization was offset as the Company uses the declining balance method of depreciation, thereby having the effect of lowering amortization each year on existing assets. In prior years most of our capital investment in property and equipment was in computer hardware, which is amortized on a 30% declining balance basis, such that amortization is high in the initial year of capital investment. Since 2016, annual capital spending has been minimal, resulting in declining levels of amortization expense.

Intellectual property and related amortization expense. NXT acquired specific rights to utilize the proprietary SFD® technology in global hydrocarbon exploration applications from the inventor of the SFD® technology, NXT's Chairman, President and Chief Executive Officer, on August 31, 2015. The value attributed to the acquired IP assets was $25.3 million. The IP assets are being amortized on a straight-line basis over a 15-year period (future amortization expense of $1,685,000 per year) and are also being subject to ongoing tests of potential impairment of the recorded net book value. No impairments were recognized in 2019, 2018 or 2017.

Other Expense (Income)

	2019	2018	2017
Interest expense<br>(income), net	$(20,684)	$(62,004)	$4,485
Foreign exchange<br>(gain) loss	233,232	(19,852)	69,676
Intellectual<br>property, R&D and ARO	56,833	(43,428)	91,370
Gain on<br>extinguishment of liability	-	(185,661)
	269,381	(310,945)	165,531

Interest (income) expense, net. This category of other expenses includes interest income earned on short-term investments netted by interest expense from financial lease obligations. Since January 1, 2019 interest on finance leases is included in this account under the new lease accounting standard. 2019 interest (income) expense net was $41,320 less than 2018, as lease interest expense has offset income earned on guaranteed investment certificates.

Foreign exchange loss (gain). This category of other expenses includes losses and gains caused by changes in the relative currency exchange values of US dollars and CDN dollars. The foreign exchange (gain) loss for the periods was primarily caused by the translation of assets and liabilities in the Canadian Company which were held in US$. The Company held significant assets in US dollars at December 31, 2019, including accounts receivable, cash and cash equivalents, short-term investments and the security deposit for the aircraft, all of which have an effect on the unrealized foreign exchange gain and loss. At December 31, 2019, the Company had a significant foreign exchange loss which was the result of the CDN dollar strengthening compared to May 2019 when several of the US dollar assets were initially recorded. The Company does not currently have the ability to enter hedging contracts, but uses strategies to reduce the volatility of US dollar assets including converting excess US dollars to CDN dollars.

Intellectual property, R&D and ARO – this total includes costs incurred for the following:

	2019	2018	2017
Intellectual<br>property, R&D and ARO	$56,833	$ (43,428)	$86,604
TSX<br>Listing	-	-	-
Other,<br>net	-	-	4,766
	56,833	(43,428)	91,370

This category includes primarily costs related to IP filings and R&D activity related to the SFD® technology and costs for certain non-recurring, "project" activities.

In 2019, the Company's IP, R&D and ARO expenses related mostly to costs associated with the validation process for certain European SFD® patents. In 2018, these costs were negative as the Company renegotiated fees from a provider of R&D services.

In 2018, the Company's Intellectual property and R&D expenses were negative as it incurred less costs from a provider of services than originally estimated. The Company also updated estimates for several asset retirement obligations related to minor non-operated interests in oil and natural gas wells in which NXT has outstanding abandonment and reclamation obligations in accordance with government regulations were significantly reduced in Q4-18.

Gain on Extinguishment of Liability - In Q3-18, the Company determined that liabilities it had recorded before 2005 were no longer payable. As a result, a gain of $185,661 was recorded in other income on the extinguishment of the liability. No cash was paid to settle the liability.

For 2017 YTD, other expenses consisted primarily of costs incurred to secure a patent for SFD® in the U.S. and to continue to develop SFD® technology.

For 2017, Intellectual property and R&D costs consisted primarily of costs incurred to secure a patent for SFD® in the U.S. and to continue to develop SFD® technology.

Other expenses includes primarily discretionary costs related to intellectual property / patent filings and R&D activity related to the SFD® technology.

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

Income tax expense – There was no income tax expense in 2019 or 2018.

NXT periodically earns revenues while operating outside of Canada as a non-resident within certain foreign jurisdictions and services rendered to clients in such countries may be subject to foreign withholding taxes, which are only recoverable in certain limited circumstances. Income tax expense for 2017 is a result of withholding taxes that were incurred on charges related to the Bolivia survey project. There was no income tax expense in Canada or Bolivia during 2018.

A total net income tax was recognized as follows:

	2019	2018	2017
Foreign<br>with-holding taxes incurred	$-	$-	$75,545
	-	-	75,545
Foreign<br>corporate taxes incurred	-	-	-
Less<br>portion accrued at Dec 2015	-	-	-
Corporate<br>income tax expense – foreign	-	-	75,545
	-	-	75,545
Deferred<br>tax recovery	-	-	-
Net<br>tax expense (recovery)	-	-	75,545

At the end of 2019, NXT has available for future Canadian income tax deduction purposes significant unrecorded deferred income tax assets, the benefit of which has not been recorded in the Company’s financial statements due to uncertainty regarding the amount and timing of their potential future utilization. These deferred income tax assets include non-capital losses carried-forward (expiring in 2027 to 2039) and other resource deductions totaling approximately $39.4 million.

Summary of Quarterly Results (Unaudited)

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

	Q4-19	Q3-19	Q2-19	Q1-19
	Dec<br>31, 2019	Sep 30,<br>2019	Jun 30,<br>2019	Mar<br>31, 2019
Survey<br>revenue	$-	$1,021,532	$10,954,617	$-
Net income<br>(loss)	(1,775,287)	(774,373)	8,085,888	(1,763,320)
Income (loss) per<br>share - basic	(0.03)	(0.01)	0.12	(0.03)
Income (loss) per<br>share - diluted	(0.03)	(0.01)	0.11	(0.03)
	Q4-18	Q3-18	Q2-18	Q1-18
---	---	---	---	---
	Dec<br>31, 2018	Sep 30,<br>2018	Jun 30,<br>2018	Mar<br>31, 2018
Survey<br>revenue	$-	$-	$-	$-
Net<br>income (loss)	(1,392,716)	(1,660,031)	(1,961,114)	(1,954,650)
Income<br>(loss) per share - basic	(0.02)	(0.02)	(0.03)	(0.03)
Income<br>(loss) per share - diluted	(0.02)	(0.02)	(0.03)	(0.03)

Significant or Unusual Items Impacting Net Income (Loss):

In Q4-19, SBCE was lower as most outstanding options were fully vested. In Q3-19, NXT recognized $1,021,532 of revenue for services rendered in connection with the Nigerian SFD® Survey, compared to $10,954,617 in Q2-19. There were no revenues in the previous five quarters, rather, the Company incurred net losses in each due primarily to survey costs (related to aircraft lease and aircraft maintenance costs), G&A expenses and non-cash items like SBCE, which can be a significant expense in any given quarter, as detailed more specifically below:

●

in Q1-19, survey costs were higher due to scheduled maintenance on the aircraft and significant legal and contract negation costs in preparing for the Nigerian SFD® Survey;

●

In Q4-18, SBCE was lower by $283,811 as unvested options were forfeited. In addition, G&A costs decreased $156,271 for two reasons. Firstly, business development decreased as most of the business development work was centred in Calgary supporting Nigerian SFD® survey negotiations. Secondly, there was a decrease in public company costs as the previous quarter had significant costs related to the Private Placement. Offsetting this was an increase of $44,010 in survey expenses as NXT’s aircraft incurred a scheduled major maintenance in December 2018.

●

In Q3-18, a gain of $185,661 has been recognized on the extinguishment of a liability that was recorded before 2005 which is no longer payable. Also, interest income of $26,171 was earned on cash received from the Private Placement.

●

In Q1-18, G&A costs were lower as NXT began to recognize the full extent of cost reductions started in the prior quarter.

Liquidity and capital resources.

Going Concern

The consolidated financial statements for 2019 have been prepared on a going concern basis. The going concern basis of presentation assumes that NXT will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

NXT's financial statements for 2018 included disclosure related to the use of the "going concern" basis of presentation. In 2019, NXT has had positive cash flow from operations which has resulted in a significant strengthening of the Company's liquidity and working capital position. As a consequence, management is of the view that removal of the "going concern" disclosure in respect of its 2019 disclosure is warranted on the basis than the Company currently has sufficient funds to maintain operations for the next 12 months as of the date of these financial statements.

In the preparation of the 2019 financial statements, management determined that there are no existing conditions or reasonably foreseeable events that raise substantial doubt about the Company's ability to continue as a going concern. However, NXT's future financial results and its longer term success remains dependent upon the ability to continue to attract and execute client projects to build its revenue base. NXT continues to develop its pipeline of opportunities to secure new revenue contracts. However, the Company's longer-term success remains dependent upon its ability to convert these opportunities into successful contracts and to continue to attract new client projects and expand the revenue base to a level sufficient to exceed fixed operating costs and continue to generate positive cash flow from operations. The occurrence and timing of these events cannot be predicted with certainty.

NXT's cash and cash equivalents plus short-term investments at December 31, 2019 totaled $6.64 million. Net working capital totaled $7.13 million.

In 2019, NXT continued to make progress in strengthening its liquidity and net working capital by completing the Nigerian SFD® Survey and reducing corporate costs by reducing the number of staff and by implementing new human resource policies to reduce staffing costs. Please see the discussion under "Summary of Operating Results – General and Administrative Expenses" for the results of these cost reductions.

As of the date of this 20-F, NXT has sufficient funds to maintain its operations for more than 12 months. The Company does not have provisions in its leases, contracts, or other arrangements that would trigger additional funding requirements or early payments.

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

NXT had no secured debt and had net working capital of $7,129,182 as at December 31, 2019 as follows:

	December 31,	December 31,	net change
	2019	2018	in 2019
Current<br>assets (current liabilities):
Cash<br>and cash equivalents	$2,858,245	$ 339,532	$2,518,713
Short-term<br>investments	3,781,512	3,900,000	(118,488)
	6,639,757	4,239,532	2,400,225
Accounts<br>receivable	1,384,315	61,279	1,323,036
Note<br>receivable	324,700	-	324,700
Prepaid<br>expenses and deposits	97,132	65,159	31,973
Accounts<br>payable and accrued liabilities	(448,928)	(499,535)	50,607
Contract<br>obligations	(131,386)	-	(131,386)
Current<br>portion of capital lease obligation	(736,408)	(42,603)	(693,805)
Net<br>Working Capital	7,129,182	3,823,832	3,305,350

The increase in net working capital in 2019 was due to recognizing accounts receivable, cash from the Nigerian SFD® Survey and the note receivable in respect of the Loan Arrangement. This increase was offset due to the recognition of the current portion of lease obligations under ASC Topic 842 ("Topic 842") and contract obligations (deposit) received from AGV for the Co-operation Agreement.

Sources and uses of cash

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

For<br>the year ended December 31	2019	2018	2017
Cash<br>provided by (used in):
Operating<br>activities	$ 4,078,427	$ (6,043,919)	$ (5,464,679)
Financing<br>activities	(1,385,787)	9,176,839	2,022,943
Investing<br>activities	(173,927)	(2,960,006)	3,117,858
Net<br>cash inflow (outflow)	2,518,713	172,914	(323,878)
Cash<br>& cash equivalents, start of the year	339,532	166,618	490,496
Cash<br>& cash equivalents, end of the year	2,858,245	339,532	166,618
Cash<br>& cash equivalents	2,858,245	339,532	166,618
Short-term<br>investments	3,781,512	3,900,000	950,000
Total	6,639,757	4,239,532	1,116,618

Operating Activities

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

For<br>the year ended December 31	2019	2018	2017
Comprehensive<br>income (loss) for the year	$ 3,772,908	$ (6,968,511)	$(8,970,398)
Add<br>back net non-cash expense and income items	1,777,580	1,782,762	2,676,705
	5,550,488	(5,185,749)	(6,293,693)
Change<br>in non-cash working capital balances	(1,472,061)	(858,170)	829,014
Total<br>cash provided by (used in) in operations	4,078,427	(6,043,919)	(5,464,679)

Operating cash flow increased by $10,122,347 in 2019 as compared to 2018 because of payments received from the Nigerian SFD® Survey net of payments for survey costs.

For 2018 and 2017, changes in operating cash flow was driven by the lack of revenue and incurred operating costs for the period.

Financing Activities

2019 – During the fourth quarter of 2019 the Company completed the TIB for $1,250,000 plus costs of $93,184 to repurchase 4,166,667 TIB Common Shares, at a price of $0.30 per. Also NXT recorded a net cash financing outflow of $42,603 in 2019 on payments for its finance leases.

2018 – During 2018 NXT recorded a net inflow of $9,176,839 as a result of proceeds received from the closing of tranches in the Private Placement.

2017 - NXT recorded a cash inflow of $2,019,865 in 2017 related mostly from the Rights Offering.

Investing Activities

2019 – Company acquired the new transponder technology known as ADS-B for its aircraft. Total costs for installing the ADS-B was approximately $208,000. Short-term investments in 2019 increased as the Company invested excess funds from operations into Guaranteed Investment Certificates.

2018 –Short-term investments increased as a result of the Private Placement funds.

2017 - The overall net cash source in investing activities of $3,117,858 for 2017 reflects these components:

●

On April 28th, 2017 NXT completed a sale and leaseback transaction on its’ Cessna Citation aircraft for $3,142,260 (US$2,300,000).

●

A use of $518,765 for deposits on the aircraft and building leases.

●

A source of $503,091 from a net decrease in cash invested in short-term investments

Research and development, patents and licenses, etc.

Research and development, patents and licenses for NXT primarily includes costs related to intellectual property filings, research and development activity related to the SFD® technology and certain non-recurring project activities.

For 2019, the Company's expenses related mostly to costs associated with the validation process for certain European SFD® patents. In 2018, these costs were negative as the Company renegotiated fees from a provider of R&D services. In 2017 these costs were the result of acquiring patents.

Trend information.

We have historically conducted a limited number of service contracts each year, the dollar value and timing of securing and ultimate delivery of which are subject to numerous external factors.

As noted previously, the amount and timing of our annual revenues can vary widely year to year, as we derive our revenues from a limited number of service contracts each year and each individual contract may have a large effect on the aggregate annual revenues and profits. For example, in 2012, we conducted our first contract with PEMEX, the National Oil Company of Mexico. This project was completed in 2012 and was our largest to that time, at US$5.8 million. In 2015, projects totaling US$13 million were completed in Bolivia for YPFB, then our next survey in Nigeria during 2019 was for US$8.9 million. At the date of this 20-F current external trends such as in commodity prices and Covid-19 could affect our operations for the current fiscal year. Please see Item 1 3B for a discussion on these risks.

Off-balance sheet arrangements.

The Company has no off-balance sheet arrangements as of the date of this MD&A other than office premise non-lease operating costs with Interloq Capital (the "Landlord"). If the Company were to default on its office lease the current month rent including operation costs plus the next three months become immediately due. Operating cost amounts are disclosed under the heading "Liquidity and Capital Resources – Contractual Commitments". NXT pays an estimated operating cost during the current year, but has the obligation to pay the actual operating costs incurred as defined in the office lease with the Landlord early in the first quarter of the preceding year if the estimate was low, or will receive a refund if the estimate was too high. Currently, the Company believes that the current operating cost estimate is reasonable and is constant with discussions with the Landlord.

Tabular disclosure of contractual obligations.

The following table sets forth our outstanding contractual obligations as at December 31, 2019:

		less than	1 to 3	3 to 5	more than
	Total	1 year	years	years	5 years
Long-term debt	$-	$-	$-	$-	$-
Lease obligations:
Premises<br>rent	2,102,840	358,712	734,370	734,370	275,388
Premises<br>operating costs	1,278,949	222,069	445,002	445,002	166,876
Aircraft<br>Lease	2,031,754	646,204	1,385,550	-	-
Office<br>equipment	63,210	52,860	10,350	-	-
Purchase obligations	-	-	-	-	-
Other long term liabilities:
Asset<br>retirement obligation	21,481	-	21,481	-	-
Total	5,498,234	1,279,845	2,596,753	1,179,372	442,264

Safe Harbor.

The Company seeks safe harbor for our forward-looking statements. Please see the section titled “Forward-Looking Statements” above.

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and senior management.

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 six 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 May 5, 2020, for our directors, executive officers and key employees:

George Liszicasz<br><br><br>Calgary, Alberta, Canada<br><br><br><br><br><br>Director, Chairman<br>and Chief<br><br><br>Executive Officer<br>since January<br><br><br>1996;<br>President since July 2002	Mr.<br>Liszicasz is the inventor of the SFD®<br>Technology and has been Chairman and Chief Executive Officer since<br>the Corporation's inception in 1996. Mr. Liszicasz’ primary<br>responsibilities, as the President and CEO, are to oversee all<br>operations and to further develop the SFD®<br>technology.<br><br><br><br><br><br>He<br>holds an Electronics Engineer degree from the Landler Jeno<br>Technitken in Hungary in 1973 and studied general sciences at the<br>University of British Columbia between 1979 and 1983. Mr. Liszicasz<br>has extensive R&D body of work with various technologies, and<br>52 inventions.
Charles Selby<br><br><br>Calgary, Alberta, Canada<br><br><br><br><br><br>Director<br>since<br><br><br>January<br>2006	Mr.<br>Selby holds a B. Sc. (Hons) in Chemical Engineering, a J.D. degree<br>and is a registered Professional Engineer in the Province of<br>Alberta. He previously practiced law for two large Canadian<br>law firms, specializing in securities, international transactions<br>in the energy business and corporate finance matters. Since<br>leaving the practice of law, Mr. Selby was a<br>Vice President of Pengrowth Corporation, the Administrator of<br>Pengrowth Energy Trust, for almost 20 years. He also<br>has served on the board and in management of a number of reporting<br>issuers including Arakis Energy, which had operations in the Sudan,<br>and other issuers in the oil and natural gas industry.<br><br><br><br><br><br>He is<br>currently the president and a director of Wildcat Royalty<br>Corporation and Caledonian Midstream Corporation, private entities<br>which are involved in oil & gas production and the midstream<br>oil and gas business primarily in the Province of Alberta. He<br>is a director of Caledonian Global Corporation, an international<br>company with royalty interests Vietnam and Chairman and CEO of<br>Montana Exploration Corp. (formerly AltaCanada Energy Corp.) an oil<br>and gas company.<br><br><br><br><br><br>Mr.<br>Selby is the Lead Director of NXT. He is also Chair of NXT's<br>Compensation Committee and a member of the Audit, Disclosure, and<br>Strategic Planning Committees.<br><br><br><br><br><br>Mr.<br>Selby also served as the Company's Interim Chief Financial Officer<br>from December, 2017 to January, 2018.
John Tilson<br><br><br>Montecito, California, USA<br><br><br><br><br><br>Director since February 2015	Mr.<br>Tilson is retired, and after obtaining MBA and CFA designations,<br>had a distinguished career as an analyst, portfolio manager,<br>and advisor in the US investment and financial industry with<br>such firms as Sutro & Company and EF Hutton & Company.<br>Mr. Tilson joined Roger Engemann and Associates in 1983 when assets<br>under management were roughly US$160 million. During<br>his tenure there, the Pasadena Group of Mutual Funds was<br>started, with Pasadena Capital Corporation formed as the holding<br>company for the mutual funds and investment management business.<br>After working as an analyst and portfolio manager, John later<br>became Executive Vice President & Managing Director of Pasadena<br>Capital Corporation. Assets under management had grown to over US$5<br>billion by the time the firm was sold to Phoenix Companies in 1997.<br>Mr. Tilson later retired in 2005.<br><br><br><br><br><br>From<br>2006 to 2012, Mr. Tilson was a member of the Board of Trustees,<br>including three years serving as VP and Chairman of the long-range<br>planning committee, for Lotusland, a Santa Barbara non-profit<br>organization established by Madame Ganna Walska.<br><br><br><br><br><br>Mr.<br>Tilson is the Chair of the Board’s Strategic Planning<br>Committee, and a member of the Compensation, Governance and Audit<br>Committees.
---	---

