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NXT Energy Solutions Inc. – ‘F-1’ on 3/31/05

On:  Thursday, 3/31/05, at 5:25pm ET   ·   Accession #:  1044764-5-56   ·   File #:  333-123726

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/31/05  NXT Energy Solutions Inc.         F-1                    2:1.2M                                   Lawler & Associates/FA

Document/Exhibit                   Description                      Pages   Size 

 1: F-1         Registration Statement of a Foreign Private Issuer  HTML    869K 
 2: EX-23       Exhibit 23.1                                        HTML      7K 

As filed with the Securities and Exchange Commission on March 31, 2005   File #333-112790

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM F-1

REGISTRATION STATEMENT

Under the

SECURITIES ACT OF 1933

ENERGY EXPLORATION TECHNOLOGIES INC.
(Name of Small Business Issuer in its Charter)

840 7^th Avenue S.W., Suite 700
Calgary, Alberta, Canada, T2P 3G2         Telephone(403) 264-7020
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Copies of Communications to:

W. Scott Lawler Esq.

1530-9^th Avenue S.E.,

Calgary, Alberta, Canada, T2G 0T7

Telephone (403) 693-8014, Facsimile (403) 272-3620

Approximate date of commencement of proposed sale to the public: as soon as possible after this Registration Statement is effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.[ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]

#

CALCULATION OF REGISTRATION FEE

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of Regulation C as of the close of the market on December 23, 2003.

(2)

Estimated solely for the purpose of calculating the registration fee for these additional shares pursuant to Rule 457(c) of Regulation C as of the close of the market on April 30, 2004.

(3)

Estimated solely for the purpose of calculating the registration fee for these additional shares pursuant to Rule 457(c) of Regulation C as of the close of the market on March 29, 2005.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

PROSPECTUS

SUBJECT TO COMPLETION

3,558,998 SHARES OF COMMON STOCK OFFERED BY THE SELLING SHAREHOLDERS

This prospectus relates to the public offer and sale by some of the shareholders of Energy Exploration Technologies Inc., an Alberta corporation (“NXT”) of 3,558,998 common shares during the period in which the registration statement containing this prospectus is effective.  The shares offered by our shareholders may be sold on the Over-the-Counter/Bulletin Board, in negotiated transactions with a broker-dealer or market maker as principal or agent, in privately negotiated transactions not involving a broker or dealer, or by a combination of these methods.  Broker dealers who effect sales under this prospectus may receive compensation from the selling shareholders in the form of discounts or commissions.  We will not receive any proceeds from the sale of these shares.  The registration of common shares pursuant to this prospectus does not necessarily mean that any of those shares will ultimately be offered or sold.  Our common shares trade over the-counter on the OTC Bulletin Board under the symbol "ENXTF".  On March 15, 2005, the last reported closing price for our common shares as reported by the OTC Bulletin Board was $1.85 per share.

An investment in the common shares offered for sale under this
prospectus involves a high degree of risk.

See "Risk Factors" beginning on page 4 of this prospectus.

______

Neither the United States Securities and Exchange Commission or the securities administrator or similar regulatory authority of any other national, state, provincial or other jurisdiction, including the Alberta Securities Commission, has approved or disapproved of the common shares offered
for sale under this prospectus or the merits of that offering, or has determined that this
prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.
______

Principal Executive Offices:  840 -7^th Avenue S.W., Suite 700, Calgary, Alberta, Canada T2P 3G2

(403) 264-7020

Dated March 31, 2005

Table of Contents

PART I

PROSPECTUS SUMMARY

This summary highlights important information about our company and business.  Because it is a summary, it may not contain all of the information that is important to you.  You should carefully read this prospectus in its entirety, including the risk factors and the financial data and statements contained elsewhere in this prospectus.

Our consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America. We currently hold the bulk of our cash in Canadian currency. However, we conduct all of our equity financing activities in United States dollars. The majority of our sources and uses of cash are transactions in United States dollars. Therefore, our functional currency is the United States dollar. All references to "dollars" in this prospectus refer to United States or U.S. dollars unless specific reference is made to Canadian or CDN dollars.  The rate of exchange of Canadian dollars to United States dollars as of March 2, 2005, was CDN $1.2394 to US $1.  For information relative to the conversion of Canadian amounts into US dollars, see the section contained in explanatory Note 2 to our annual consolidated financial statements captioned "Foreign Currency Translation".  

Company

We are a reconnaissance exploration company that utilizes our stress field detector (SFD) technology, for the exploration of oil and gas.  The SFD technology is a remote-sensing airborne survey technology comprised of SFD and integrated electronic data acquisition, processing and interpretation subsystems and software. Our principal executive offices are located at 700, 840 - 7 Avenue SW, Calgary, Alberta, Canada and our telephone number is (403) 264-7020. We are a reporting company in the United States under the Securities Exchange Act of 1934, and the common shares trade publicly over-the-counter within the United States on the OTC Bulletin Board under the symbol "ENXTF".  

Offering

This prospectus relates to the public offer and sale by some of our common shareholders of 3,558,998 shares. The foregoing offering is to be sold during the period in which the registration statement containing this prospectus is effective. The shares offered by our shareholders are to be sold on the Over-the-Counter/Bulletin Board, in negotiated transactions with a broker-dealer or market maker as principal or agent, in privately negotiated transactions not involving a broker or dealer, or by a combination of these methods.  Broker dealers who effect sales under this prospectus may receive compensation from the selling shareholders in the form of discounts or commissions.  We will not receive any proceeds from the sale of these shares.  The registration of common shares pursuant to this prospectus does not necessarily mean that any of those shares will ultimately be offered or sold.  