Thomas E. Valentine<br><br><br>Calgary, Alberta, Canada<br><br><br><br><br><br><br><br><br>Director since November 2007<br><br><br><br><br><br><br><br><br>Corporate Secretary since April 2014	Mr.<br>Valentine is a Partner with Norton Rose Fulbright Canada LLP, where<br>he has practiced law, both as a Barrister and a Solicitor, since<br>his call to the Bar in 1987. He is a member of the firm’s<br>Energy and Infrastructure Practice Group and is involved in energy<br>and energy related matters throughout the Middle East, North<br>Africa, the CIS, Asia and South America.<br><br><br><br><br><br>Mr.<br>Valentine is a member of the Board of Directors of Touchstone<br>Exploration Inc., and formerly was a director of two other Canadian<br>public companies, Calvalley Petroleum Inc. (to May 2015) and Veraz<br>Petroleum Ltd.<br><br><br><br><br><br>Mr.<br>Valentine holds a BA from the University of British Columbia, a LLB<br>from Dalhousie University, and a LL.M. from the London School of<br>Economics.<br><br><br><br><br><br>Mr.<br>Valentine is the Chair of the Governance Committee and a member of<br>the Compensation Committee.
Bruce G. Wilcox<br><br><br>New York, New York, USA<br><br><br><br><br><br><br><br><br>Director since June 2015	Mr.<br>Wilcox has had a long career as an investment company CEO, analyst<br>and portfolio manager. He spent most of his career with Cumberland<br>Associates, LLC, a New York equity fund, from 1986 through<br>retirement in 2010, progressing from analyst / portfolio manager to<br>partner, and Chairman of the Management Committee. Mr. Wilcox<br>specialized in Cumberland's investments in the energy industry<br>(E&P and service companies), with an emphasis on value and<br>long-term holdings. During his tenure, the fund's assets under<br>management ranged from US$0.7 to $1.5 billion.<br><br><br><br><br><br>From<br>1984 to 1986, Mr. Wilcox was with Central National-Gottesman, Inc.<br>as an analyst and portfolio manager on a team responsible for a<br>$500 million listed equity portfolio.<br><br><br><br><br><br>Mr.<br>Wilcox is presently CEO of E Street Management, LLC which manages a<br>long/short equity fund of funds. He is also one of the managing<br>members of Xiling Fund III, LLC, part of a series of private equity<br>funds (US$100+ million) which specialize in investing in museum<br>quality Chinese art and collectibles.<br><br><br><br><br><br>Mr.<br>Wilcox obtained a BA (Honors), in Modern Chinese from the<br>University of California, Santa Barbara, and a Master of<br>International Management from the American Graduate School of<br>International Management in Phoenix.<br><br><br><br><br><br>Mr.<br>Wilcox is a member of several Boards, including the Teachers<br>College of Colombia University (2003 to date, including acting as<br>the Chair of the Investment Committee), the University of<br>California Santa Barbara Foundation (2003 to date, including as<br>former Chair of the Board, Investment and Finance Committees), and<br>is a Trustee (2001 to date) of the Manhattan Institute For Policy<br>Research, a leading urban, state, and national policy institution,<br>which works on matters such as energy policy.<br><br><br><br><br><br>Mr.<br>Wilcox is the chair of the Board's Audit Committee and a member of<br>the Disclosure, Governance and Strategic Planning<br>Committees.
Frank Ingriselli<br><br><br>Danville, California, USA<br><br><br><br><br><br>Director since September 2019	Mr.<br>Ingriselli has over 40 years of experience in the energy industry,<br>Mr. Ingriselli is a seasoned leader and entrepreneur with<br>wide-ranging energy industry experience in diverse geographies,<br>business climates and political environments.<br><br><br><br><br><br>Mr.<br>Ingriselli has over 40 years of experience in the energy industry,<br>Mr. Ingriselli is a seasoned leader and entrepreneur with<br>wide-ranging energy industry experience in diverse geographies,<br>business climates and political environments.<br><br><br><br><br><br>From<br>1979 to 2001, Mr. Ingriselli worked at Texaco in a variety of<br>senior executive positions involving exploration and production,<br>power and gas operations, merger and acquisition activities,<br>pipeline operations and corporate development. While at<br>Texaco, Mr. Ingriselli held the position of President of Texaco<br>Technology Ventures, President and CEO of the Timan Pechora Company<br>(owned by affiliates of Texaco, Exxon, Amoco, Norsk Hydro and<br>Lukoil), and President of Texaco International Operations, where he<br>directed Texaco's global initiatives in exploration and<br>development. During his tenure, Mr. Ingriselli, also led<br>Texaco's initiatives in exploration and development in China,<br>Russia, Australia, India, Venezuela and many other<br>countries.<br><br><br><br><br><br>From<br>2005 to 2018, he was the founder, President, CEO and Chairman of<br>PEDEVCO Corp. and Pacific Asia Petroleum, Inc., both energy<br>companies which are or were listed on the New York or American<br>stock exchanges. From 2016 through 2019, Mr. Ingriselli was<br>the founder, President and CEO of Blackhawk Energy Ventures Inc.<br>which endeavored to acquire oil and gas assets in the U.S. for<br>development purposes.<br><br><br><br><br><br>Currently<br>Mr. Ingriselli is the President of Indonesia Energy Corporation and<br>is a member of the Board of Directors of DataSight Corporation.<br> Mr. Ingriselli serves on the Board of Trustees of the Eurasia<br>Foundation, and is the founder and Chairman of Brightening Lives<br>Foundation, Inc., a US Section 501(c)(3) public charitable<br>foundation.<br><br><br><br><br><br>Mr.<br>Ingriselli graduated from Boston University with a B.S. in business<br>administration. He also earned an M.B.A. from New York University<br>in both finance and international finance and a J.D. from Fordham<br>University School of Law.<br><br><br><br><br><br>Mr.<br>Ingriselli is a member of NXT’s audit committee.
Eugene Woychyshyn<br><br><br>Calgary, Alberta, Canada<br><br><br><br><br><br>VP Finance and CFO since December 2018	Mr.<br>Woychyshyn originally served as a consultant to NXT since late<br>November 2017 providing controllership services. Mr. Woychyshyn<br>brings to NXT over 25 years of leadership experience in multiple<br>industries and worldwide regions including North America, Europe<br>and Asia. He has extensive hands-on experience and accomplishments<br>in mergers and acquisitions, organizational restructuring,<br>purchasing, treasury, financial reporting and control, compliance,<br>human resource management and tax planning. In almost ten years as<br>an expatriate with assignments in Norway, China, the U.S. and South<br>East Asia he developed international business<br>competencies.<br><br><br><br><br><br>Mr.<br>Woychyshyn is a Chartered Professional Accountant, CA, who holds a<br>Bachelor of Commerce (Hons.) from the University of Manitoba and a<br>Masters of Business Administration from St. Joseph’s<br>University, Philadelphia PA.<br><br><br><br><br><br>Mr.<br>Woychyshyn is a member of the Disclosure Committee.

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; (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.

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. 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. Charlies 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.

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, Ingriselli, and Wilcox are considered "independent" within the meaning of Canadian securities law.

Compensation

Executive Compensation

The following table sets out certain information regarding the annual and long-term compensation of the Chief Executive Officer, the Chief Financial Officer at December 31, 2019, as well as any additional individuals for whom disclosure would have been provided pursuant to the above criteria except that the individual was not serving as an officer of the Company at the end of 2019. All officers of the Company are based in the Calgary, Canada head office and are paid in Canadian dollars.

Summary compensation table for the year ended December 31, 2019:

Name & Principal Position	Salary	Stock Options	Vacation<br>(1)	Other (2)	Total
George Liszicasz, President & CEO<br><br>(4)	$274,800	$-	$-	$11,145	$285,945
Eugene Woychyshyn, VP of Finance & Chief<br>Financial Officer(6)	$174,167	$-	$-	$1,227	$175,394
(1)<br>“Vacation” represents a cash payout in the year of a<br>portion of unused vacation entitlements carried<br>forward.<br><br><br>(2)<br>“Other” consists of any vehicle allowance paid ($9,000<br>for Mr. Liszicasz) plus the taxable portion of company paid amounts<br>for group health benefits and parking.<br><br><br>(3)<br>Salary and other totals exclude the cash portion of fees earned as<br>Board Members, $35,000 for Mr. Liszicasz.<br><br><br>(4) Mr.<br>Eugene Woychyshyn became the Corporate Controller as of November 1,<br>2018, the Interim Chief Financial Officer from December 1, 2018 and<br>then the VP-Finance, Chief Financial Officer as of August 1,<br>2019.
---

(See Item 6.E “Share Ownership” for details regarding stock options granted to officers).

No amount is set aside or accrued by the Company or its subsidiaries to provide pension, retirement or similar benefits to officers or directors.

Director Compensation

NXT compensates directors for serving on our Board by paying a combination of an annual cash retainer as well granting stock options to purchase NXT common shares. New members who join the Board receive a separate grant of stock options (with entitlement to exercise vesting over a 3 year period) in the year of joining the Board. There were was one new Board member in 2019 and no options were granted to Board members.

In 2019, the directors each individually elected to receive cash as payment of Board fees earned for the year. The annual cash retainer was based on $30,000 ($35,000 in the case of each of the Chairman of the Board and the Audit Committee.) Compensation payable (including pro-rated amounts for periods of partial service in the year) for 2019 is summarized as follows:

	2019
George<br>Liszicasz	$35,000
Charles<br>Selby	30,000
Bruce<br>G. Wilcox	35,000
Tom<br>Valentine	30,000
John<br>Tilson	30,000
Frank<br>Ingriselli	9,750

The amount and terms of any stock options granted as compensation for Board member services is determined by the Board. We do not provide additional compensation for committee participation (other than as noted previously re the minor additional amount for service as the Chairman of the Board and of the Audit Committee) or for special assignments of the Board. (See Item 6.E “Share ownership” for details regarding stock options granted to directors.)

The Company reimburses directors for out-of-pocket expenses for attending Board and committee meetings. We do not provide termination benefits for directors.

Board practices.

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 6.A – “Directors and senior management”.

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 of directors 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 Avenue SW Calgary, Alberta, Canada, T3E 0B4.

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

Messrs. Valentine (Chair), Wilcox and Tilson are the current members of the Corporate Governance Committee. All members of the Corporate Governance Committee are independent within the meaning of Canadian National Instrument 58-101.

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. Selby, Mr. Wilcox (Chair) and Mr. Woychyshyn (the Corporate Controller and Interim CFO of the Company).

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.

STRATEGIC PLANNING COMMITTEE

Composition of the Strategic Planning Committee

Messrs. Tilson (Chair), Wilcox and Selby are the current members of the Strategic Planning Committee. Messrs. Tilson (Chair) and Wilcox are independent.

Responsibilities of the Strategic Planning Committee

The Strategic Planning Committee's duties are to set out the long-term goals of the Company and to take an active role in the development and execution of plans to achieve those goals. The Committee participates in establishing priority areas of Company business, assessment of strategic initiatives from Company senior executives with regard to development and implementation control of the Company Strategy and business area specific strategies of the Company. The Committee also makes recommendations regarding the overall organization and management structure including areas where management needs to be strengthened, reviewing the organizational job descriptions, requirements and also procedures for coordination of organizational management and board resources. The Committee is actively involved in the Company’s strategic planning process and reviews all materials relating to the strategic plan with management. The Board is responsible for reviewing and approving the strategic plan. At least one board meeting each year is centered on discussing and considering the strategic plan, which takes into account the risks and opportunities of the business. Management must seek the Board’s approval for any transaction that would have a significant impact on the strategic plan.

AUDIT COMMITTEE

Composition of the Audit Committee

The Audit Committee consists of Messrs. Wilcox (Chair), Selby, Ingriselli, and Tilson. Messrs. Wilcox (Chair), Ingriselli, and Tilson are independent and each member is financially literate. The Company’s Audit Committee Charter is posted on our 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.

Bruce G. 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, and a New York equity fund, where he was a partner, and served as Chairman of the Managing Committee. He has previously served as audit committee chair of a publicly traded 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.).

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.

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.

Frank Ingriselli

Mr. Ingriselli graduated from Boston University with a B.S. in business administration. He also earned an M.B.A. from New York University in both finance and international finance and a J.D. from Fordham University School of Law.

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.

COMPENSATION COMMITTEE

Composition of the Compensation Committee

Messrs. Selby (Chair), and 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 302, 3320 – 17th Avenue 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.

Employees

Fiscal year ended December 31, 2019

As of the fiscal year ended December 31, 2019, we had a total of 10 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, 2019:

Function	employees	contractors	total
Senior<br>management team	2	-	2
Finance,<br>administration and sales	2	-	2
Operations<br>and technical development	6	-	6
Total	10	-	10

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.

Fiscal year ended December 31, 2018

As at December 31, 2018, we had a staff of 11, all based in Calgary, as follows:

Function	employees	contractors	total
Senior<br>management team	2	-	2
Finance,<br>administration and sales	3	-	3
Operations<br>and technical development	6	-	6
Total	11	-	11

All of the above noted staff are based in Calgary, Canada. The 6 operations and technical development staff included one research scientist holding a Ph.D. and 3 geoscientists.

Share ownership.

Information on the ownership of our common shares is given under Item 7, Major Shareholders and Related Party Transactions.

Summary of Stock Options, Restricted Share Units and Stock Appreciation Rights Granted To Executive Officers and Directors

All stock options have been granted pursuant to the Stock Option Plan (the “Plan”) of the Company or predecessor plans with substantially the same terms. The Plan is approved and ratified by shareholders every three years at the Company’s annual general meeting (“AGM”). The Plan, as was re-approved and ratified at the Company’s AGM held on June 25, 2019. Pursuant to this Plan, all stock option grants must be approved by the Board of directors of the Company. Stock options may be granted to the directors, officers and employees of NXT and to consultants retained by the Company. The aggregate number of common shares reserved for issuance under this Plan, and any other plan of the Corporation, shall not, at the time of the stock option grant, exceed ten percent of the total number of issued and outstanding shares (calculated on a non-diluted basis) unless the Company receives the permission of the stock exchange or exchanges on which the shares are then listed to exceed such threshold. No stock option shall be exercisable for a period exceeding five (5) years from the date the stock option is granted unless the Company receives the permission of the stock exchange or exchanges on which the shares are then listed and as specifically provided by the Board and as permitted under the rules of any stock exchange or exchanges on which the shares are then listed, and in any event, no stock option shall be exercisable for a period exceeding ten (10) years from the date the option is granted.

Stock options are generally issued with a three year vesting period wherein entitlement to exercise one third of the options granted shall vest at the end of each of the first three years following the grant date. The exercise price for an option grant is set at the last trade price on the date preceding the grant or some higher price at the discretion of the Board.

The Restricted Share Unit Plan (the”RSU”) was approved and ratified by the shareholders at the Company’s annual meeting on June 21, 2017. Pursuant to the RSU, all grants must be approved by the Board of directors of the Company. RSU’s may be granted to the directors, officers and employees of NXT and to consultants retained by the Company. The aggregate number of common shares reserved for issuance under this Plan, and any other plan of the Corporation, shall not, at the time of the RSU grant, exceed ten percent of the total number of issued and outstanding shares (calculated on a non-diluted basis).

The RSU’s are generally issued with a three year vesting where they shall vest at the end of each of the first three years following the grant date. The price is determined on the vesting date.

The Deferred Share Unit Plan (the ”DSU Plan”) was approved and ratified by the shareholders at the Company’s annual meeting on June 25, 2019. The DSU Plan is a long-term incentive plan that permits the grant of deferred share units ("DSUs") to qualified directors, as determined by the Board in its absolute discretion (collectively, the "Designated Participants"). Designated Participants are required to elect (in respect of each calendar year) the amount of the aggregate annual retainer or fee to be received in the form of DSUs, cash, Common Shares purchased on the secondary market, or a combination thereof, subject to requirements imposed by the Board to receive a specified

minimum value of his or her annual retainer or fee in the form of DSUs. DSUs granted under the DSU Plan are to be settled at the election of the Board in cash, Common Shares issued from treasury (subject to Shareholder approval of unallocated entitlements thereunder every three years thereafter), or, at the election of the Board, or a combination of cash and Common Shares.

The following stock options and DSUs were granted to NXT’s executive officers and directors in the three prior fiscal years ended December 31, 2019, 2018 and 2017 and to date to May 5, 2020. No RSUs have been granted to date.

In 2019 and to date in 2020:

●

A total of 16,573 DSUs were granted on March 31, 2020 to a director of the Company.

In 2018:

●

A total of 1,000,000 stock options with an exercise price of $1.13 per common share were granted in February 2018 to the new Chief Financial Officer. These options were forfeited on December 30, 2018.

●

A total of 150,000 stock options with an exercise price of $0.59 per common share were granted in November 2018 to the new Corporate Controller.

In 2017:

●

No options were granted in 2017.

The following table sets forth information regarding outstanding stock options which have been granted to our directors and officers as of May 5, 2020. All options are issued at an exercise price set at the closing trade price on the trading date prior to the grant. Each option entitles the option holder to acquire one common share of the Company.

Issued and outstanding stock options held by directors and officers of the Company (as of May 5, 2020)

Name and<br>Position	Exercise<br><br><br>Price	Option<br><br><br>Grant<br><br><br>Date	Option<br><br><br>Expiry<br><br><br>Date	# of<br><br><br>options<br><br><br>held	% of total<br><br><br>outstanding<br><br><br>options
Eugene Woychyshyn	$0.59	01-Nov-18	01-Nov-23	150,000
V-P<br>Finance & CFO				150,000	16.1%
Charles Selby	$1.50	22-Jul-16	22-Jul-21	50,000
Director				50,000	5.4%
John Tilson	$2.10	16-Sep-15	16-Sep-20	150,000
Director	$1.73	10-Dec-15	10-Dec-20	25,600
	$1.48	14-Jul-16	14-Jul-21	15,000
	$1.45	21-Dec-16	21-Dec-21	15,000
				205,600	22.0%
Thomas Valentine	$1.48	14-Jul-16	14-Jul-21	7,500
Director	$1.45	21-Dec-16	21-Dec-21	7,500
				15,000	1.6%
Bruce G. Wilcox	$2.10	16-Sep-15	16-Sep-20	150,000
Director	$1.73	10-Dec-15	10-Dec-20	17,000
	$1.48	14-Jul-16	14-Jul-21	15,000
	$1.45	21-Dec-16	21-Dec-21	15,000
				197,000	21.1%
Total number of stock options held by officers and<br>directors				617,600	66.2%

Charles Selby currently has 16,573 DSUs.

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major shareholders.

The following table sets forth information concerning the beneficial ownership of our common shares as of

May 5, 2020 by persons who beneficially own 5% or more of the outstanding common shares of NXT, each person who is a director of NXT, each executive officer named in this Form 20-F, each individual referenced in Item 6.E above and all directors and executive officers as a group. For the purposes of this Form 20-F, a person is considered to be a “beneficial owner” of common shares in the Company if that person has, or shares with another person, the power to direct the vote or disposition of the common shares or to receive the economic benefit of ownership of the common shares.

A person is also deemed to be a beneficial owner of a common share if that person has the right to acquire the share within 60 days by option or other agreement (whether or not, in the case of a stock option, the current market price of the underlying common share is below the stock option exercise price). Therefore, the table below also reflects, for each such beneficial owner, the number of options exercisable into common shares within 60 days of May 5, 2020 that are owned by each beneficial owner, but, in determining the percentage ownership and general voting power of such person, does not assume the exercise of options or the conversion of securities owned by any other person.

We believe that the beneficial owners of common shares listed below, based on information they furnished, have sole voting and investment power over the number of shares listed opposite their names. The percentage of beneficial ownership is based on 64,406,891 common shares issued and outstanding as of May 5, 2020. This total of 64,406,891 excludes all outstanding options and warrants that are exercisable within 60 days of May 5, 2020 (which is adjusted for each individuals’ % purposes as noted in footnote 4 below).

Beneficial<br>Ownership of Directors and Officers<br>(“D&O”)	Beneficially<br><br><br>Owned as<br>at<br><br><br>May 5,<br>2020	Percent<br>of<br><br><br>Common<br><br><br>Shares<br>4
Directors<br>and Officers:
George<br>Liszicasz 1 &<br>2	15,014,617	23.31	%
Charles<br>Selby 1	458,161	*	3
John<br>Tilson 1	3,832,850	5.95	%
Thomas<br>E. Valentine 1	15,000	*	3
Bruce<br>G. Wilcox 1	562,000	*	3
Eugene<br>Woychyshyn 2	146,200	*	3
Total<br>D & O Common Shares	20,028,828	31.10	%
Major<br>Shareholders (> 5%):
Alberta<br>Green Ventures Limited Partnership	6,764,945	10.50	%
Mork<br>Capital Management, LLC.	5,717,420	8.88	%

Director of NXT

Officer of NXT

Beneficially owns less than one percent of the total outstanding common shares.

For each beneficial owner’s percentage of common shares calculation, it is assumed that any stock options that they hold which are or will become exercisable within 60 days of May 5, 2020 have been exercised (while also assuming that no one else similarly exercises), and such options are thus included in both the numerator and denominator for purposes of each of their own individual calculations as follows:

	common	vested &
	shares	exercisable	Pro forma
	held	options	total
Liszicasz	15,014,617	-	15,014,617
Selby	408,161	50,000	458,161
Tilson	3,627,250	205,600	3,832,850
Valentine	-	15,000	15,000
Wilcox	365,000	197,000	562,000
Woychyshyn	46,200	100,000	146,200
	19,461,228	567,600	20,028,828

Major changes in the last 3 years in the percentage ownership of persons who beneficially own (as at the respective December 31, year-end dates) 5% or more of the outstanding common shares of NXT were:

Mr. Liszicasz entered into a matrimonial settlement dated December 23, 2019 that includes the transfer of 800,000 NXT common shares to his former spouse by March 31, 2020.

Since May 5, 2019 Mr. Liszicasz, Mr. Tilson, and Mr. Wilcox acquired common shares in acquisitions on the public markets.

In December 2019 the Company completed the $1,250,000 targeted issuer bid, purchasing for cancellation 4,166,667 common shares in the capital of the Company from AGV, representing approximately 6.08% of the total outstanding Common Shares as of November 14, 2019, at a price of C$0.30 per Common Share.

In July 2018, the company completed the Private Placement with AGV. In total, AGV purchased 10,264,946 Units at a price of $0.924 per Unit for total gross proceeds of approximately $9,484,810. As a result of the Private Placement, a total of 10,264,946 common shares and a total of 3,421,648 warrants were issued to the Subscriber. As of October 31, 2019 AGV’s 3,421,648 warrants (“Warrants”) expired.

NXT is a foreign private issuer for its current fiscal year. As of the last business day of the Company’s first fiscal quarter, the majority of the Company’s executive officers and directors are Canadian citizens who reside in Canada, the majority of the Company’s assets are in Canada and the Company is administered principally in Canada. The Company’s major shareholders in common shares have the same voting rights as other holders of common shares. The Company is not directly or indirectly owned or controlled by another corporation, a foreign government or any other natural or legal persons severally or jointly. There are no arrangements known to the Company which may result in a change of control of the Company.

Related party transactions.

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, 2019 through the current date, May 5, 2020:

●

Details of stock options which have been granted to related parties during the above noted period are included with Item 6.E above. No stock options have been exercised by related parties in this period.

●

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 2019, NXT incurred legal expenses of $276,261 with this firm, for which a total of $146,197 is included in accounts payable as at December 31, 2019. Norton Rose Fulbright continues to provide legal services to NXT. In 2020 as of the report date, total fees incurred are $87,513 for which $104,694 is still outstanding.

●

There were no stock options to acquire common shares of the Company exercised in 2019 by persons who were directors or officers of NXT as at the date of their exercise.

●

In the fourth quarter of 2019 the Company completed the $1,250,000 targeted issuer bid, purchasing for cancellation 4,166,667 common shares.

●

In February 2019, NXT entered into a Co-operative Agreement with AGV, for AGV to bring to proposal up to three SFD® surveys for cooperation with the Company 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. The Company received a US$100,000 non-refundable deposit paid in connection with the Co-operative Agreement in the second quarter of 2019. Pursuant to the Co-operation Agreement, the deadline to complete at least one of three SFD® surveys is June 30, 2020.

●

In September 2019, the Company advanced US$250,000 (the "Principal Amount") to AGV for the purpose of furthering the shared objectives of NXT and AGV under the Co-operation Agreement. On April 13, 2020, NXT elected to receive and directed AGV to deliver US$250,000 as repayment of the Principal Amount (the "Principal Repayment).

●

Common share purchase warrants held by AGV have expired as of October 31, 2019.

Interests of experts and counsel.

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

Consolidated statements and other financial information.

The Company’s consolidated financial statements are stated in Canadian dollars and are prepared in accordance with U.S. generally accepted accounting principles.

The financial statements and notes thereto as required under Item 8 are attached as Exhibit 15.1 to this annual report and are incorporated by reference herein. The audit report of KPMG LLP is included therein immediately preceding the consolidated financial statements and is also incorporated by reference herein.

No significant events or changes have occurred subsequent to the date of the December 31, 2019 consolidated financial statements, except as otherwise disclosed therein.

Legal Proceedings

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.

Dividend Policy

The Company does not pay dividends.

Significant Changes.

As of May 5, 2020, there have not been any significant subsequent events which have occurred subsequent to the date of consolidated financial statements for the year ended December 31, 2019. NXT’s interim, unaudited consolidated financial statements for the 3-month period ended March 31, 2020 will be released in mid-May, 2019.

ITEM 9.

THE OFFER AND LISTING

Offer and listing details.

Our common shares are currently quoted in the U.S. on the OTC Markets QB Exchange under the symbol “NSFDF”, in Canada on the TSX under the symbol “SFD”. There have been no trading suspensions over the last three years.

Plan of distribution.

Not applicable.

Markets.

Our common shares are currently quoted in the U.S. on the OTC Markets QB Exchange under the symbol “NSFDF”, in Canada on the TSX-V under the symbol “SFD.V” (to March 21, 2016) and on the TSX under the symbol “SFD” effective from March 22, 2016, and in Europe on the Frankfurt and Berlin Exchanges (both of these listings are inactive) under the symbol “EFW”.

The Company’s common shares commenced trading on the US Over-The-Counter Bulletin Board pursuant to a reverse takeover transaction in 1996, and were approved for listing on the Frankfurt and Berlin Exchanges in January 2004, and on the TSX-V in December 2007. Effective March 22, 2016, NXT upgraded its Canadian listing from the TSX-V to the TSX.

Selling shareholders.

Not applicable.

Dilution.

Not applicable.

Expenses of the issue.

Not applicable.

ITEM 10.

ADDITIONAL INFORMATION

Share capital.

Not applicable.

Memorandum and articles of association.

NXT was incorporated in the State of Nevada in 1994. With respect to the foregoing items, the law applicable to NXT in the Province of Alberta is not significantly different from that in the State of Nevada. NXT was established in Alberta pursuant to a Certificate of Continuance issued October 24, 2003 by the Registrar of Corporations of the Province of Alberta. NXT’s Alberta Corporate Access Number is 2010730915. The Articles of Continuance of NXT were amended to create the Series 1 Preferred Shares on December 28, 2006, and provide that there are no restrictions on the nature of the business that may be carried on by NXT. On September 19, 2008, pursuant to Articles of Amendment, the name of the Company was changed from Energy Exploration Technologies Inc. to NXT Energy Solutions Inc.

Quorum

The Board of directors of NXT may fix the quorum for meetings of the Board or of a committee of the Board, but unless so fixed, a majority of the directors or of a committee of directors holding office at the time of the meeting constitutes a quorum provided that no business may be transacted unless at least half of the directors present are resident Canadians. Business cannot be transacted without a quorum. A quorum of directors may vote on any matter of business properly brought before the meeting provided that where a director is a party to a material contract or proposed material contract or is a director or an officer of or has a material interest in any person who is a party to a material contract or proposed material contract with NXT, such director must disclose his or her interest at the earliest possible date, request the conflict be noted in the minutes of the meeting and with few exceptions, refrain from voting on the matter in which the director has a conflict of interest. There is no limitation on the Board of directors to vote on matters of their remuneration as a director, officer, employee or agent of NXT or of an affiliate of NXT.

Borrowing Powers

The Board of directors may, without authorization of the shareholders of NXT:

(a)

borrow money on the credit of NXT;

(b)

issue, reissue, sell or pledge debt obligations of NXT;

(c)

subject to restrictions respecting financial assistance prescribed in the ABCA, guarantee, on behalf of NXT, the performance of an obligation of any person; and

(d)

mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of NXT, owned or subsequently acquired, to secure any obligation of NXT.

The Board of directors of NXT may, by resolution, delegate to a director, a committee of directors or an officer all or any of the foregoing borrowing powers.

Directors

A person is qualified to be or stand for election as a director provided such person is at least 18 years of age, is not bankrupt and is not mentally incapacitated pursuant to applicable mental health legislation of the Province of Alberta or pursuant to an order of the courts of the Province of Alberta. There is no provision in NXT’s Articles or By-Laws relating to the retirement or non-retirement of directors under an age limit requirement. There is also no requirement in NXT’s Articles or By-Laws for a director to hold securities of NXT.

Pursuant to the ABCA, a director or officer shall not be disqualified by his office, or be required to vacate his office, by reason only that he is a party to, or is a director or officer or has a material interest in any person who is a party to, a material contract or proposed material contract with NXT or subsidiary thereof. Such a director or officer shall, however, disclose the nature and extent of his interest in the contract at the time and in the manner provided by the ABCA. Any such contract or proposed contract shall be referred to the Board of directors of NXT or shareholders for approval even if such contract is one that in the ordinary course of NXT's business would not require approval by the Board or shareholders. Subject to the provisions of the ABCA, a director shall not by reason only of his office be accountable to NXT or to its shareholders for any profit or gain realized from such a contract or transaction, and such contract or transaction shall not be void or voidable by reason only of the director's interest therein, provided that the required declaration and disclosure of interest is properly made, the contract or transaction is approved by the directors or shareholders, and it is fair and reasonable to NXT at the time it was approved and, if required by the ABCA, the director refrains from voting as a director on the contract or transaction and absents himself from the director's meeting at which the contract is authorized or approved by the directors, except attendance for the purpose of being counted in the quorum.

Rights Attached to Common Shares

The holders of the common shares are entitled to dividends as and when declared by the directors of NXT, to one vote per share at meetings of shareholders of NXT, and upon liquidation, subject to the rights of the holders of preferred shares, are entitled to share rateably with the holders of the common shares in all distributions of assets of NXT.

Rights Attached to Preferred Shares

Preferred shares may be issued from time to time in one or more series. The Board of directors of NXT is expressly authorized to provide by resolution duly adopted prior to issuance, for the creation of each such series and to fix the designation, rights, privileges, restrictions and conditions attached to the shares of each such series, including the rate or amount of dividends or the method of calculating dividends, the dates of payment of dividends, the redemption, purchase and/or conversion prices and terms and conditions of redemption, purchase and/or conversion, and any sinking fund or other provisions.

The preferred shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding-up of NXT, whether voluntary or involuntary, or any other return of capital or distribution of the assets of NXT among its shareholders for the purpose of winding up its affairs, rank on a parity with the preferred shares of every other series and be entitled to preference over the common shares and over any other shares of NXT, if any, ranking junior to the preferred shares. The preferred shares of any series may also be given other preferences, not inconsistent with the articles of continuance of NXT (the "Articles"), over the common shares and any other shares of NXT ranking junior to the preferred shares of a series as may be fixed by the Board of directors of NXT.

If any cumulative dividends or amounts payable on the return of capital in respect of a series of preferred shares are not paid in full, all series of preferred shares shall participate rateably in respect of accumulated dividends and return of capital.

Unless the Board of directors of NXT otherwise determine in the articles of amendment designating a series of preferred shares, the holder of each share of a series of preferred shares shall not, as such, be entitled to receive notice of or vote at any meeting of shareholders, except as otherwise specifically provided in the ABCA.

Alteration of the Rights of Shareholders

Under the ABCA, any substantive change to the Articles (including, but not limited to, change of any maximum number of shares that NXT is authorized to issue, creation of new classes of shares, add, change or remove any rights, privileges, restrictions and conditions in respect of all or any of its shares, whether issued or unissued, change the shares of any class or series, whether issued or unissued, into a different number of shares of the same class or series or into the same or a different number of shares of other classes or series) or other fundamental changes to the capital structure of NXT, including a proposed amalgamation or continuance of NXT out of the jurisdiction, requires shareholder approval by not less than 2/3 of the votes cast by shareholders voting in person or by proxy at a shareholders’ meeting called for that purpose. In certain prescribed circumstances, holders of shares of a class or of a series are entitled to vote separately as a class or series on a proposal to amend the Articles whether or not shares of a class or series otherwise carry the right to vote. The holders of a series of shares of a class are entitled to vote separately as a series only if the series is affected by an amendment in a manner different from other shares of the same class.

Meetings of Shareholders

NXT’s By-Laws provide that the Board of directors shall call an annual meeting of shareholders to be held not later than fifteen months after holding the last preceding annual meeting. NXT’s By-Laws provide that the Board of directors may at any time call a special meeting of shareholders. Only the registered holders of shares are entitled to receive notice of and vote at annual and special meetings of shareholders, except to the extent that:

(a)

if a record date is fixed, the person transfers ownership of any of the person’s shares after the record date; or

(b)

if no record date is fixed, the person transfers ownership of any of the person’s shares after the date on which the list of shareholders is prepared; and

(c)

the transferee of those shares;

●

produces properly endorsed share certificates; or

●

otherwise establishes ownership of the shares; and

●

demands, not later than ten (10) days before the meeting, that the transferee’s name be included in the list before the meeting; and

●

in which case the transferee is entitled to vote the shares.

The ABCA also permits the holders of not less than 5% of the issued voting securities of NXT to give notice to the Board of directors requiring them to call and hold a meeting of NXT.

The only persons entitled to be present at a meeting of shareholders are:

(a)

the shareholders entitled to vote at the meeting;

(b)

the Board of directors of NXT;

(c)

the external auditor of NXT; and

(d)

any others who, although not entitled or required under the provisions of the ABCA, any unanimous shareholder agreement, or the Articles or the By-Laws, are allowed to be present at the meeting.

Any other person may be admitted only on the invitation of the Chairperson of the meeting or with the consent of the meeting.

There are no restrictions in NXT’s Articles or By-Laws as to the number of shares that may be held by non-residents other than restrictions set out in the Investment Canada Act (the “ICA”) (Canada), as further described under Item 10.D – “Exchange Controls” below.

Change of Control

There are no specific provisions in the Articles or By-Laws of NXT that have the effect of delaying, deferring or preventing a change of control of NXT and that would operate only with respect to a merger, acquisition or corporate restructuring involving NXT (or any of its subsidiaries). Notwithstanding this, the Board of directors, under the general powers conferred to it under NXT’s By-Laws, have the authority to approve and invoke a shareholders rights plan that will protect shareholders from unfair, abusive or coercive take-over strategies, including the acquisition or control of NXT by a bidder in a transaction or series of transactions that does not treat all shareholders equally or fairly or that does not afford all shareholders an equal opportunity to share in any premium paid upon an acquisition of control. NXT has not adopted such a plan.

Shareholder Ownership Disclosure

There are no provisions in NXT’s By-Laws regarding public disclosure of individual shareholdings.

Material contracts.

Each material contract, other than contracts entered into in the ordinary course of business, to which the Company has been a party, for the two years immediately preceding publication of this annual report, is summarized elsewhere herein. Please see Item 4. B for description of the AGV Co-operative Agreement, the AGV Notes Receivable, the Targeted Issuer Bid, and the Nigerian SFD® survey with PE Energy. Also see Item 3. D for a description of the Sales Leaseback contract.

Exchange controls.

There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-residents. Dividends paid to U.S. residents, however, are subject to a 15% withholding tax or a 5% withholding tax for dividends if the shareholder is a corporation owning at least 10% of the outstanding voting shares of NXT pursuant to Article X of the reciprocal tax treaty between Canada and the U.S.

Except as provided in the ICA, which has provisions that restrict the holding of voting shares by non-Canadians, there are no limitations specific to the rights of non-Canadians to hold or vote the common shares under the laws of Canada or the Province of Alberta, or in the charter documents of NXT or its subsidiaries.

Management of NXT believes that the following summary fairly describes those provisions of the ICA pertinent to an investment in NXT by a person who is not a Canadian resident (a “non-Canadian”).

The ICA requires a non-Canadian making an investment which would result in the acquisition of control of a Canadian business (i.e. the gross value of the assets of which exceed a certain monetary threshold) to identify, notify, or file an application for review with the Investment Review Division of Industry Canada (“IRD”).

The notification procedure involves a brief statement of information about the investment on a prescribed form which is required to be filed with the IRD by the investor at any time up to 30 days following implementation of the investment. It is intended that investments requiring only notification will proceed without government intervention unless the investment is in a specific type of business activity related to Canada’s cultural heritage and national identity.

If an investment is reviewable under the ICA, an application for review in the form prescribed is normally required to be filed with the IRD prior to the investment taking place and the investment may not be implemented until the review has been completed and the Minister of Industry Canada (the “Minister”) (the Minister responsible for Investment Canada) is satisfied that the investment is likely to be of net benefit to Canada. The Minister has up to 75 days to make this determination. If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian must not implement the investment or, if the investment has been implemented, may be required to divest himself of control of the business that is the subject of the investment.

The following investments by non-Canadians are subject to notification under the ICA:

An investment to establish a new Canadian business; and

An investment to acquire control of a Canadian business that is not reviewable pursuant to the Act.

The following investments by a non-Canadian are subject to review under the ICA:

An investment is reviewable if there is an acquisition of a Canadian business and the asset value of the Canadian business being acquired equals or exceeds the following thresholds:

(a)

For non-World Trade Organization (“WTO”) investors, the threshold is $5 million for a direct acquisition and $50 million for an indirect acquisition; the $5 million threshold will apply however for an indirect acquisition if the asset value of the Canadian business being acquired exceeds 50% of the asset value of the global transaction;

(b)

Except as specified in paragraph (c) below, a threshold is calculated annually for reviewable direct acquisitions by or from WTO investors. The threshold for 2012 was $330 million. Pursuant to Canada’s international commitments, indirect acquisitions by or from WTO investors are not reviewable;

(c)

The limits set out in paragraph (a) apply to all investors for acquisitions of a Canadian business that:

(i)

engages in the production of uranium and owns an interest in a producing uranium property in Canada;

(ii)

provides any financial service;

(iii)

provides any transportation services; or

(iv)

is a cultural business.

Notwithstanding the above, any investment which is usually only notifiable, including the establishment of a new Canadian business, and which falls within a specific business activity, including the publication and distribution of books, magazines, newspapers, film or video recordings, audio or video music recordings, or music in print or machine-readable form may be reviewed if an Order-in-Council directing a review is made and a notice is sent to the investor within 21 days following the receipt of a certified complete notification.

Generally speaking, an acquisition is direct if it involves the acquisition of control of the Canadian business or of its direct or indirect Canadian parent and an acquisition is indirect if it involves the acquisition of control of a non-Canadian direct or indirect parent of an entity carrying on the Canadian business. No change of voting control will be deemed to have occurred if less than one-third of the voting control of a Canadian corporation is acquired by an investor.

A WTO investor, as defined in the ICA, includes an individual who is a national of a member country of the WTO or who has the right of permanent residence in relation to that WTO member, a government or government agency of a WTO investor-controlled corporation, a limited partnership, trust or joint venture that is neither WTO-investor controlled or Canadian controlled of which two-thirds of its Board of directors, general partners or trustees, as the case may be, are any combination of Canadians and WTO investors.

The ICA exempts certain transactions from the notification and review provisions of ICA, including, among others, (a) an acquisition of voting shares if the acquisition were made in the ordinary course of that person’s business as a trader or dealer in securities; (b) an acquisition of control of the Company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the ICA; (c) the acquisition of voting interests by any person in the ordinary course of a business carried on by that person that consists of providing, in Canada, venture capital on terms and conditions not inconsistent with such terms and conditions as may be fixed by the Minister; and (d) acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the Company, through the ownership of voting interests, remains unchanged.

Taxation.

Certain United States Federal Income Tax Considerations

The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of common shares of the Company.

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership and disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including, without limitation, specific tax consequences to a U.S. Holder under an applicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership and disposition of common shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.

No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares. This summary is not binding on the IRS and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.

Scope of this Summary

Authorities

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable, and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation.

U.S. Holders

For purposes of this summary, the term "U.S. Holder" means a beneficial owner of common shares that is for U.S. federal income tax purposes:

●

an individual who is a citizen or resident of the United States;

●

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;

●

an estate whose income is subject to U.S. federal income taxation regardless of its source; or

●

a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquire common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are subject to special accounting rules; or (i) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisors regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.

If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such entity or arrangement and the partners (or other owners or participants) of such entity or arrangement generally will depend on the activities of the entity or arrangement and the status of such partners (or owners or participants). This summary does not address the tax consequences to any such partner (or owner or participants). Partners (or other owners or participants) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership and disposition of common shares.

Passive Foreign Investment Company Rules

If the Company were to constitute a PFIC for any year during a U.S. Holder’s holding period, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of shares. The Company believes that it was not a PFIC for the tax year ended December 31, 2019. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. However, PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question and is determined annually. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. Consequently, there can be no assurance that the Company has never been and will not become a PFIC for any tax year during which U.S. Holders hold shares.

In addition, in any year in which the Company is classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. A failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually.

The Company generally will be a PFIC under Section 1297 of the Code if, after the application of certain “look-through” rules with respect to subsidiaries in which the Company holds at least 25% of the value of such subsidiary, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income (the “income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive income (the “asset test”), based on the quarterly average of the fair market value of such assets. “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business or supplies regularly used or consumed in the ordinary course of its trade or business, and certain other requirements are satisfied.

If the Company were a PFIC in any tax year during which a U.S. Holder held shares, such holder generally would be subject to special rules with respect to “excess distributions” made by the Company on the shares and with respect to gain from the disposition of shares. An “excess distribution” generally is defined as the excess of distributions with respect to the shares received by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during the shorter of the three preceding tax years, or such U.S. Holder’s holding period for the shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the shares ratably over its holding period for the shares. Such amounts allocated to the year of the disposition or excess distribution would be taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.

While there are U.S. federal income tax elections that sometimes can be made to mitigate these adverse tax consequences (including the “QEF Election” under Section 1295 of the Code and the “Mark-to-Market Election” under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner.

U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company can provide no assurances that it will satisfy the record-keeping requirements of a PFIC, or that it will make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to the Company or any subsidiary that also is classified as a PFIC.

Certain additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether the U.S. Holder makes a QEF Election. These rules include special rules that apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to these special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. U.S. Holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of shares, and the availability of certain U.S. tax elections under the PFIC rules.

General Rules Applicable to the Ownership and Disposition of Common Shares

The following discussion describes the general rules applicable to the ownership and disposition of the common shares but is subject in its entirety to the special rules described above under the heading “Passive Foreign Investment Company Rules.”

Distributions on Common Shares

A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a common share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current and accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the common shares and thereafter as gain from the sale or exchange of such common shares. (See “Sale or Other Taxable Disposition of Common Shares” below). However, the Company may not maintain the calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution by the Company with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares by corporate U.S. Holders generally will not be eligible for the “dividends received deduction.” Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisors regarding the application of such rules.

Sale or Other Taxable Disposition of Common Shares

Upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the U.S. dollar value of cash received plus the fair market value of any property received and such U.S. Holder's tax basis in such common shares sold or otherwise disposed of. A U.S. Holder’s tax basis in common shares generally will be such holder’s U.S. dollar cost for such common shares. Gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, the common shares have been held for more than one year.

Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

Additional Considerations

Receipt of Foreign Currency

The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

Foreign Tax Credit

Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income that is subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year. The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder’s particular circumstances. Accordingly, each U.S. Holder should consult its own U.S. tax advisors regarding the foreign tax credit rules.

Backup Withholding and Information Reporting

Under U.S. federal income tax law, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain thresholds. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.

Payments made within the U.S., or by a U.S. payer or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding tax, at the rate of 24%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.

The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.

THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES

Dividends and paying agents.

Not applicable.

Statement by experts.

Not applicable.

Documents on display.

We will furnish our shareholders with annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP. We intend, although we are not obligated to do so, to furnish when requested by our shareholders quarterly reports by mail with the assistance of a corporate services provider, which will include unaudited interim financial information prepared in conformity with U.S. GAAP for each of the three quarters of each fiscal year following the end of each such quarter. We may discontinue providing quarterly reports at any time without prior notice to our shareholders. For additional information on the Company, please consult our website at www.nxtenergy.com, or the SEDAR website at http://www.sedar.com.

Our reports and other information, including this annual report and the exhibits hereto, as filed with the SEC in accordance with the Exchange Act, may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, Washington, D.C. 20549. In addition, copies of such reports and other information filed with the SEC can be obtained from www.sec.gov.

ITEM 11.0

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As at December 31, 2019 and to date in 2020, we do not have any interest bearing debt facilities or any forward / futures hedging contracts in place to manage risks related to foreign currency or interest rate fluctuations.

Currency Fluctuations

We currently hold our cash in both Canadian and United States of America currency, as we generally bill revenues in U.S. currency, and periodically hold certain short-term monetary assets and liabilities in other foreign currencies. Any transaction in a currency other than the Canadian dollar exposes NXT to the impact of exchange rate fluctuations between the Canadian and the foreign currencies. We do not currently engage in hedging activities to mitigate the effects of foreign currency fluctuation, and are reviewing opportunities to do so.

As at December 31, 2019, we held U.S dollar cash and short term investments totaling US$2,436,411. Accordingly, a hypothetical 10% change in the value of one U.S. dollar expressed in Canadian dollars as at December 31, 2019 would have had a $243,641 effect on the unrealized foreign exchange gain or loss for the year.

Interest Fluctuations

As at December 31, 2019, we held a total of $6,639,756 in cash, cash equivalents and short term investments. If all this cash was held in an interest bearing account for a full year, an actual 1% change in interest rates during the year ended December 31, 2019 would have resulted in approximately a $66,398 change in interest income for the year.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There have not been any defaults, dividend arrears or delinquencies.

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

There have been no material modifications to the rights of security holders except as outlined in Item 4.B “Summary information on dependence on patents, licenses and contracts” within this Form 20-F.

ITEM 15.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures (“DCP”) designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports is accumulated and communicated to management, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

The Company's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”, together the "Responsible Officers") are responsible for establishing and maintaining DCP, or causing them to be designed under their supervision, for NXT to provide reasonable assurance that material information relating to the Company is made known to the Responsible Officers by others within the organization, particularly during the period in which the Company's quarterly and year-end financial statements, Form 20-F and Canadian MD&A are being prepared.

As of December 31, 2019, we carried out an evaluation, under the supervision and with the participation of our management, including our Responsible Officers, of the effectiveness of the design and operation of the Company’s DCP as defined under the rules adopted by the Canadian securities regulatory authorities and in Rule 13a-15(e) of the Exchange Act. The evaluation concluded that there are material weaknesses in the Company’s ICFR that have a direct impact on the Company’s DCP as discussed in more detail below.

Our management, under the supervision of the Responsible Officers, is also responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) as defined in Rule 13a-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our Responsible Officers assessed the effectiveness of our ICFR as of December 31, 2019. In making this assessment, they used the criteria established in Internal Control – Integrated Framework 2013, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Our ICFR were not required to be independently audited. Accordingly, no independent audit was performed over the effectiveness of internal controls as at December 31, 2019 and this annual report does not include an attestation report of the Company’s registered public accounting firm regarding ICFR. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

During this process, we identified the following material weaknesses in the Company’s ICFR that have a direct impact on the Company’s DCP:

●

due to the limited number of staff, it is not feasible to achieve adequate segregation of incompatible duties – NXT mitigates this deficiency by adding management and Audit Committee review procedures over the areas where inadequate segregation of duties are of the greatest concern; and

●

NXT does not have a sufficient level of staff with specialized expertise to adequately conduct separate preparation and a subsequent independent review of certain complex or highly judgmental accounting issues – NXT mitigates this deficiency by preparing financial statements with their best judgments and estimates of the complex accounting matters and relies on reviews by management, external consultants and the Audit Committee for quality assurance.

From time to time to reduce these risks and to supplement a small corporate finance function, the Company engages various outside experts and advisors to assist with various accounting, controls and tax issues in the normal course.

Notwithstanding NXT’s efforts to mitigate the risks associated with the above-mentioned deficiencies, the CEO and CFO concluded that the Company's ICFR are not effective and as a result its DCP are not effective as at December 31, 2019. NXT reached this conclusion based upon their assessment that there is more than a remote likelihood that its ICFR will not prevent or detect material misstatements if they should exist in our consolidated financial statements. NXT has therefore further taken on a process of continuous improvement in financial reporting and disclosure policies and responsibilities from which we continue to expect to see benefits over the course of 2020.

It should be noted that a control system, including the Company’s DCP and ICFR procedures, no matter how well conceived, can provide only reasonable, but not absolute assurance that the objectives of the control system will be met and it should not be expected that the DCP and ICFR will prevent all errors or fraud.

Changes in Internal Controls

The small size of the Company's finance team has resulted in control deficiencies in maintaining DCPs and ICFR that in turn have led to a recurrence of previously identified deficient disclosure. Given the small size of the Companies finance team and in order to improve ICFR moving forward, management has established a practice of increased engagement of the Company's Disclosure Committee and Audit Committee in reviewing the public disclosure and has increased engagement of external consultants and legal counsel as well.

NXT's efforts to mitigate the risks associated with the above-mentioned deficiencies has resulted in continuous improvements in its DCPs. The Responsible Officers concluded that, as at December 31, 2019, the Company's ICFR have improved, but are still not effective and as a result its DCPs are still not sufficiently effective. NXT reached this conclusion based upon its assessment that there is a more than remote likelihood that its ICFR will not prevent or detect material misstatements if they should exist in the Company's consolidated financial statements. NXT continues a process of continuous improvement in financial reporting and disclosure policies and responsibilities from which the Company expects to see continued benefits in 2020. The Responsible Officers continue to take certain actions to remediate these material weaknesses including: (i) the implementation of new controls with regards to the review procedures surrounding its disclosure; and (ii) engagement of third-party specialists. In addition, the Company has appointed its Corporate Controller as the new Chief Financial Officer as of August 1, 2019. The Chief Financial Officer engages subject matter consultants as the need arises.

The new controls over financial reporting and disclosure policies and responsibilities have been performed over seven quarterly periods. Material weaknesses cannot be considered remediated until the remedial controls operate for a sufficient period of time and Responsible Officers have concluded through testing that these controls are operating effectively.

It should be noted that a control system, including the Company's DCPs and ICFR procedures, no matter how well conceived, can provide only reasonable, but not absolute assurance that the objectives of the control system will be met, and it should not be expected that the DCPs and ICFR will prevent all errors or fraud.

There were no other changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the period ended December 31, 2019.

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that we have at least one audit committee “financial expert” (as defined under Item 16.A of Form 20-F) serving on our Audit Committee. The Audit Committee consists of Messrs. Wilcox (Chair), Ingriselli, Selby and Tilson. Each member of the NXT Audit Committee has relevant experience in understanding and evaluating financial information, generally accepted accounting principles, control systems and audit committee functions. Each member of NXT’s Audit Committee is considered a financial expert, and Messrs. Wilcox, Ingriselli, and Tilson are “independent” directors, as that term is defined under the listing standards of NASDAQ.

ITEM 16B.

CODE OF ETHICS

NXT has in place a Code of Conduct & Business Ethics (the “Code of Conduct”) that applies to all of our directors, officers, employees, and consultants. This Code of Conduct is incorporated in our Employee Handbook, is an integral part of our employee contracts and our Employee Handbook and contains Company policies on Business Ethics, Employee Practices and Conflicts of Interest.

During 2019, the Company did not significantly amend its Code of Conduct or grant any waiver, including any implicit waiver, from any provision of the Code of Conduct to any of its directors, officers or employees. Copies of NXT’s Code of Conduct are available without charge to any person upon request from NXT’s Chief Financial Officer at nxt_info@nxtenergy.com or at NXT’s headquarters at Suite 302, 3320 – 17th Avenue SW, Calgary Alberta, Canada, T3E 0B4, and on the Company website, www.nxtenergy.com.

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

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, 2019 and 2018.

	2019	2018
Audit<br>fees	$136,470	$126,810
Tax<br>fees	18,340	5,510
Total<br>fees	154,810	132,320

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.

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Period	Total Number of<br>Shares Purchased	Average Price<br>Paid per Shares	Total Number of<br>Shares Purchased as Part of Publicly Announced Plans or<br>Programs	Maximum Number<br>(or Approximate Dollar Value) of Shares that May Yet Be Purchased<br>Under the Plans or Programs
November 15, 2019<br>– December 9, 2019	4,166,667	$.30	4,166,667	0

Targeted Issuer Bid

Between November 15, 2019 (the "TIB Commencement Date") and December 9, 2019 (the "TIB Completion Date"), NXT purchased for cancellation an aggregate of 4,166,667 Common Shares, representing approximately 6.08% of the 68,573,558 Common Shares outstanding as at the TIB Commencement Date. The purchase price of $0.30 per Common Share represented a discount of approximately 22.9% relative to the market price of $0.389 per Common Share as at the TIB Commencement Date. Gross proceeds received by AGV totaled approximately $1,250,000.00, representing approximately 6.1% of the Company's market capitalization of approximately $26,675,114.062 as at the TIB Commencement Date.

The terms of the Targeted Issuer Bid also provided that the 3,421,648 Warrants expired effective October 31, 2019, and that certain deadlines under the Co-operation Agreement be extended. AGV's registered ownership in the Company was reduced from 10,264,946 Common Shares and 3,421,648 Warrants, representing, on a fully diluted basis, approximately 20.0% of the 68,573,558 issued and outstanding Common Shares as at the TIB Commencement Date, to 6,098,279 Common Shares and nil Warrants, representing approximately 9.5% of the 64,406,891 issued and outstanding Common Shares as at the TIB Completion Date.

By strategically acquiring its Common Shares for cancellation in a private transaction at a discount to the then current market price, the Company improved the equity position of its other shareholders and provided AGV with additional funds necessary to continue advancing the common objectives of the parties under the Co-operation Agreement, while also avoiding a substantial decrease in the market price and liquidity of the Common Shares reasonably expected if AGV were to sell a substantial portion of its equity position into the open market.

The Targeted Issuer Bid was exempt from the formal valuation and disinterested shareholder approval requirements typically applicable to related party transactions under applicable securities laws as neither the fair market value of the Common Shares (approximately $1,620,833.46) nor the consideration received by AGV for the Common Shares (approximately $1,250,000.00) exceeded 25% of the Company's market capitalization at the TIB Commencement Date (approximately $26,675,114.06).

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G.

CORPORATE GOVERNANCE

Not applicable.

ITEM 16H.

MINE SAFETY DISCLOSURE

Not applicable.

PART III

ITEM 17.

FINANCIAL STATEMENTS

The Company’s consolidated financial statements and related notes are prepared in accordance with U.S. generally accepted accounting principles and included in Item 18 to this annual report.

ITEM 18.

FINANCIAL STATEMENTS

The Company’s consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles.

ITEM 19.

EXHIBITS

EXHIBIT INDEX

Exhibit<br>No.	Description
1.1	Articles of<br>Incorporation of Auric Mining Corporation as filed with the Nevada<br>Secretary of State on September 27, 1994 (incorporated by reference<br>to Exhibit 3.1 to the Registration Statement on Form 10 filed on<br>June 29, 1998)
1.2	Amendment to<br>Articles of Incorporation of Auric Mining Corporation as filed with<br>the Nevada Secretary of State on February 23, 1996 (incorporated by<br>reference to Exhibit 3.1 to the Registration Statement on Form 10<br>filed on June 29, 1998)
1.3	Certificate of<br>Amendment to Articles of Incorporation of Pinnacle Oil<br>International, Inc. as filed with the Nevada Secretary of<br>State on April 1, 1998 (incorporated by reference to Exhibit 3.3 to<br>the Registration Statement on Form 10 filed on June 29,<br>1998)
1.4	Certificate of<br>Amendment to Articles of Incorporation of Pinnacle Oil<br>International, Inc. as filed with the Nevada Secretary of<br>State on June 13, 2000 (incorporated by reference to Exhibit 3.4 to<br>our Amendment No. 1 to the Annual Report on Form 10-K for the year<br>ended December 31, 1999 as filed on July 28, 2000)
1.5	Articles of<br>Amendment of Energy Exploration Technologies Inc. as filed with the<br>province of Alberta, Canada on September 22, 2008 (incorporated by<br>reference to Exhibit 1.8 to our Annual Report on Form 20-F for the<br>year ended December 31, 2008 as filed on June 29,<br>2009)
1.6	Amendment to the<br>Articles of NXT Energy Solutions Inc. (incorporated by reference to<br>Item V of Exhibit 99.1 to Form 6-K as filed on September 20,<br>2013)
1.7	NXT<br>Energy Solutions Inc. By-Law No. 1 (incorporated by reference to<br>Schedule “D” to Exhibit 99.2 to Form 6-K as filed on<br>September 20, 2013)
2.1	Description of<br>Securities
4.1	Form of<br>Indemnification Agreement between NXT Energy Solutions Inc. and<br>each of its Directors and Executive Officers (incorporated by<br>reference to Exhibit 4.6 to our Annual Report on Form 20-F for the<br>year ended December 31, 2013 as filed on April 30,<br>2014)
4.2	SFD® Technology<br>Ownership Agreement dated December 31, 2006 (incorporated by<br>reference to Exhibit 99.4 to Form 6-K as filed on January 12,<br>2007)
4.3	Technology Transfer<br>Agreement dated December 31, 2006 (incorporated by reference to<br>Exhibit 99.6 to Form 6-K as filed on January 12,<br>2007)
8.1	List of<br>Subsidiaries (incorporated by reference to Exhibit 8.1 to our<br>Annual Report on Form 20-F for the year ended December 31, 2013 as<br>filed on April 30, 2014)
11.1	Code of<br>Conduct and Business Ethics (incorporated by reference to Exhibit<br>11.1 to our Annual Report on Form 20-F for the year ended December<br>31, 2013 as filed on April 30, 2014)
12.1	Rule<br>13a-14(a)/15d-14(a) Certification of Chief Executive Officer and<br>President
12.2	Rule<br>13a-14(a)/15d-14(a) Certification of VP Finance and Chief Financial<br>Officer
13.1	Section 1350<br>Certification of Chief Executive Officer and<br>President
13.2	Section 1350<br>Certification of VP Finance and Chief Financial<br>Officer
15.1	Consolidated<br>Financial Statements and Audit report of KPMG LLP for the year<br>ended December 31, 2019
15.2	Consent of KPMG<br>LLP
15.3	Management’s<br>Discussion and Analysis for the year ended December 31,<br>2019

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

NXT Energy Solutions Inc.

By: /s/ George Liszicasz

George Liszicasz

Director, Chairman, Chief Executive Officer and President

Dated: May 5, 2020

nsfdf_ex21

Exhibit 2.1

DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT

NXT Energy Solutions Inc. (“NXT” or the “Company”) has the following securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”):

Title of each class	Trading symbol	Name of each exchange on which registered
Common<br>Shares	NSFDF	The OTC<br>Markets QB Exchange

This exhibit contains a description of the rights of the holders of common shares. The following summary is subject to and qualified in its entirety by NXT’s articles of incorporation (the “Articles of Incorporation”), by-laws (the “By-Laws”) and by applicable Alberta and Canadian law, particularly the Business Corporations Act (Alberta) (the “ABCA”). This is not a summary of all the significant provisions of the Articles of Incorporation, By-Laws or of Alberta or Canadian law and does not purport to be complete. Capitalized terms used but not defined herein have the meanings given to them in the Company’s annual report on Form 20-F to which this description of securities registered under section 12 of the Exchange Act (the “Description of Securities”) is an exhibit.

Item 9. General

Item 9.A.3 Pre-emptive rights

The Articles of Incorporation permit the issuance of an unlimited number of common shares, and shareholders have no pre-emptive rights in connection with such further issuance.

Item 9.A.5 Type and class of securities

The Company is authorized to issue an unlimited number of common shares, no par value. All common shares are issued in registered form and there are not restrictions on the free transferability of such common shares, except for any transfer restrictions imposed by applicable securities laws.

Item 9.A.6 Limitations or qualifications

Not applicable.

Item 9.A.7 Other rights

Not applicable.

Item 10.B Memorandum and articles of association

Item 10.B.3 Shareholder rights

Dividends

The holders of common shares are entitled to receive any dividend declared by the board of directors of the Company on the common shares, provided that NXT shall be entitled to declare dividends on any other classes of shares without being obliged to declare dividends on the common shares.

NXT is authorized to issue an unlimited number of preferred shares, issuable in one or more series, none of which are issued and outstanding as of the date hereof. With respect to the payment of dividends, NXT’s preferred shares, if issued, would be entitled to preference over the common shares.

Voting Rights

The holders of common shares are entitled to attend and vote at all meetings of the shareholders of the Company. The directors stand for reelection at the same intervals and cumulative voting is not permitted.

Rights Upon Dissolution

Subject to the rights, privileges, restrictions and conditions attaching to any other class of NXT’s shares, the holders of the common shares are entitled to share equally in such of the Company’s property as is distributable to the holders of common shares. With respect to the distribution of assets or the return of capital in the event of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, any preferred shares, if issued, would be entitled to preference over the common shares.

Redemption Provisions

Not applicable.

Sinking fund provisions

Not applicable.

Capital Calls

Not applicable.

Discrimination provisions

Not applicable.

Item 10.B.4 Changes to shareholder rights

Action Necessary to Change the Rights of Shareholders

NXT’s shareholders can authorize the alteration or amendment of the Articles of Incorporation to create or vary the rights, privileges, restrictions and conditions attached to any of NXT’s shares by passing a special resolution. However, the rights, privileges, restrictions and conditions attached to any class or series of shares may not be amended unless the shareholders holding shares of that class or series to which the right or special right is attached consent by a separate special resolution (subject to certain exceptions for separate class votes). A special resolution means a resolution passed by a majority of not less than two thirds of the votes cast by the applicable class or series of shareholders who vote in person or by proxy at a meeting.

Amendments to the By-Laws

NXT’s board of directors may make, amend or repeal any By-Law that regulates the business or affairs of the Company. If the directors make, amend or repeal a by-law, they are required under the ABCA to submit such action to the shareholders at the next meeting of shareholders and the shareholders may confirm, reject or amend the action by an ordinary resolution. If the action is rejected by the shareholders or if the directors do not submit the action to shareholders at the next shareholder meeting, the action will cease to be effective and no subsequent resolution of the directors to make, amend or repeal a by-law that has substantially the same purpose or effect will be effective until it is confirmed by the shareholders.

Item 10.B.6 Limitations

There are no restrictions on the rights of non-resident or foreign shareholders to hold or exercise voting rights with respect to NXT’s common shares.

Item 10.B.7 Change in control

The Articles of Incorporation and the By-Laws do not contain any change of control limitations with respect to a merger, acquisition or corporate restructuring that involves NXT. Notwithstanding this, the Board of directors, under the general powers conferred to it under NXT’s By-Laws, have the authority to approve and invoke a shareholders rights plan that will protect shareholders from unfair, abusive or coercive take-over strategies, including the acquisition or control of NXT by a bidder in a transaction or series of transactions that does not treat all shareholders equally or fairly or that does not afford all shareholders an equal opportunity to share in any premium paid upon an acquisition of control.

Item 10.B.8 Disclosure of shareholdings

Although applicable securities laws regarding shareholder ownership by certain persons require disclosure, neither the Articles of Incorporation nor the By-Laws provide for any ownership threshold above which shareholder ownership must be disclosed.

Item 10.B.9 Differences in the law

For a discussion of the significant differences of the law applicable to NXT and the law in the US, please see the section entitled ‘PROPOSAL NO. 1: CONTINUANCE OF ENERGY EXPLORATION TECHNOLOGIES AS A CORPORATION ORGANIZED UNDER THE LAWS OF THE PROVINCE OF ALBERTA’ of the Form Def 14A filed at the time of the Company’s continuance from Nevada to Alberta on October 3, 2003.

Item 10.B.10 Changes in capital

The requirements imposed by the Articles of Incorporation governing changes in capital are not more stringent than is required by law.

nsfdf_ex121

Exhibit 12.1

CERTIFICATION

I, George Liszicasz, certify that:

I have reviewed this annual report on Form 20-F of NXT Energy Solutions Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s Board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Dated: May 5, 2020

/s/ George Liszicasz

George Liszicasz

Chief Executive Officer and President

nsfdf_ex122

Exhibit 12.2

CERTIFICATION

I, Eugene Woychyshyn, certify that:

I have reviewed this annual report on Form 20-F of NXT Energy Solutions Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Dated: May 5, 2020

/s/ Eugene Woychyshyn

Eugene Woychyshyn

V-P Financial Officer and CFO

nsfdf_ex131

Exhibit 13.1

Certification

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 U.S.C. §§ 1350(a) and (b)), the undersigned hereby certifies in his capacity as an officer of NXT Energy Solutions Inc. (the “Company”) that the Annual Report of the Company on Form 20-F for the year ended December 31, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 5, 2020

/s/ George Liszicasz

George Liszicasz

Chief Executive Officer and President

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO NXT ENERGY SOLUTIONS INC. AND WILL BE RETAINED BY NXT ENERGY SOLUTIONS INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

nsfdf_ex132

Exhibit 13.2

Certification

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Dated: May 5, 2020

/s/ Eugene Woychyshyn

Eugene Woychyshyn

V-P Finance and CFO

nsfdf_ex151

Exhbit 15.1

NXT ENERGY SOLUTIONS INC.

Consolidated Financial Statements

For the year ended

December 31, 2019

NXT ENERGY SOLUTIONS INC.

Consolidated Balance Sheets

(Expressed in Canadian dollars)

	December 31,	December<br>31,
	2019	2018
Assets
Current<br>assets
Cash<br>and cash equivalents	$2,858,245	$339,532
Short-term<br>investments (Note 3)	3,781,512	3,900,000
Accounts<br>receivable (Note 4)	1,384,315	61,279
Note<br>receivable (Note 5)	324,700	-
Prepaid<br>expenses	97,132	65,159
	8,445,904	4,365,970
Long<br>term assets
Deposits<br>(Note 6)	535,554	560,341
Property<br>and equipment (Note 7)	677,647	683,157
Right<br>of use Assets (Note 8)	3,063,769	-
Intellectual<br>property (Note 9)	17,970,067	19,654,800
	$30,692,941	$25,264,268
Liabilities and Shareholders' Equity
Current<br>liabilities
Accounts<br>payable and accrued liabilities (Note 10)	$448,928	$499,535
Contract<br>Obligations (Note 11)	131,386	-
Current<br>portion of capital lease obligation (Note 13)	736,408	42,603
	1,316,722	542,138
Long-term<br>liabilities
Long-term<br>lease obligation (Note 13)	2,669,736	42,515
Asset<br>retirement obligation (Note 12)	21,481	26,778
Other<br>liabilities and Deferred charges	-	441,368
	2,691,217	510,661
	4,007,939	1,052,799
Commitments<br>and contingencies (Note 14)
Shareholders'<br>equity
Common<br>shares (Note 15): - authorized unlimited
Issued:<br>64,406,891 (2018 - 68,573,558) common shares	95,313,064	96,656,248
Contributed<br>capital	9,306,493	9,262,684
Deficit	(78,645,489)	(82,418,397)
Accumulated<br>other comprehensive income	710,934	710,934
	26,685,002	24,211,469
	$30,692,941	$25,264,268
Signed "George<br>Liszicasz"	Signed "Bruce G. Wilcox"
---	---
Director	Director

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

[1]

NXT ENERGY SOLUTIONS INC.

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

(Expressed in Canadian dollars)

	For the year ended December 31,
	2019	2018	2017
Revenue
Survey<br>revenue (Note 21)	$11,976,149	$-	$-
Expenses
Survey<br>costs, net (Note 22)	2,611,086	1,103,946	1,289,429
General<br>and administrative expenses	3,497,785	3,999,089	4,960,961
Stock<br>based compensation expense (Note 17)	43,809	386,154	581,356
Amortization<br>expense (Note 7, 8 & 9)	1,781,181	1,790,267	1,897,576
	7,933,861	7,279,456	8,729,322
Other expenses (income)
Interest<br>expense (income), net	(20,684)	(62,004)	4,485
Foreign<br>exchange (gain) loss	233,231	(19,852)	69,676
Intellectual<br>property and other	56,833	(43,428)	91,370
Gain<br>on extinguishment of liability (Note 24)	-	(185,661)	-
	269,380	(310,945)	165,531
Income<br>(loss) before income taxes	3,772,908	(6,968,511)	(8,894,853)
Income<br>tax expense (Note 18)
Current	-	-	75,545
Net income (loss) and comprehensive income (loss)	3,772,908	(6,968,511)	(8,970,938)
Net income (loss) per share (Note 16)
Basic	$ 0.06	$(0.11)	$ (0.16)
Diluted	$0.06	$(0.11)	$(0.16)

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

[2]

NXT ENERGY SOLUTIONS INC.

Consolidated Statements of Cash Flows

(Expressed in Canadian dollars)

	For the year<br>ended December 31,
	2019	2018	2017
Cash provided by (used in):
Operating activities
Comprehensive<br>income (loss) for the period	$3,772,908	$(6,968,511)	$(8,970,398)
Items<br>not affecting cash:
Stock<br>based compensation expense (Note 17)	43,809	386,154	581,356
Amortization expense (Notes 7, 8 & 9)	1,781,181	1,790,267	1,897,576
Settlement<br>of payable with shares	-	-	95,181
Non-cash<br>changes to asset retirement obligation	2,068	(29,925)	1,462
Non-cash<br>lease and interest expense	(171,056)	-	-
Valuation<br>allowance of Bolivian Tax credits	-	-	207,682
Unrealized<br>Foreign exchange	121,578	(19,853)	-
Amortization<br>of deferred gain on sale of aircraft	-	(155,301)	(103,534)
Gain<br>on settlement of liabilities and Deferred Rent	-	(188,580)	(3,018)
Change<br>in non-cash working capital balances (Note 20)	(1,464,695)	(858,170)	829,014
ARO<br>liabilities settled	(7,366)	-	-
	305,519	924,592	3,505,719
Net<br>cash (used in) operating activities	4,078,427	(6,043,919)	(5,464,679)
Financing activities
Net<br>funds used in targeted issuer bid (Note 15)	(1,343,184)	-	-
Proceeds<br>from exercise of stock options	-	5,067	35,995
Net<br>Proceeds from Rights Offering	-	-	2,029,867
Cost<br>of equity-based transaction with non-employees	-	-	(6,149)
Net<br>Proceeds from Private Placement	-	9,211,351	-
Repayment<br>of capital lease obligation	(42,603)	(39,579)	(36,769)
Net<br>cash from (used in) financing activities	(1,385,787)	9,176,839	2,022,944
Investing activities
Purchase<br>of property and equipment, net	(216,691)	(10,006)	3,133,531
Decrease<br>(increase) in short-term investments and Deposits	42,764	(2,950,000)	(15,674)
Net<br>cash from (used in) investing activities	(173,927)	(2,960,006)	3,117,857
Net<br>increase (decrease) in cash and cash equivalents	2,518,713	172,914	(323,878)
Cash<br>and cash equivalents, beginning of the period	339,532	166,618	490,496
Cash<br>and cash equivalents, end of the period	$2,858,245	$339,532	$166,618
Supplemental information
Cash<br>interest (received)	(16,724)	(58,889)	4,487
Cash<br>taxes paid	-	-	72,587

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

[3]

NXT ENERGY SOLUTIONS INC.

Consolidated Statements of Shareholders' Equity

(Expressed in Canadian dollars)

	For the Year ending December 31,
	2019	2018	2017
Common Shares
Balance<br>at beginning of the period (Note 15)	$96,656,248	$88,121,286	$85,966,393
Shares<br>purchased and retired during the year (Note 15)	(1,343,184)	-	-
Issuance<br>of Common Stock on Private Placement (Note 15)	-	8,387,451	-
Rights<br>Offering & Finder’s Fee (Note 15)	-	136,003	2,029,867
Issued<br>upon exercise of stock options	-	5,067	35,995
Transfer<br>from contributed capital upon exercise of stock<br>options	-	6,441	-
Equity-based<br>transaction with non-employee	-	-	89,031
Balance<br>at end of the period	95,313,064	96,656,248	88,121,286
Contributed Capital
Balance<br>at beginning of the period	9,262,684	8,195,075	7,613,719
Issuance<br>of warrants on Private Placement (Note 15)	-	687,896	-
Recognition<br>of stock based compensation expense	43,809	386,154	581,356
Contributed capital transferred<br>to common shares upon exercise of stock options	-	(6,441)	-
Balance<br>at end of the period	9,306,493	9,262,684	8,195,075
Deficit
Balance<br>at beginning of the period	(82,418,397)	(75,449,886)	(66,479,488)
Net<br>income (loss) and comprehensive income (loss) for the<br>period	3,772,908	(6,968,511)	(8,970,398)
Balance<br>at end of the period	(78,645,489)	(82,418,397)	(75,449,886)
Accumulated Other Comprehensive Income
Balance<br>at beginning and end of the period	710,934	710,934	710,934
Total Shareholders' Equity at end of the period	26,685,002	24,211,469	21,577,409

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

[4]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

The Company and future operations

NXT Energy Solutions Inc. (the "Company" or "NXT") is a publicly traded company based in Calgary, Alberta Canada.

NXT's proprietary Stress Field Detection ("SFD®") technology is an airborne survey system that is used in the oil and natural gas exploration industry to identify subsurface trapped fluid accumulations.

These consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that NXT will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. However, NXT's future financial results and its longer term success remains dependent upon the ability to continue to attract and execute client projects to build its revenue base. NXT continues to develop its pipeline of opportunities to secure new revenue contracts. The Company’s longer-term success remains dependent upon its ability to convert these opportunities into successful contracts and to continue to attract new client projects and expand the revenue base to a level sufficient to exceed fixed operating costs and continue to generate positive cash flow from operations. The occurrence and timing of these events cannot be predicted with certainty.

Significant Accounting Policies

Basis of Presentation

These consolidated financial statements for the year ended December 31, 2019 have been prepared by management in accordance with generally accepted accounting principles of the United States of America ("US GAAP”).

Consolidation

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

Estimates and Judgements

Estimates made relate primarily to the use of the going concern assumption, estimated useful lives, and the valuation of intellectual property and property and equipment, the measurement of stock-based compensation expense, valuation of deferred income tax assets, and estimates for asset retirement obligations. The estimates and assumptions used are based upon management's best estimate. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period when determined. Actual results may differ from those estimates.

[5]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Cash and Cash Equivalents

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

Short Term Investments

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

Fair Value of Derivative Instruments

Derivative Instruments

Derivative instruments are recognized on the balance sheet at fair value with any changes in fair value between periods recognized in the determination of net income (loss) for the period. NXT does not apply hedge accounting to any of its derivatives. As at December 31, 2019 and 2018, NXT had no outstanding derivative instruments.

Fair Value Measures

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

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

In Level II, determination of the fair value of assets and liabilities is based on the extrapolation of inputs, other than quoted prices included within Level I, for which all significant inputs are observable directly or indirectly. Such inputs include published exchange rates, interest rates, yield curves and stock quotes from external data service providers. Transfers between Level I and Level II would occur when there is a change in market circumstances.

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

[6]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Deposits

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

Property and Equipment

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

Computer<br>hardware (including survey equipment)	30%<br>declining balance
Aircraft	10%<br>declining balance
Furniture<br>and other equipment	20%<br>declining balance
Leasehold<br>improvements	10%<br>declining balance

Impairment of Long-Lived Assets

The Company reviews long-lived assets, which includes property, equipment and intellectual property for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. When indictors of impairment exist, the Company first compares the total of the estimated undiscounted future cash flows or the estimated sale price to the carrying value of an asset. If the carrying value exceeds these amounts, an impairment loss is recognized for the excess of the carrying value over the estimated fair value of the asset.

Intellectual Property

Intellectual property acquired is recorded at cost, less accumulated amortization, which is recorded over the estimated minimum useful life of the assets. Intellectual property is also subject to ongoing tests of potential impairment of the recorded net book value.

Research and Development Expenditure

Research and development ("R&D") expenditures incurred to develop, improve and test the SFD® survey system and related components are expensed as incurred. Any intellectual property that is acquired for the purpose of enhancing research and development projects, if there is no alternative use for the intellectual property, is expensed in the period acquired. No significant external R&D was incurred in the years ended 2019, 2018 and 2017.

Foreign Currency Translation

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

[7]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Income Taxes

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

Stock Based Compensation Expense

NXT follows the fair value method of accounting for stock options that are granted to acquire common shares under NXT's stock option plan. Under this method, an estimate of the fair value of the cost of stock options that are granted to employees, directors and consultants is calculated using the Black-Scholes option pricing model and charged to income over the future vesting period of the stock options, with a corresponding increase recorded in contributed capital. Upon exercise of the stock options, the consideration received by NXT, and the related amount which was previously recorded in contributed capital, is recognized as an increase in the recorded value of the common shares of the Company.

Income (Loss) Per Share

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

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

Revenue

The performance obligation for NXT is the acquisition, processing, interpretation and integration of Stress Field Detection (SFD®) data. Revenue from the sale of SFD® survey contracts (net of any related foreign

value added taxes) is recognized over time by measuring the progress toward satisfaction of its performance obligation to the customer. All funds received or invoiced in advance of recognition of revenue are reflected as contract obligations and classified as a current liability on our balance sheet.

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

[8]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Leases

On January 1, 2019, NXT adopted ASC Topic 842, Leases (“Topic 842”) and related amendments, using the modified retrospective approach recognizing a cumulative effect adjustment at the beginning of the reporting period in which Topic 842 was applied. Results for reporting periods beginning after January 1, 2019, are presented in accordance with Topic 842, while prior periods have not been restated and are reported in accordance with ASC Topic 840, Leases (“Topic 840”). On transition, NXT elected certain practical expedients permitted under Topic 842 which include:

No reassessment of the classification of leases previously assessed under Topic 840.

The use of hindsight in determining the lease term where the contract contains terms to extend or terminate the lease.

The policy and disclosures required under Topic 842 are included in Note 13, Leases.

In accordance with Topic 842, NXT recognized a ROU asset and corresponding lease liability for all operating leases on the Consolidated Balance Sheet. Prior to the adoption of Topic 842, operating leases were not recognized on the Consolidated Balance Sheet. There was no impact to finance leases on transition to Topic 842. The impact from recognizing operating leases on NXT’s Consolidated Balance Sheet is as follows:

Account	Notes	As reported December 31, 2018	Adjustments	Balance on Adoption as at January 1, 2019
Property<br>and equipment	i	$683,157	$(139,725)	$543,432
Right<br>of Use	ii	-	3,535,919	3,535,919
Total<br>Assets		$25,264,268	$3,396,194	$28,660,462
Accounts<br>payable and accrued liabilities	iii	$499,535	$(155,301)	$344,234
Current<br>portion of capital lease obligations	i	42,603	(42,603)	-
Current<br>portion of lease obligations	iv	-	672,087	672,087
Capital<br>lease obligations	i	42,515	(42,515)	-
Long-term<br>lease obligations	iii	-	3,405,894	3,405,894
Other<br>liabilities	iv	362,368	(362,368)	-
Deferred<br>charges	v	79,000	(79,000)	-
Total<br>Liabilities and Shareholders’ Equity		$25,264,268	$3,396,194	$28,660,462

Notes:

Reclassify previously recognized finance leases:

Leases accounted for as finance leases were reclassified to Right of Use Assets and lease liabilities from property, plant and equipment and capital leases, respectively.

ii.

Right of use:

Right of use assets have been recognized for the building lease, aircraft lease and office equipment. Upon transition the building and aircraft right of use assets were calculated on the net present value of future lease payments less deferred charges for the building. The office equipment lease was previously recorded as a finance lease. The unamortized portion of the leased asset was reclassified to right of use assets.

iii.

Lease liabilities:

The Company recognized lease liabilities in relation to leases which had previously been classified as operating. Under the principles of the new standard these leases have been measured at the present value of the remaining lease payments, discounted using the Company’s estimated incremental borrowing rates or implied interest rate in the lease contract. Rates varied between 7.4% and 15.7%. Total lease liabilities of $4,077,981 were recorded as at January 1, 2019, of which $672,087 was the current portion.

iv.

Account payable and other accrued liabilities, Other liabilities:

The deferred gain on sale of the aircraft was reclassified from Accounts payable and other accrued liabilities and Other liabilities to Current portion of lease obligations and Long-term Lease Obligations.

Deferred charges:

The Deferred charges for the office lease have been reclassified to Right of use assets and are being amortized on a straight line basis over the remaining period of the lease.

Although Topic 842 does not have a material impact on the Consolidated Statements of Income (loss) and Comprehensive Income (Loss) or Cash Flows, the change in the accounting of the aircraft lease now has interest expense of $69,776 for the year ended December 31, 2019 being recorded, whereas under Topic 840 that amount was recorded under survey costs. In the Consolidated Statements of Cash Flows under Operating Activities, amortization of deferred gain on sale of aircraft and deferred charges are now presented as Non-cash lease and interest expense, under Topic 842.

[9]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Short-term investments

Short-term investments consist of Guaranteed Investment Certificates (“GIC’s”) with originally maturity dates of 90 days to one year from the date of purchase. As at December 31, 2019 all GIC’s had less than one year left before maturity. For December 31, 2019, interest rates ranged from 1.70% to 2.15%. For December 31, 2018, interest rates ranged from 2.10% to 2.15%.

	For the year<br>ended
	December<br>31,	December<br>31,
Days to<br>maturity	2019	2018
Less than 90<br>days	$1,754,302	$-
91 to 183<br>days	1,218,724	-
183 days to one<br>year	808,486	3,900,000
	3,781,512	3,900,000

Accounts Receivable

Accounts receivable are all current as at December 31, 2019.

	For the year ended
	December 31,	December 31,
	2019	2018
Trade<br>receivables	$1,297,792	$-
Other<br>receivables	86,523	61,279
	1,384,315	61,279
Allowance<br>for doubtful accounts	-	-
Net<br>accounts receivable	1,384,315	61,279

The entire Trade receivable is with one client. In March 2020, US$466,000 (CAD$619,128) was received on the outstanding trade receivable as at December 31, 2019.

[10]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Notes Receivable

NXT advanced $250,000 USD (the “Note Receivable”) to Alberta Green Ventures Limited Partnership (“AGV”) on a secured basis in September 2019. The interest rate on the Notes Receivable is the greater of 2% and the rate prescribed under the Income Tax Act (Canada) from time to time, payable monthly in arrears. All interest was collected as at December 31, 2019. AGV secured the Notes Receivable with common shares previously held by AGV.

As per the terms of the Note Receivable, NXT, in its sole and absolute discretion, was entitled to elect to receive any payment made by AGV by way of cash payment, or delivery for cancellation to NXT of the equivalent number of Common Shares having a fair market value equal to the aggregate of such amounts, calculated using the volume weighted average price of the Common Shares as reported and traded on the Toronto Stock Exchange for the five trading days immediately preceding the repayment date.

On December 13, 2019 NXT issued a Direction to Pay to AGV, in which the principle of the Note Receivable would be settled in shares of NXT, however, this did not occur. On April 13, 2020, NXT has cancelled the previous Direction to Pay and has issued a new Direction to Pay to AGV. The April 13, 2020 Direction to Pay has now directed AGV to deliver US$250,000 in cash proceeds as repayment on the principle amount of US$250,000. Interest will begin to accrue until the date on which payment in full of all amounts owing pursuant to the Notes Receivable are received by NXT. NXT may change its Direction to Pay, if NXT so decides, at its sole and absolute discretion to receive the principal repayment by way of Common Shares by application to the Alberta Securities Commission.

Based on the fair market value of the common shares held as collateral the Note Receivable is fully collateralized.

Deposits

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

	For the year ended
	December 31,	December 31,
	2019	2018
Building	$43,309	$43,310
Aircraft	492,245	517,031
	535,554	560,341

Property and equipment

	Cost	Accumulated	Net book
For the period ended December 31, 2019	Base	amortization	value
Survey<br>equipment	$892,637	$646,953	$245,684
Computers<br>and software	1,265,045	1,219,045	46,000
Furniture<br>and other equipment	528,419	509,146	19,273
Leasehold<br>improvements	965,108	598,418	366,690
	3,651,209	2,973,562	677,647
	Cost	Accumulated	Net book
---	---	---	---
For the period ended December 31, 2018	Base	amortization	value
Survey<br>equipment	$684,890	$628,037	$56,853
Computers<br>and software	1,256,101	1,201,047	55,054
Furniture<br>and other equipment	528,420	504,328	24,092
Leasehold<br>improvements	1,165,108	617,950	547,158
	3,634,519	2,951,362	683,157

[11]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Right of use assets

	Cost	Accumulated	Right of
For the period ended December 31, 2019	Base	Amortization	Use
Aircraft	$1,578,774	$256,778	$1,321,996
Office<br>Building	1,799,626	197,426	1,602,200
Printer	17,794	3,973	13,821
Office<br>equipment	139,725	13,973	125,752
	3,535,919	472,150	3,063,769

Intellectual property

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

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

	For the year ended
	December 31,	December 31,
	2019	2018
Intellectual<br>property acquired	$25,271,000	$25,271,000
Accumulated<br>amortization	(7,300,933)	(5,616,200)
	17,970,067	19,654,800

Accounts payable and accrued liabilities

	For the year ended
	December 31,	December 31,
	2019	2018
Accrued<br>liabilities related to:
Consultants<br>and professional fees	$311,635	$151,427
Board<br>of Directors' fees	-	22,500
Deferred<br>gain on sale of aircraft (current)	-	155,301
Payroll<br>(wages payable and vacation pay)	106,529	47,271
	418,164	376,499
Trade<br>payables and other	30,764	123,036
	448,928	499,535

[12]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Contract Obligations

The Company has received a deposit of $100,000USD from Alberta Green Ventures Limited Partnership (“AGV’) to be applied to an SFD® survey which is scheduled to be completed by June 30, 2020.

	For the year ended
	December 31,	December 31,
	2019	2018
Contract<br>obligations	$131,386	$-

Asset Retirement Obligation

Asset retirement obligations ("ARO") relate to minor non-operated interests in oil and natural gas wells in which NXT has outstanding abandonment and reclamation obligations in accordance with government regulations. The estimated future abandonment liability is approximately $22,000 which is based on estimates of the future timing and costs to abandon, remediate and reclaim the well sites within the next five years. The net present value of the ARO is as noted below, and has been calculated using an inflation rate of 2.0% and discounted using a credit-adjusted risk-free interest rate of 2.5%.

	2019	2018
ARO balance,<br>beginning of the year	$26,778	$56,702
Accretion<br>expense	2,068	2,069
Costs<br>incurred	(7,365)	-
Change in ARO<br>estimates	-	(31,993)
ARO balance, end of<br>the year	21,481	26,778

[13]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Lease obligation

	December<br>31,	December<br>31,
	2019	2018
Aircraft	$1,680,103	$-
Office<br>Building	1,669,953	-
Printer	13,573	-
Office<br>equipment	42,515	85,118
	3,406,144	85,118
Current<br>Portion of lease obligations	(736,408)	(42,603)
Long-term<br>lease obligations	2,669,736	42,515
Maturity<br>of lease liabilities:
---	---
2020	$1,057,776
2021	1,018,789
2022	587,536
2023	367,185
2024	367,185
After<br>2024	799,333
Total lease<br>payments	4,197,804
Less imputed lease<br>payments	(791,660)
Total discounted<br>lease payments	3,406,144
Current portion of<br>lease obligations	(736,408)
Non-current portion<br>of lease obligations	2,669,736

Leases entered into for the use of an asset are classified as either operating or finance, which is determined at contract inception. Upon commencement of the lease, a ROU asset and corresponding lease liability are recognized on the Consolidated Balance Sheet for all operating and finance leases. NXT has elected the short-term lease exemption, which does not require a ROU asset or lease liability to be recognized on the Consolidated Balance Sheet when the lease term is 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

[14]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Upon commencement of the lease, ROU assets are measured at the initial measurement of the lease liability adjusted for any lease payments made before commencement date of the lease, less any lease incentives received and include any initial direct costs incurred. Lease liabilities are initially measured at the present value of future minimum lease payments over the lease term. The discount rate used to determine the present value is the rate implicit in the lease unless that rate cannot be determined, in which case NXT’s incremental borrowing rate is used.

Operating lease ROU assets and liabilities are subsequently measured at the present value of the lease payments not yet paid and discounted at the initial discount rate at commencement of the lease, less any impairments to the ROU asset. Operating lease expense and revenue from any subleases are recognized in the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) on a straight line basis over the lease term. Finance lease ROU assets are amortized over the estimated useful life of the asset if the lessee is reasonably certain to exercise a purchase option or ownership of the leased asset transfers at the end of the lease term, otherwise the leased assets are amortized over the lease term. Operating leases include office building, aircraft and printer. Finance leases include office equipment. Currently there are no subleases.

NXT’s lease contracts include rights to extend leases after the initial term. Rights to extend or terminate a lease are included in the lease term when there is reasonable certainty the right will be exercised. Factors used to assess reasonable certainty of rights to extend or terminate a lease include current and forecasted survey plans, anticipated changes in strategies, historical practice in extending similar contracts and current market conditions.

Commitments

Associated with the adoption of Topic 842, all operating leases were recognized on the Consolidated Balance Sheet. Accordingly, operating leases are not included in the commitments table below. The table below is the non-lease operating cost components associated with the costs of the building lease. See Notes 2 and 13 for additional disclosures on leases.

For<br>the fiscal period ending December 31,	Office Premises
2020	$222,069
2021	222,501
2022	222,501
2023	222,501
2024	222,501
	1,112,073
2025	166,876
	1,278,949

[15]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Common shares

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

	For the Year Ended
	31-Dec-19		31-Dec-18
	# of shares	$ amount	# of shares	$ amount
As<br>at the beginning of the year	68,573,558	$96,656,248	58,161,133	$88,121,286
Shares<br>retired during the year	(4,166,667)	(1,343,184)	-	-
Shares<br>issued during the year:
Issuance<br>of Common Stock
on<br>the Private Placement	-	-	10,264,946	8,387,451
Exercise<br>of stock options	-	-	6,667	5,067
Transfer<br>from contributed capital
on<br>the exercise of stock options	-	-	-	6,441
Finder’s<br>fee	-	-	140,812	136,003
As<br>at the end of the period	64,406,891	95,313,064	68,573,558	96,656,248
	For the Year Ended
---	---	---
	31-Dec-17
	# of shares	$ amount
As<br>at the beginning of the year	53,856,509	$85,966,393
Shares<br>issued during the year:
Exercise<br>of stock options	7,334	5,710
Rights<br>Offering, net of issue costs	4,187,290	2,029,867
Stock<br>options proceeds receivable	-	30,285
Shares<br>for Debt	110,000	89,031
As<br>at the end of the period	58,161,133	88,121,286

During the fourth quarter of 2019 the Company purchased 4,166,667 common shares in the capital of the Company at a price of $0.30 per common share for total gross costs of $1.25 million plus related costs of $93,184 from AGV. The 4,166,667 shares were cancelled immediately after they were purchased. This transaction was approved by the Toronto Stock Exchange and the Alberta Securities Commission. AGV’s 3,421,648 warrants expired as of October 31, 2019.

In July 2018, the company completed a private placement. In total, AGV purchased 10,264,946 Units at a price of $0.924 per Unit for total gross proceeds of approximately $9,484,810.

A finder’s fee of 3% of the total amount of the Private Placement, which was paid one half in shares and one half in cash during the third quarter of 2018.

[16]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

On November 3, 2017, NXT closed the Rights Offering that had been announced to existing shareholders on September 26, 2017. The Company issued 4,187,290 common shares a price of $0.50 per common share, for aggregate gross proceeds of $2,093,645. Share issue costs of $63,778 were recorded as a reduction to share capital.

During 2017, the Company settled certain accounts payable to a consultant totaling $78,980 by way of issuing 110,000 common shares at a price per share of $0.718. The cost of issuing these shares of $6,149 were recorded as a reduction to share capital.

Earnings (Loss) per share

	2019	2018	2017
Comprehensive<br>income (loss) for the year	$3,772,908	$(6,968,511)	$(8,970,398)
Weighted<br>average number of shares outstanding for the year:
Basic	68,156,059	65,455,325	54,523,113
Diluted	68,156,059	65,455,325	54,523,113
Net<br>Income (loss) per share – Basic	$0.06	$(0.11)	$(0.16)
Net<br>Income (loss) per share – Diluted	$0.06	$(0.11)	$(0.16)

In periods in which a loss results, all outstanding stock options are excluded from the diluted loss per share calculations as their effect is anti-dilutive. During 2019 all stock options were out of the money and are not included in the Diluted weighted average number of shares.

[17]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Share based compensation

Stock Options:

The following is a summary of stock options which are outstanding as at December 31, 2019.

			Average<br>remaining
Exercise<br>price	# of<br>options	#of<br>options	contractual
per<br>share	outstanding	exercisable	life (in<br>years)
$0.52	100,000	100,000	4.5
$0.59	150,000	100,000	3.8
$1.35	236,900	236,900	0.0
$1.45	37,500	37,500	2.0
$1.48	37,500	37,500	1.5
$1.50	50,000	50,000	1.6
$1.57	30,000	30,000	0.1
$1.73	92,600	92,600	0.9
$1.82	135,000	135,000	0.8
$2.10	300,000	300,000	0.7
	1,169,500	1,119,500	1.4

A continuity of the number of stock options which are outstanding at the end of the current period and as at the prior fiscal year ended December 31, 2019 is as follows:

	For the year ended		For the year ended
	December 31, 2019		December 31, 2018
		weighted		weighted
	# of stock	average	# of stock	average
	options	exercise price	options	exercise price
Options<br>outstanding, start of the period	1,297,000	$1.58	1,648,667	$1.60
Granted	100,000	$0.52	1,150,000	$1.06
Exercised	-	-	(6,667)	$0.76
Expired	(47,500)	$(1.51)	(65,000)	$1.17
Forfeited	(180,000)	$(1.70)	(1,430,000)	$1.21
Options<br>outstanding, end of the period	1,169,500	$1.48	1,297,000	$1.58
Options<br>exercisable, end of the period	1,119,500	$1.52	1,197,000	$1.67

Stock options granted generally expire, if unexercised, five years from the date granted and entitlement to exercise them generally vests at a rate of one-third at the end of each of the first three years following the date of grant.

[18]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

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

For the period ended	2019	2018	2017
Expected<br>dividends paid per common share	Nil	Nil	Nil
Expected<br>life in years	5.0	5.0	-
Expected<br>volatility in the price of common shares	65%	65%	-
Risk<br>free interest rate	1.68%	1.75%	-
Weighted<br>average fair market value per share at grant date	$0.52	$1.06	$-
Intrinsic<br>(or “in-the-money”) value per share of options<br>exercised	$-	$0.59	$-

The unamortized portion of SBCE related to the non-vested portion of stock options, which will be recognized in 2020, is approximately $12,582.

Income Tax Expense

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

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

	2019	2018	2017
Net<br>loss before income taxes	$3,772,908	$(6,968,551)	$(8,894,853)
Canadian<br>statutory income tax rate	26.5%	27.0%	27.0%
Income<br>tax (recovery) at statutory income tax rate	999,821	(1,881,509)	(2,401,610)
Effect<br>of non- deductible expenses and other items:
Stock-based<br>compensation and other expenses	11,609	99,919	156,966
Change<br>in statutory tax rates	918,821	-	962,486
Foreign<br>exchange adjustments	82,433	(131,555)	110,121
Foreign<br>tax credit benefit	-	-	-
Non-taxable<br>portion of capital gain	-	-	(50,525)
Other	43,592	(221,978)	91,668
	2,056,276	(2,135,123)	(1,130,894)
Change<br>in valuation allowance	(2,056,276)	2,135,123	1,130,894
	-	-	-
Income<br>taxes in foreign jurisdictions	-	-	75,545
Income<br>tax expense (recovery)	-	-	75,545

Effective July 1, 2019 the Province of Alberta decreased its corporate tax rate to 11%, with a further reductions to 10% on January 1, 2020, 9% on January 1, 2021 and 8% on January 1, 2022. On December 22, 2017, The Tax Cuts and Jobs Act (the “Act”) was enacted in the United States. This has resulted in a decrease in the US Federal tax rate from 35% to 21%.

[19]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

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

	2019	2018	2017
Net<br>operating losses carried forward:
Canada<br>(expiration dates 2027 to 2039)	$6,840,817	$9,563,701	$8,180,209
USA<br>(expiration dates 2020 to 2026)	1,494,711	1,569,976	1,443,729
Timing<br>differences on property & equipment
and<br>financing costs	1,810,789	2,109,557	2,012,709
SRED<br>Expenditures	348,341	396,020	215,303
Foreign<br>Tax Credit	285,772	371,133	371,133
	10,780,430	14,010,387	12,223,083
Intellectual<br>property	(4,133,115)	(5,306,796)	(5,761,674)
	6,647,315	8,703,591	6,461,409
Less<br>valuation allowance	(6,647,315)	(8,703,591)	(6,461,409)

Financial instruments

1) Non-derivative financial instruments:

The Company's non-derivative financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, note receivable, accounts payables and accrued liabilities and leases. The carrying value of these financial instruments, excluding leases, approximates their fair values due to their short terms to maturity. NXT is exposed to significant interest or credit risks arising from accounts receivable and notes receivable. For accounts receivable NXT has received advance payments and does not release results of surveys until a substantial portion of the accounts receivable has been paid. For the notes receivable, NXT has secured the note receivable.

NXT is exposed to foreign exchange risk as a result of periodically holding foreign denominated financial instruments. Any unrealized foreign exchange gains and losses arising on such holdings are reflected in earnings at the end of each period.

2) Derivative financial instruments

As at December 31, 2019 and 2018, the Company held no derivative financial instruments.

[20]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Change in non-cash working capital

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

	For the year ended December 31
	2019	2018	2017
Accounts<br>receivable	$(1,339,408)	$(1,252)	$(61,657)
Note<br>receivable	(332,175)	-	-
Prepaid<br>expenses and deposits	(31,973)	42,204	59,439
Accounts<br>payable and accrued liabilities	104,745	(899,122)	986,533
Deferred<br>gain	-	-	(155,301)
Contractual<br>obligations	134,116	-	-
	(1,464,695)	(858,170)	829,014
Portion<br>attributable to:
Operating<br>activities	(1,464,695)	(858,170)	829,014
Financing<br>activities	-	-	-
Investing<br>activities	-	-	-
	(1,464,695)	(858,170)	829,014

[21]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Geographic information

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

Revenues by geographic area were generated solely in Nigeria in 2019, entirely from a single client. There were no revenues in 2018 and 2017.

	2019	2018	2017
Nigeria	$11,976,149	$-	$-
	11,976,149	-	-

Survey Expenses

Survey Expenses include the following:

	2019	2018	2017
Aircraft<br>Operations
Charter<br>Hire Revenue Earned	$(613,038)	$(698,211)	$(470,982)
Lease<br>payments	400,847	454,729	304,410
Operating<br>Expenses	1,459,536	1,347,428	1,084,432
	1,247,345	1,103,946	917,860
Survey<br>Projects	1,363,741	-	371,569
	2,611,086	1,103,946	1,289,429

Other related party transactions

One of the members of NXT’s Board of Directors is a partner in a law firm which provides legal advice to NXT. Legal fees (including costs related to share issuance) incurred with this firm were as follows:

	2019	2018	2017
Legal<br>Fees	$276,261	$249,218	$172,199

Accounts payable and accrued liabilities includes a total of $146,197 ($5,999 as at December 31, 2018) payable to this law firm. Interest of $1,809 was received from AGV during the year.

In addition, accounts payable and accrued liabilities includes $NIL ($7,461 as at December 31, 2018) related to re-imbursement of expenses owing to an Officer of NXT.

[22]

NXT ENERGY SOLUTIONS INC.

Notes to the Audited Consolidated Financial Statements

As at and for the years ended December 31, 2019, 2018 and 2017

(Expressed in Canadian dollars unless otherwise stated)

Gain on extinguishment of liability

In 2018 NXT determined that liabilities it had recorded before 2005 were no longer payable. As a result a gain of $185,661 has been recognized on the extinguishment of the liability. No cash was paid.

Subsequent events

Covid-19

As of the report date of these consolidated financial statements the Covid-19 pandemic has not had a material effect on the operations of the Company. The Company has made provisions so employees can work from home, suspended all travel, international travelers are to self-isolate for 14 days after return to Canada, and hygiene and social distancing policies are in effect if present in the office. NXT continues to communicate with employees and customers via available communication methods such as tele-conferences and on-line video conferencing.

Demand for our services and prospective revenues may become adversely impacted the longer the Covid-19 Pandemic continues. The impact of the continuation of the Covid-19 Pandemic may hamper our ability to deliver SFD® surveys contracts in the following ways. If restrictions on international travel continue, our aircraft and personal will not be able to perform surveys. An outbreak of the virus among our staff or our customers’ personnel would delay any survey in progress. Business development may be delayed when in-person meetings and technical presentations may be a superior delivery method.

[23]

nsfdf_ex152

Exhibit 15.2

nsfdf_ex153

Exhibit 15.3

NXT ENERGY SOLUTIONS INC.

Management's Discussion and Analysis

For the year ended

December 31, 2019

Management's Discussion and Analysis

This discussion and analysis ("MD&A") was prepared by management of NXT Energy Solutions Inc. ("NXT", "we", "us", "our" or the "Company") based on information available as at April 13, 2020 unless otherwise stated, has been approved by the Board of Directors of the Company (the "Board"), and should be reviewed in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2019. This MD&A covers the unaudited three month and twelve month periods ended December 31, 2019, with comparative totals for the unaudited three month and twelve month periods ended December 31, 2018.

Our functional and reporting currency is the Canadian dollar. All references to "dollars", "$", "CDN dollars" and "CDN$" in this MD&A are to Canadian dollars unless specific reference is made to United States dollars ("US dollars" or "US$").

NXT® and SFD® are registered trademarks of NXT in Canada and the United States.

Advisories

Forward-looking Information

Certain statements in this MD&A constitute forward-looking information under applicable securities laws. These statements typically contain words such as "intends", "plans", "anticipates", "expects", "scheduled", "estimates", "believes", "forecasts" or other variations (including negative variations) of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved and relate primarily to:

●

the Nigerian SFD® Survey (as defined below), the Co-operation Agreement (as defined below) and the Loan Arrangement (as defined below), and the performance and satisfaction of the obligations thereunder (including with respect to amounts payable to NXT);

●

estimates related to our future financial position and liquidity; and

●

general business strategies and objectives.

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

●

our ability to market our SFD® technology and services to current and new customers;

●

our ability to source personnel and equipment in a timely manner and at an acceptable cost;

●

our ability to obtain all permits and approvals required;

●

our ability to obtain financing on acceptable terms;

●

our ability to obtain insurance to mitigate the risk of default on client billings;

●

foreign currency exchange and interest rates; and

●

general business, economic and market conditions (including global commodity prices).

These forward-looking statements are based on current expectations and are subject to a wide range of known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Known risks include, but are not limited to, risks related to:

●

the ability of management to execute its business plan;

●

health, safety and the environment (including risks related the novel coronavirus);

●

the emergence of alternative competitive technologies;

●

our ability to protect and maintain our intellectual property and rights to our SFD® technology;

●

our reliance on a limited number of key personnel;

●

our reliance on a limited number of aircraft ;

●

our reliance on a limited number of clients;

●

counterparty credit risk;

●

foreign currency and interest rate fluctuations;

●

changes in, or in the interpretation of, laws, regulations or policies; and

●

general business, economic and market conditions (including global commodity prices).

Although the Company has attempted to identify important factors and risks that could cause actual actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Financial outlooks are provided for the purpose of understanding the Company’s accounting practices and liquidity position, and the information may not be appropriate for other purposes.

For more information relating to risks, see the section titled "Summary of Operating Results – Risks and Uncertainties" in this MD&A and the section titled "Risk Factors" in NXT's most recently filed Annual Information Form. Except as required by law, NXT assumes no obligation to update forward-looking information should circumstances or the Company's estimates or opinions change. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements.

Non-GAAP Measures

NXT's accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). This MD&A includes references to net working capital which does not have a standardized meanings prescribed by US GAAP and may not be comparable to similar measures be presented by other entities. Net working capital is the net result of the difference between current assets and current liabilities. Management of NXT uses this non-GAAP measure to improve its ability to assess liquidity at a point in time.

Other Calculations

Fair market values and market capitalizations referenced herein have been calculated in accordance with section 1.11(1) of National Instrument 62-104 Take-over Bids and Issuer Bids and section 1.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, respectively.

NXT<br>Energy Solutions Inc.	page	<br>3
MD&A<br>for the year ended December 31, 2019

Description of the Business

NXT Energy Solutions Inc. is a Calgary-based technology company whose proprietary and patented Stress Field Detection ("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 traps and reservoirs with exploration potential. The SFD® survey system enables NXT’s 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 friendly and unaffected by ground security issues or difficult terrain and is the registered trademark of NXT Energy Solutions Inc. NXT Energy Solutions Inc. provides its clients with an effective and reliable method to reduce time, costs and risks related to exploration.

Financial and Operational Highlights

Key financial and operational highlights for Q4-19 and YE-19 include are summarized below.

●

In Q3-19 the Company completed its Nigerian SFD® survey for approximately US$8.9 Million with PE Energy Limited (“PE”), a Nigerian oil and gas service company. PE had a contract with the Nigerian National Petroleum Company (“NNPC”), to provide 5,000-line kilometers of SFD® surveys in Nigeria.

●

As of the date of this MD&A, the Company has received a total of US$8.4 million payments in cash from PE for the SFD® survey in Nigeria, including US$1.9 million in the Q4-19 and an additional US$0.47 million in the first quarter of 2020. The final payment for contracted holdbacks amount to approximately $0.5 million USD.

●

In Q4-19 the Company completed the C$1,250,000 targeted issuer bid, purchasing for cancellation 4,166,667 common shares in the capital of the Company representing approximately 6.08% of the total outstanding Common Shares as of November 14, 2019, at a price of C$0.30 per Common Share.

●

In February 2019, NXT entered into a Co-operative Agreement with Alberta Green Ventures Limited Partnership (“AGV”), for AGV to bring to proposal up to three SFD® surveys for cooperation with the Company 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. The Company received a US$100,000 non-refundable deposit paid in connection with the Co-operative Agreement in Q2-19. Pursuant to the Co-operation Agreement, the deadline to complete at least one of three SFD® surveys is June 30, 2020.

●

In Q3-2019, the Company advanced US$250,000 (the "Principal Amount") to AGV for the purpose of furthering the shared objectives of NXT and AGV under the Co-operation Agreement (the "Loan Arrangement"). On April 13, 2020, NXT elected to receive and directed AGV to deliver US$250,000 as repayment of the Principal Amount (the "Principal Repayment).

●

Common share purchase warrants held by AGV have expired as of October 31, 2019.

●

Cash and short-term investments at the end of the YE-19 were $6.64 million.

●

There was $11.98 million of survey revenues recorded in YE-19.

●

Net income of $3.77 million was recorded for YE-19, including amortization expense of $1.78 million.

●

A net loss of $1.78 million was recorded for Q4-19, including amortization expense of $0.49 million.

●

Operating activities provided $4.08 million of cash during YE-19 and net cash used for financing activities was $1.39 million.

●

Operating activities provided $1.29 million of cash during Q4-19 and net cash used for financing activities was $1.35 million.

●

Net income per common share for YE-19 was $0.06 basic and $0.06 fully diluted.

●

Net loss per common share for Q4-19 was ($0.03) basic and (0.03) fully diluted.

●

General and administrative costs for YE-19 as compared to YE-18 have been reduced by $0.50 million or 13% mostly due a reduction in business development costs, lower headcount and costs and certain expenditures being recognized as direct survey costs, offset by higher professional fees and information technology costs.

●

General and administrative costs for Q4-19 as compared to Q4-18 have increased by $0.05 million or 6%, mostly due to an increase in business development offset by a reduction in headcount.

NXT<br>Energy Solutions Inc.	page	<br>4
MD&A<br>for the year ended December 31, 2019

Selected Annual Information

($M except per<br>share)	YE-19	YE-18	YE-17
Total<br>Assets	$30,692,941	$25,264,268	$23,920,991
Long-term<br>debt	2,691,217	510,661	741,408
Sales	11,976,149	-	-
Net<br>earnings	3,772,908	(6,968,511)	(8,970,398)
Net<br>earnings per share
Basic	$0.06	$(0.11)	$(0.16)
Diluted	$0.06	$(0.11)	$(0.16)
NXT<br>Energy Solutions Inc.	page	<br>5
---	---
MD&A<br>for the year ended December 31, 2019

Discussion of Operations

Co-operation Agreement

In February 2019, NXT entered into the Co-operation Agreement with AGV, one of NXT's largest shareholders, to complete up to three SFD® surveys within two years. The compensation to be received by NXT for services rendered under the Co-operation Agreement is based on a cost plus formula and a gross overriding royalty interest in oil and gas production arising on lands surveyed, with US$100,000 paid in advance as a non-refundable deposit.

Under the Co-operation Agreement, AGV committed to completing at least two SFD® surveys in North America and an additional SFD® survey internationally. The first SFD® survey was to be completed by August 31, 2019, with NXT and AGV agreeing to extend such deadline to December 31, 2019, and to further extend such deadline to June 30, 2020 (such further extension provided under the terms of the Targeted Issuer Bid). If the first SFD® survey is not completed by June 30, 2020, the US$100,000 non-refundable deposit will be forfeited to NXT. AGV has also 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.

Nigerian SFD® Survey

The Company has received payments of US$8.4 million for the Nigerian SFD® Survey as at the date hereof. The contracted holdback amount of approximately US$0.5 million is expected to be paid to the Company upon the conclusion of negotiations for additional work under the current contract framework.

Patents

As of the date of this MD&A, SFD® patents have been granted in Russia (January 2017), Japan (July 2017), Canada (August 2017), Europe (September 2017) and the United States (November 2017), and notices of allowance have been also received from Mexico (July 2017) and China (March 201s of prime commercial focus for the Company. NXT has recently received confirmation of a patent granted from the European Patent Office. This brings the total number of countries granting the patent to 44. The final step is for the validation process of the SFD® technology patent in select European countries. This is expected to take several month to complete. 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.

NXT<br>Energy Solutions Inc.	page	<br>6
MD&A<br>for the year ended December 31, 2019

Notes Receivable

In September 2019, NXT entered into the Loan Arrangement with AGV and advanced to AGV the US$250,000 Principal Amount, as evidenced by, and governed in accordance with the terms of, a promissory note dated September 6, 2019 (the "Notes Receivable"), for the purpose of providing AGV with additional funds necessary to continue advancing the common objectives of NXT and AGV under the Co-operation Agreement. Pursuant to the Notes Receivable, it was agreed and acknowledged, among other things, that:

AGV had the right and privilege of prepaying the whole or any portion of the Principal Amount together with the Interest at any time or times without notice, bonus or penalty; and

On December 13, 2019, the last business and trading day before the Repayment Date, the Company elected to receive and directed AGV to:

in respect of the Interest, pay US$1,366.12 by way of Cash. AGV paid this amount.

Targeted Issuer Bid

NXT<br>Energy Solutions Inc.	page	<br>7
MD&A<br>for the year ended December 31, 2019

Summary of Operating Results

	Q4-19	Q4-18	YE-19	YE-18
Survey<br>revenue	$-	$-	$11,976,149	$-
Expenses:
Survey	308,374	315,175	2,611,086	1,103,946
General<br>and administrative	926,919	875,705	3,497,785	3,999,089
Stock-based<br>compensation	(28,724)	(173,367)	43,809	386,154
Amortization<br>of property and equipment	449,015	447,942	1,781,181	1,790,267
	1,655,584	1,465,455	7,933,861	7,279,456
Other<br>Expenses (income):
Interest<br>income, net	(18,452)	(21,626)	(20,684)	(62,004)
Foreign<br>exchange (gain) loss	99,136	(20,330)	233,231	(19,852)
Other<br>expense (recovery)	39,019	(30,783)	56,833	(229,089)
	119,703	(72,739)	269,380	(310,945)
Income<br>(loss) before income taxes	(1,775,287)	(1,392,716)	3,772,908	(6,968,511)
Income<br>tax expense	-	-	-	-
Net<br>Income (loss) for the period	$(1,775,287)	$(1,392,716)	3,772,908	(6,968,511)
Net<br>Income (loss) per share – basic	$(0.03)	$(0.02)	$0.06	$(0.11)
Net<br>Income (loss) per share – diluted	$(0.03)	$(0.02)	$0.06	$(0.11)

Annual operating results. Net income for YE-19 compared to YE-18 increased by $10,741,419, or $0.17 per share basic. $11,976,149 of revenue was recorded in YE-19 for the Nigerian SFD® Survey. Survey costs were higher by $1,507,140 due to the Nigerian SFD® Survey. G&A expenses were reduced by $501,304, or 13%, in YE-19 compared to YE-18 due primarily to a reduction in business development costs, lower headcount and costs and certain expenditures being recognized as direct survey costs. This was offset by higher professional fees and information technology costs. SBCE were lower in YE-19 as most outstanding options were vested before 2019 and therefore were fully expensed. Foreign exchange rates were unfavorable in YE-19 compared to YE-18 resulting in a $253,084 loss as the Company held significant balances in US$ in YE-19 and US$ increased in value compared to CDN$. US$ balances held by NXT were significantly lower in YE-18. In YE-18, the Company determined that liabilities it had recorded before 2005 were no longer payable and, as a result, a gain of $185,661 was recorded in other income on the extinguishment of the liability.

Quarterly operating results. Net loss for Q4-19 compared to Q4-18 increased by $382,571 or $0.01 per share-basic. No revenue was recorded in Q4-19. Survey costs were lower by $6,801 due to the major phase 5 maintenance in Q4-18. G&A expenses were increased by $51,214, or 6%, as compared to Q4-18, due primarily to increased business development travel offset by a reduction in headcount and favorable headcount cost mix. Stock-based compensation expense ("SBCE") was negative in both Q4-19 and Q4-18. In Q4-19, restricted stock unit ("RSU") expense from the previous quarter was derecognized as the expected granting of RSUs to employees was not formalized. In Q4-18, 333,333 vested options were forfeited resulting in the negative expense. Amortization expense was $1,073 higher in Q4-19 because the Company acquired transponder technology known as Automatic Dependent Surveillance – Broadcast ("ADS-B") during the year. Foreign exchange rates were unfavorable in Q4-19 compared to Q4-18 resulting in a $119,467 loss as the Company held significant balances in US$ in Q4-19 and US$ increased in value compared to CDN$. US$ balances held by NXT were lower in Q4-18. For Q4-19 and YE-19, the Company's intellectual property ("IP"), research and development ("R&D") and asset retirement obligation ("ARO") expenses were mostly for costs to begin the validation process for certain European SFD® patents. In YE-18, R&D expenses were negative as the Company incurred less costs from a provider of R&D services than originally estimated.

NXT<br>Energy Solutions Inc.	page	<br>8
MD&A<br>for the year ended December 31, 2019

Survey Expenses

Survey<br>Expenses	Q4-19	Q4-18	Net<br>change
Aircraft<br>lease costs	$101,860	$154,397	$(52,537)
Amortization<br>of deferred gain	-	(38,826)	38,826
Aircraft<br>operations	154,527	199,342	(44,815)
Survey<br>projects	51,987	262	51,725
Total<br>survey expenses, net	308,374	315,175	(6,801)
Survey<br>Expenses	YE-19	YE-18	Net<br>change
---	---	---	---
Aircraft<br>lease costs	$400,847	$610,029	$(209,182)
Amortization<br>of deferred gain	-	(155,301)	155,301
Aircraft<br>operations	846,498	648,783	197,715
Survey<br>projects	1,363,741	435	1,363,306
Total<br>survey expenses, net	2,611,086	1,103,946	1,507,140

Survey expenses relate entirely to the direct survey costs and aircraft handling and maintenance costs, net of charter hire revenue. In Q4-19, survey expenses included incremental travel related costs to present results for the Nigerian SFD® Survey. Fixed aircraft costs were lower in Q4-19 versus Q4-18 as scheduled maintenance was performed on the aircraft in Q4-18.

In YE-19, survey expenses included direct incremental survey costs for the Nigerian SFD® Survey incurred which include aircraft and hanger operating costs, staff costs to support the survey, and mobilization/demobilization costs. Also these costs include staff costs to interpret and integrate the survey, and their travel costs. Aircraft operations costs in YE-19 were higher than YE-18 as additional scheduled maintenance was required after the Nigerian SFD® Survey, net of charter hire revenue.

The aircraft is available for charter to third parties through our aircraft manager when it is not being used by NXT. Any charter fees received are used to offset aircraft costs.

In April 2017, NXT completed a sale and leaseback agreement of its aircraft with a Calgary-based international aircraft services organization (the "Lessor"). 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 will be US$1.45 million. Under the new lease accounting standard, the amortization of the deferred gain is now classified within "lease and lease interest costs".

NXT<br>Energy Solutions Inc.	page	<br>9
MD&A<br>for the year ended December 31, 2019

General and Administrative Expenses

G&A<br>Expenses	Q4-19	Q4-18	Net<br>change	%
Salaries,<br>benefits and consulting charges	$406,300	$510,491	$(104,191)	(20)
Board<br>and professional fees, public company costs	205,942	139,039	66,903	48
Premises<br>and administrative overhead	193,661	191,277	2,384	1
Business<br>development	121,016	38,463	82,553	215
Bolivian<br>overhead	-	(3,565)	3,565	(100)
Total<br>G&A Expenses	926,919	875,705	51,214	6
G&A<br>Expenses	YE-19	YE-18	Net<br>change	%
---	---	---	---	---
Salaries,<br>benefits and consulting charges	$1,599,247	$2,046,886	$(447,639)	(22)
Board<br>and professional fees, public company costs	857,556	781,330	76,226	10
Premises<br>and administrative overhead	800,626	753,380	47,246	6
Business<br>development	240,356	382,146	(141,790)	(37)
Bolivian<br>overhead	-	35,347	(35,347)	(100)
Total<br>G&A Expenses	3,497,785	3,999,089	(501,304)	(13)

G&A expenses increased $51,214, or 6%, in Q4-19 compared to Q4-18 for the following reasons:

●

salaries, benefits and consulting charges decreased $104,191, or 20%, due primarily to a change to a lower cost mix in corporate staff and two less headcount;

●

board and professional fees and public company costs increased $66,903, or 48%, due primarily to higher professional fees given the increase in business activity and the addition of one board member;

●

premises and administrative overhead costs increased $2,384, or 1%, due primarily to increased costs related to the improvement of the Company's information systems security (partially offset by the lower headcount and the related overhead costs);

●

business development costs increased by $82,553, or 215%, as the Company's resources were again focused on business development activities in Q4-19 vs Q4-18 where resources were focused on closing the Nigerian SFD® Survey; and

●

Bolivian overhead costs decreased by $3,565, or 100%, as the Company officially closed its offices and ceased operations in that country in Q4-18.

NXT<br>Energy Solutions Inc.	page	<br>10
MD&A<br>for the year ended December 31, 2019

G&A expenses decreased by $501,304, or 13%, in YE-19 compared to YE-18 for the following reasons:

●

premises and administrative overhead increased $47,246, or 6%, due primarily to increased costs related to the improvement of the Company's information systems security;

●

business development costs decreased $141,790, or 37%, due primarily to increased costs related to the negotiation and implementation of the Nigerian SFD® Survey; and

●

Bolivian overhead costs decreased by $35,347, or 100%, as the Company officially closed its offices and ceased operations in that country in Q4-18.

Stock-based Compensation Expenses

SBCE in Q4-19 was higher compared to Q4-18 by $144,643. In Q4-18, significant unvested stock options were forfeited by a former employee which resulted in a credit to the expense. In Q4-19, the Company's SBCE represented costs for the part of the remaining unvested options and a reversal of the RSU expense in Q3-19 as the expected granting of RSUs to employees was not formalized.

SBCE in YE-19 was lower compared to YE-18 by $342,345. In Q1-18, 333,333 options vested resulting in substantial SBCE. In YE-19, most options previously issued by the Company had vested resulting in minimal SBCE, partially offset by 100,000 options awarded to a consultant.

Other Expenses

Other<br>Expenses	Q4-19	Q4-18	Net<br>change	%
Interest<br>(income) expense, net	$(18,452)	$(21,626)	$3,174	(15)
Foreign<br>exchange loss (gain)	99,137	(20,330)	119,467	(588)
IP<br>and other	39,019	(30,783)	69,802	(216)
Total<br>Other Expenses, net	119,704	(72,739)	192,443	(265)
Other<br>Expenses	YE-19	YE-18	Net<br>change	%
---	---	---	---	---
Interest<br>(income) expense, net	$(20,684)	$(62,004)	$41,320	(67)
Foreign<br>exchange loss (gain)	233,232	(19,852)	253,084	(1275)
IP,<br>and other	56,833	(43,428)	100,261	(231)
Gain<br>on extinguishment of liability	-	(185,661)	185,661	(100)
Total<br>Other Expenses, net	269,381	(310,945)	580,326	(187)
NXT<br>Energy Solutions Inc.	page	<br>11
---	---
MD&A<br>for the year ended December 31, 2019

Interest (income) expense, net. This category of other expenses includes interest income earned on short-term investments netted by interest expense from financial lease obligations. Since January 1, 2019 interest on finance leases is included in this account under the new lease accounting standard. Q4-19 interest (income) expense net was $3,174 less than Q4-18, and YE-19 interest (income) expense net was $41,320 less than YE-18, as lease interest expense has offset income earned on guaranteed investment certificates.

Foreign exchange loss (gain). This category of other expenses includes losses and gains caused by changes in the relative currency exchange values of US dollars and CDN dollars. The Company held significant assets in US dollars at December 31, 2019, including accounts receivable, cash and cash equivalents, short-term investments and the security deposit for the aircraft, all of which have an effect on the unrealized foreign exchange gain and loss. At December 31, 2019, the CDN dollar strengthened as compared to the US dollar and as compared to the end of Q3-19 resulting in an unrealized foreign exchange loss for the quarter. At December 31, 2019, the Company had a significant foreign exchange loss which was the result of the CDN dollar strengthening compared to May 2019 when several of the US dollar assets were initially recorded. The Company does not currently have the ability to enter hedging contracts, but uses strategies to reduce the volatility of US dollar assets including converting excess US dollars to CDN dollars.

IP and other. This category of other expenses primarily includes costs related to IP filings, R&D activity related to the SFD® technology and ARO costs for certain non-recurring "project" activities.

In Q4-19 and YE-19, the Company's IP, R&D and ARO expenses related mostly to costs associated with the validation process for certain European SFD® patents. In YE-18, these costs were negative as the Company renegotiated fees from a provider of R&D services.

Gain on extinguishment of liability. In Q3-18, the Company determined that liabilities it had recorded before 2005 were no longer payable. As a result, a gain of $185,661 was recorded in other income on the extinguishment of the liability. No cash was paid to settle the liability.

Amortization<br>Expenses	Q4-19	Q4-18	Net<br>change	%
Property<br>and equipment	$27,832	$26,759	$1,073	4
Intellectual<br>property	421,183	421,183	-	-
Total<br>Amortization Expenses	449,015	447,942	1,073	-
Amortization<br>Expenses	YE-19	YE-18	Net<br>change	%
---	---	---	---	---
Property<br>and equipment	$96,448	$105,534	$(9,086)	(9)
Intellectual<br>property	1,684,733	1,684,733	-	-
Total<br>Amortization Expenses	1,781,181	1,790,267	(9,086)	(1)

Property and equipment and related amortization expense. Property and equipment amortization was higher in YE-19 compared to YE-18 due to the Company acquiring and installing in its aircraft a new transponder technology known as ADS-B. The U.S. Federal Aviation Administration (the "FAA") and European Aviation Safety Agency have mandated that all aircraft flying in designated controlled airspaces must be equipped with ADS-B by January 1, 2020 (US airspace) and June 7, 2020 (European airspace). Total costs for installing the ADS-B was approximately $208,000. This amortization was partially offset as the Company uses the declining balance method of depreciation, thereby having the effect of lowering amortization each year on existing assets.

Income tax expense. There was no income tax expense in YE-19 or YE-18.

NXT<br>Energy Solutions Inc.	page	<br>12
MD&A<br>for the year ended December 31, 2019

Competition

The SFD® system can be used as a focusing tool for seismic. With a 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. A 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.

Risk and Uncertainties

Hydrocarbon exploration operations involve a number of risks and uncertainties that have affected our financial statements and are reasonably likely to affect them in the future. These risks and uncertainties are discussed further below.

Exchange Rates. Revenues and costs incurred in currencies other than Canadian dollars expose us to exchange rate fluctuations between the Canadian dollar and foreign currencies. In addition, exchange rate changes impact the Canadian equivalent carrying balances for our assets and liabilities, and for foreign currency denominated monetary assets (such as cash and cash equivalents), the impact of changes in exchange rates is recorded in net earnings as a foreign exchange gain or loss.

Interest Rates. We periodically invest available cash in short term investments that generate interest income that will be affected by any change in interest rates.

Tax Rates. Changes in tax rates in the jurisdictions that we operate in would impact the amount of current taxes that we pay. In addition, changes to substantively enacted tax rates would impact the carrying balance of deferred tax assets and liabilities, potentially resulting in a deferred tax recovery or incremental deferred tax expense.

In addition to the above, we are exposed to risk factors that may impact the Company and our business. For further information on these risk factors, please refer to our Annual Information Form, available on NXT's website at www.nxtenergy.com and on SEDAR at www.sedar.com

NXT<br>Energy Solutions Inc.	page	<br>13
MD&A<br>for the year ended December 31, 2019

Summary of Quarterly Results

A summary of operating results for each of the trailing eight quarters (including a comparison of certain key categories to each respective prior quarter) follows.

	Q4-19	Q3-19	Q2-19	Q1-19
Survey<br>revenue	$-	$1,021,532	$10,954,617	$-
Net<br>income (loss)	(1,775,287)	(774,373)	8,085,888	(1,763,320)
Income<br>(loss) per share – basic	$(0.03)	$(0.01)	$0.12	$(0.03)
Income<br>(loss) per share – diluted	$(0.03)	$(0.01)	$0.11	$(0.03)
	Q4-18	Q3-18	Q2-18	Q1-18
---	---	---	---	---
Survey<br>revenue	$-	$-	$-	$-
Net<br>income (loss)	(1,392,716)	(1,660,031)	(1,961,114)	(1,954,650)
Income<br>(loss) per share – basic	$(0.02)	$(0.02)	$(0.03)	$(0.03)
Income<br>(loss) per share – diluted	$(0.02)	$(0.02)	$(0.03)	$(0.03)

In Q4-19, survey costs were higher as final integration costs from the Nigerian SFD® Survey were incurred. SBCE was lower as most outstanding options were fully vested. In Q3-19, NXT recognized $1,021,532 of revenue for services rendered in connection with the Nigerian SFD® Survey, compared to $10,954,617 in Q2-19. There were no revenues in the previous five quarters, rather, the Company incurred net losses in each due primarily to survey costs (related to aircraft lease and aircraft maintenance costs), G&A expenses and non-cash items like SBCE, which can be a significant expense in any given quarter, as detailed more specifically below:

●

in Q1-19, survey costs were higher due to scheduled maintenance on the aircraft and significant legal and contract negation costs in preparing for the Nigerian SFD® Survey;

●

in Q4-18, SBCE was lower by $283,811 as unvested options were forfeited. In addition, G&A expenses decreased $156,271 for two reasons: (i) business development decreased as most of the business development work was centered in Calgary supporting the Nigerian SFD® Survey negotiations; and (ii) there was a decrease in public company costs as the previous quarter had significant costs related to reviewing equity financing options (offsetting the decreases in SBCE and G&A expenses was an increase of $44,010 in survey expenses as NXT's aircraft incurred a scheduled major maintenance in December 2018);

●

in Q3-18, a gain of $185,661 was recognized on the extinguishment of a liability from 2005 that was no longer payable, and interest income of $26,171 was earned on cash received from equity financings; and

●

in Q1-18, G&A expenses were lower as NXT began to recognize the full extent of cost reductions started in the prior quarter.

NXT<br>Energy Solutions Inc.	page	<br>14
MD&A<br>for the year ended December 31, 2019

Liquidity and Capital Resources

Going Concern

The consolidated financial statements for YE-19 have been prepared on a going concern basis. The going concern basis of presentation assumes that NXT will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

NXT's financial statements for YE-18 included disclosure related to the use of the "going concern" basis of presentation. In YE-19, NXT has had positive cash flow from operations which has resulted in a significant strengthening of the Company's liquidity and working capital position. As a consequence, management is of the view that removal of the "going concern" disclosure in respect of its YE-19 disclosure is warranted on the basis than the Company currently has sufficient funds to maintain operations for the next 12 months as of the date of these financial statements.

In the preparation of the YE-19 financial statements, management determined that there are no existing conditions or reasonably foreseeable events that raise substantial doubt about the Company's ability to continue as a going concern. However, NXT's future financial results and its longer term success remains dependent upon the ability to continue to attract and execute client projects to build its revenue base. NXT continues to develop its pipeline of opportunities to secure new revenue contracts. However, the Company's longer-term success remains dependent upon its ability to convert these opportunities into successful contracts and to continue to attract new client projects and expand the revenue base to a level sufficient to exceed fixed operating costs and continue to generate positive cash flow from operations. The occurrence and timing of these events cannot be predicted with certainty.

NXT's cash and cash equivalents plus short-term investments at December 31, 2019 totaled $6.64 million. Net working capital totaled $7.13 million.

In YE-19, NXT continued to make progress in strengthening its liquidity and net working capital by completing the Nigerian SFD® Survey and reducing corporate costs by reducing the number of staff and by implementing new human resource policies to reduce staffing costs. Please see the discussion under "Summary of Operating Results – General and Administrative Expenses" for the results of these cost reductions.

As of the date of this MD&A, NXT has sufficient funds to maintain its operations for more than 12 months.

The Company does not have provisions in its leases, contracts, or other arrangements that would trigger additional funding requirements or early payments.

NXT<br>Energy Solutions Inc.	page	<br>15
MD&A<br>for the year ended December 31, 2019

Net Working Capital

Net Working<br>Capital	YE-19	YE-18	Net<br>Change	%
Current<br>assets (current liabilities)
Cash,<br>cash equivalents and short-term investments	$6,639,757	$4,239,532	$2,400,225	57
Accounts<br>receivable	1,384,315	61,279	1,323,036	2,159
Note<br>receivable	324,700	-	324,700	100
Prepaid<br>expenses and deposits	97,132	65,159	31,973	49
Accounts<br>payable and accrued liabilities	(448,928)	(499,535)	50,607	(10)
Contract<br>obligations	(131,386)	-	(131,386)	(100)
Current<br>portion of lease obligation	(736,408)	(42,603)	(693,805)	1,629
Total<br>Net Working Capital	7,129,182	3,823,832	3,305,350	86

NXT had no secured debt and had net working capital of $7,129,182 as at December 31, 2019.

The increase in net working capital in YE-19 was due to recognizing accounts receivable, cash from the Nigerian SFD® Survey and the note receivable in respect of the Loan Arrangement. This increase was offset due to the recognition of the current portion of lease obligations under ASC Topic 842 ("Topic 842") and contract obligations (deposit) received from AGV for the Co-operation Agreement.

Accounts Payable

Accounts<br>Payable	YE-19	YE-18	Net<br>Change	%
Trade<br>accounts payable	$(181,790)	$(138,509)	$(43,281)	31
Deferred<br>gain on sale of aircraft	-	(155,301)	155,301	(100)
Deferred<br>director and advisor payable	(24,352)	(48,079)	23,727	(49)
Accrued<br>liabilities	(136,257)	(110,375)	(25,882)	23
Vacation<br>pay accrued	(106,529)	(47,271)	(59,258)	125
Total<br>Accounts Payable	(448,928)	(499,535)	50,607	(10)

Accounts payable increased by $50,607, or 10%, in YE-19 compared to YE-18 for the following reasons:

●

trade accounts payable increased by $43,281, or 31%, due primarily to increased professional fees payable in connection with the Targeted Issuer Bid (payables are considered current at December 31, 2019 other than minor disputed items);

●

the deferred gain on sale of aircraft was reclassified under current lease obligations;

●

deferred director and advisor fees decreased by $23,727, or 49%, as director fees have been fully paid (the remaining payable is for advisor fees from prior to YE-18 which are in the process of being settled);

●

accrued liabilities increased by $25,882, or 23%, due to timing of invoice receipts, which is consistent with the decrease in accounts payable; and

●

vacation pay accrued increased by $59,258, or 125%, as employees vacations were deferred to complete the Nigerian SFD® Survey.

NXT<br>Energy Solutions Inc.	page	<br>16
MD&A<br>for the year ended December 31, 2019

Cash Flow

Cash Flow - from<br>/ (used in)	Q4-19	Q4-18	YE-19	YE-18
Operating<br>activities	$1,289,465	$(1,162,392)	$4,078,427	$(6,043,919)
Financing<br>activities	(1,354,121)	(12,187)	(1,385,787)	9,176,839
Investing<br>activities	257,236	1,100,000	(173,927)	(2,960,006)
Net<br>source (use) of cash	192,580	(74,579)	2,518,713	172,914
Cash<br>and cash equivalents, start of period	2,665,665	414,111	339,532	166,618
Cash<br>and cash equivalents, end of period	2,858,245	339,532	2,858,245	339,532
Cash<br>and cash equivalents	2,858,245	339,532	2,858,245	339,532
Short-term<br>investments	3,781,512	3,900,000	3,781,512	3,900,000
Total<br>Cash and Short-Term Investments	6,639,757	4,239,532	6,639,757	4,239,532
Operating<br>Activities	Q4-19	Q4-18	YE-19	YE-18
---	---	---	---	---
Net<br>income (loss) for the period	$(1,775,287)	$(1,392,716)	$3,772,908	$(6,968,511)
Total<br>non-cash expense items	383,794	184,362	1,777,580	1,782,762
	(1,391,493)	(1,208,354)	5,550,488	(5,185,749)
Change<br>in non-cash working capital balances	2,680,958	45,962	(1,472,061)	(858,170)
Total<br>Cash from (used in) Operating Activities	1,289,465	(1,162,392)	4,078,427	(6,043,919)

Operating cash flow increased by $2,451,858 in Q4-19 as compared to Q4-18 and by $10,122,347 in YE-19 as compared to YE-18 because of payments received from the Nigerian SFD® Survey net of payments for survey costs.

NXT<br>Energy Solutions Inc.	page	<br>17
MD&A<br>for the year ended December 31, 2019
Financing<br>Activities	Q4-19	Q4-18	YE-19	YE-18
---	---	---	---	---
Net<br>funds used-in targeted issuer bid	$(1,343,184)	$-	$(1,343,184)	$-
Proceeds<br>from exercise of stock options	-	-	-	5,067
Net<br>proceeds from equity financings	-	(2,033)	-	9,211,351
Repayment<br>of capital lease obligation	(10,937)	(10,154)	(42,603)	(39,579)
Total<br>Cash from (used in) Financing Activities	(1,354,121)	(12,187)	(1,385,787)	9,176,839

During Q4-19 the Company completed the TIB for $1,250,000 plus costs of $93,184 to repurchase 4,166,667 TIB Common Shares, at a price of $0.30 per.

NXT recorded a net cash financing outflow of $10,937 in Q4-19 and $42,603 in YE-19 on payments for its finance leases. The YE-18 inflows were received in connection with equity financings.

Investing<br>Activities	Q4-19	Q4-18	YE-19	YE-18
Purchase<br>of property and equipment	$-	$-	$(216,691)	$(10,006)
Decrease<br>(increase) in short-term investments	257,236	1,100,000	42,764	(2,950,000)
Total<br>Cash from (used in) Investing Activities	257,236	1,100,000	(173,927)	(2,960,006)

Short-term investments in Q4-19 and YE-19 increased as the Company invested excess funds from operations into Guaranteed Investment Certificates. The decrease in short-term investments in Q4-18 was for cash to finance operating costs. The increase in short-term investments in YE-18 was from the cash received from equity financings.

Contractual Commitments

The estimated minimum annual commitments for these leases are as follows, as at December 31, 2019:

For the period<br>ended December 31	Office<br>Premises
2020	$222,069
2021	222,501
2022	222,501
2023	222,501
2024	222,501
	1,112,073
2025	166,876
	1,278,949
NXT<br>Energy Solutions Inc.	page	<br>18
---	---
MD&A<br>for the year ended December 31, 2019

Off-balance Sheet Arrangements

Transactions with Related Parties

In addition to the related party transactions discussed elsewhere herein (i.e. the Co-operation Agreement, the Loan Arrangement and the Targeted Issuer Bid), one of the members of NXT's Board, Thomas Valentine, is a partner in the law firm Norton Rose Fulbright Canada LLP which provides legal advice to NXT. Legal fees incurred with Norton Rose Fulbright Canada LLP were as follows:

	Q4-19	Q4-18	YE-19	YE-18
Legal<br>Fees	$111,562	$7,796	$276,261	$249,218

Accounts payable and accrued liabilities includes a total of $146,197 ($5,999 as at December 31, 2018) payable to Norton Rose Fulbright Canada LLP. Interest of $1,809 was received from AGV during the year.

NXT<br>Energy Solutions Inc.	page	<br>19
MD&A<br>for the year ended December 31, 2019

Critical Accounting Estimates

The key elements and assumptions are substantially unchanged from those described in NXT's annual audited consolidated financial statements as at and for the year-ended December 31, 2018 other than as described below.

Revenue

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

IP Assets

The value attributed to the IP assets acquired in 2015 was $25.3 million. The IP assets are being amortized on a straight-line basis over a 15-year period (future amortization expense of $1,685,000 per year) and are also subject to ongoing tests of potential impairment of the recorded net book value. No impairments were recognized in Q4-19 and Q4-18. Any adverse change in competition, patent protection and the oil and gas market could substantially change the useful life of the IP asset.

NXT<br>Energy Solutions Inc.	page	<br>20
MD&A<br>for the year ended December 31, 2019

Changes in Accounting Policies

Leases

On January 1, 2019, NXT adopted Topic 842, Leases and related amendments, using the modified retrospective approach recognizing a cumulative effect adjustment at the beginning of the reporting period in which Topic 842 was applied. Results for reporting periods beginning after January 1, 2019, are presented in accordance with Topic 842, while prior periods have not been restated and are reported in accordance with Topic 840. On transition, NXT elected certain practical expedients permitted under Topic 842 which include:

no reassessment of the classification of leases previously assessed under Topic 840; and

the use of hindsight in determining the lease term where the contract contains terms to extend or terminate the lease.

In accordance with Topic 842, NXT recognized a Right Of Use ("ROU") asset and corresponding lease liability for all operating leases on the Consolidated Balance Sheet. Prior to the adoption of Topic 842, operating leases were not recognized on the Consolidated Balance Sheet. There was no impact to finance leases on transition to Topic 842. The impact from recognizing operating leases on NXT's Consolidated Balance Sheet is as follows:

Account	Notes	As<br>reported<br><br><br>December 31,<br>2018	Adjustments	Balance on<br>Adoption as at January 1, 2019
Property<br>and equipment	i	$683,157	$(139,725)	$543,432
Right<br>of Use	ii	-	3,535,919	3,535,919
Total<br>Assets		$25,264,268	$3,396,194	$28,660,462
Accounts<br>payable and accrued liabilities	iii	$499,535	$(155,301)	$344,234
Current<br>portion of capital lease obligations	i	42,603	(42,603)	-
Current<br>portion of lease obligations	iv	-	672,087	672,087
Capital<br>lease obligations	i	42,515	(42,515)	-
Long-term<br>lease obligations	ii	-	3,405,894	3,405,894
Other<br>liabilities	iv	362,368	(362,368)	-
Deferred<br>charges	v	79,000	(79,000)	-
Total Liabilities and Shareholders' Equity		$25,264,268	$3,396,194	$28,660,462

Notes:

Reclassify previously recognized finance leases: Leases accounted for as finance leases were reclassified to ROU assets and lease liabilities from property, plant and equipment and capital lease obligations, respectively.

ii.

Right of use: Right of use assets have been recognized for the building lease, aircraft lease and office equipment. Upon transition the building and aircraft right of use assets were calculated on the net present value of future lease payments less deferred charges for the building. The office equipment lease was previously recorded as a finance lease. The unamortized portion of the leased asset was reclassified to right of use assets.

iii.

Lease liabilities: The Company recognized lease liabilities in relation to leases which had previously been classified as operating. Under the principles of the new standard these leases have been measured at the present value of the remaining lease payments, discounted using the Company's estimated incremental borrowing rates or implied interest rate in the lease contract. Rates varied between 7.4% and 15.7%. Total lease liabilities of $4,077,981 were recorded as at January 1, 2019, of which $672,087 was the current portion.

iv.

Account payable and other accrued liabilities, Other liabilities: The deferred gain on sale of the aircraft was reclassified from Accounts payable and other accrued liabilities, and Other liabilities to Current portion of lease obligations and Long-term lease obligations.

Deferred charges: The Deferred charges for the office lease have been reclassified to ROU assets and are being amortized on a straight line basis over the remaining period of the lease.

NXT<br>Energy Solutions Inc.	page	<br>21
MD&A<br>for the year ended December 31, 2019

Although Topic 842 does not have a material impact on the Consolidated Statements of Income (loss) and Comprehensive Income (Loss) or Cash Flows, the change in the accounting of the aircraft lease now has interest expense of $15,095 and $69,776 for the three and twelve months ended December 31, 2019 being recorded, whereas under Topic 840 that amount was recorded under survey costs. In the Consolidated Statements of Cash Flows under Operating Activities, amortization of deferred gain on sale of aircraft and deferred charges are now presented as Non-cash lease and interest expense, under Topic 842.

NXT's lease contracts include rights to extend leases after the initial term. Rights to extend or terminate a lease are included in the lease term when there is reasonable certainty the right will be exercised. Factors used to assess reasonable certainty of rights to extend or terminate a lease include current and forecasted survey plans, anticipated changes in strategies, historical practice in extending similar contracts and current market conditions.

Financial Instruments

The Company's non-derivative financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, notes receivable, accounts payable and accrued liabilities and leases. The carrying value of these financial instruments approximates their fair values due to their short terms to maturity. NXT is not exposed to significant interest arising from these financial instruments, but is exposed to significant credit risk with accounts receivable and notes receivable. For accounts receivable, where possible, NXT requests advance payments and utilizes risk mitigation products offered by entities such as Export Development Canada including, for example, insurance coverage of contract accounts receivable, guarantee support for contract performance bonds and wrongful call insurance for such bonds. For the notes receivable, NXT has secured the note receivable against assets of AGV’s affiliates.

NXT is exposed to foreign exchange risk as a result of holding foreign denominated financial instruments. Any unrealized foreign exchange gains and losses arising on such holdings are reflected in earnings at the end of each period.

As at December 31, 2019 and December 31, 2018, the Company held no derivate financial instruments.

For more information relating to risks, see the section titled "Liquidity and Capital Resources – Net Working Capital".

Outstanding Share Capital

	April<br>13,<br><br><br>2020	December 31,<br>2019	December 31,<br>2018
	64,406,891	64,406,891	68,573,558
Stock<br>options	932,600	1,169,500	1,297,000
	-	-	3,421,646
Total<br>Share Capital and Dilutive Securities	65,339,491	65,576,391	73,292,204

All 3,421,648 Warrants issued in 2018 expired as of October 31, 2019, pursuant to the terms of the Targeted Issuer Bid.

NXT<br>Energy Solutions Inc.	page	<br>22
MD&A<br>for the year ended December 31, 2019

Disclosure Controls and Procedures ("DCPs") and

Internal Controls over Financial Reporting ("ICFR")

NXT's Chief Executive Officer and Chief Financial Officer (together the "Responsible Officers") are responsible for establishing and maintaining DCPs, or causing them to be designed under their supervision, for NXT to provide reasonable assurance that material information relating to the Company is made known to the Responsible Officers by others within the organization, particularly during the period in which the Company's quarterly and year-end consolidated financial statements and MD&A are being prepared.

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

The Company has established and maintains ICFR using the criteria that were set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). The control framework was designed or caused to be designed under the supervision of the Responsible Officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.

In an evaluation of the effectiveness of the Company's DCPs as defined under the rules adopted by the Canadian securities regulatory authorities and by the United States Securities and Exchange Commission, the Company's Responsible Officers concluded that there are material weaknesses in the Company's ICFR that have a direct impact on the Company's DCPs:

●

Additional Information

Additional information related to the Company, including the Company's Annual Information Form, is available on NXT's website at www.nxtenergy.com and on SEDAR at www.sedar.com.

NXT<br>Energy Solutions Inc.	page	<br>23
MD&A<br>for the year ended December 31, 2019

NXT Energy Solutions Inc 20-F for FY2019

About this 20-F

Headline figures