Business

We use our SFD to survey large exploration areas from leased aircraft at speeds of approximately 200 mph to identify and prioritize leads for further evaluation and potential drilling.   The Company utilizes leased aircraft for the purpose of conducting the SFD surveys. Our survey equipment racks have been aircraft type certified by the Canadian Ministry of Transport for both the Piper Cheyenne and Piaggio aircraft models. SFD has been successfully field tested for independent geologists and joint venture partners.  Our SFD provides us with the ability to identify the location of potential hydrocarbon prospects in a matter of days or weeks, as compared to months or years using conventional seismic methods employed in wide-area

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exploration activities.  Once the location of potential hydrocarbon deposits are identified through the analysis and interpretation of the SFD data, the Company uses conventional geophysical technologies to further confirm and qualify the prospects prior to the selection of drilling sites.

Corporate Objective

Our corporate objective is to become an industry leader in technology-driven oil and natural gas exploration.  We believe our SFD technology has the potential to provide significant competitive advantages.

Business Strategy

Our primary objective is to become profitable and self-sustaining:

We believe that the majority of the value of hydrocarbon reserves is added early in the development cycle and we plan to sell the reserves as the value-adding curve begins to level off. We do not plan to be a long-term production based company, although we may hold properties after they begin production for periods of time while we wait for oil and natural gas prices to increase. Reserves will be treated as portfolio investments and will be sold off as product prices rise and held when prices drop. This strategy will require discipline and focus, as it tends to be contrary to the activities of many industry players. Also, we will need to build a financial reserve to enable us to sustain operations through the cyclical price downturns that regularly occur in this industry.

We believe that by successfully exploiting our SFD we will be able to achieve market acceptance, and access to the additional capital to fund the exploration, land acquisition and drilling efforts that will be necessary to fund our future growth and expansion.  We are hopeful that the recent developments of our business operations in Syria and elsewhere in the Middle East will result in market acceptance of our SFD technology.  The efforts in the Middle East are still in the very early stages and it is not possible to provide any forecast of operations. We are still trying to determine what opportunities we will have by investigating the interest that has been expressed in the SFD technology. We have  completed a survey in Syria under test conditions defined by the Syrian Petroleum Company. The results of this survey are very encouraging. Our President, General Manager and all of our technical staff have spent between 5 and 12 weeks in Syria working on the test and establishing relationships. Also, since we are new to international operations and will be proceeding slowly and carefully, we are unable at this time to describe what form our operations in the Middle East may ultimately take.

OPERATIONAL RESULTS

During 2004, the following significant events occurred:

•

In February, the 11-18-25-27w4 gas well commenced production. NXT has a 22.5% working interest in the well and the net production averages 38,000 cubic meters per month (1,330,000 cubic feet). The average net income from the gas production is US $ 3,100 per month (Cdn $ 4,000 per month)

•

In March, we conducted a market test of the SFD technology in Syria. In cooperation with the Syrian Petroleum Company (SPC). NXT surveyed 61,000 km² (23,500 mi²) in six days. NXT paid for the cost of the SFD survey and SPC provided the geologists and geophysicists to compare their data with the results of the SFD survey. NXT used the SFD survey data to identify "Prospect

Areas". A Prospect Area is defined as having a cluster of SFD anomalies on at least two crossing flight lines. NXT interprets Prospect Areas to have the highest potential for oil or natural gas. NXT identified 17 Prospect Areas from the interpretation of the survey data. SPC reviewed the 17 Prospect Areas and stated that SPC had drilled 12 of the 17 Prospect Areas. SPC was producing 11 of the 12 drilled Prospect Areas at a cumulative rate of 200,000 barrels of oil equivalent per day. Of the remaining 5 Prospect Areas, 3 had been identified with seismic and 2 were new structures. The results obtained supported the results of successful field tests for independent geologists and joint venture partners conducted in North America.

•

In June, we held our annual meeting of shareholders at which members of our board of directors were re-elected to serve another term and the appointment of our independent registered chartered accountants Deloitte & Touche LLP, was confirmed.

•

On August 25, 2004, we entered into two (2) agreements with our Chief Executive Officer and President, Mr. George Liszicasz, to solidify our respective rights to, access to and ownership of the intellectual property and sensors used in our aerial surveys, referred to as the SFD technology, and also obligate Mr. Liszicasz to provide us with his know-how and technical expertise in connection with our use of the sensors.

•

Our management periodically reviews the carrying value of our property and equipment to ensure that any permanent impairment in value is recognized and reflected in our results of operations. As a part of these reviews, our management performs an overall assessment of each of our unproved oil and natural gas properties to determine if any of these properties had been subject to any impairment in value.  As at December 31, 2004 we have determined that our unproved properties continue to have prospective commercial viability but that an impairment of $173,213     ($945,000 in 2003) should be recorded against our properties.

During 2003, the following significant events occurred:

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During 2003, NXT completed the following private placements:

On September 11, 2003, NXT issued 1,875,000 shares of its common stock at $0.40 per share for total gross proceeds of $750,000. The shares were issued under the Company’s Confidential Offering Memorandum dated July 22, 2003, which was fully subscribed for.  

In December 2003, NXT issued 101,700 private flow-through shares for total gross proceeds of $203,400. Flow-through shares differ from common shares in that they allow the company to pass Canadian exploration expenditure deductions through to the holders of the flow-

through shares.

Our fundraising efforts in 2004 resulted in the following transactions:

In 2004 we raised a total of $1,407,878 through the private placement of 706,269 units at $2.00 per unit. Each unit consisted of one (1) common share and a warrant to purchase an additional share for $2.75, with a term of one (1) year.  

From November 3 through November 19^th, we entered into a series of loan agreements with our CEO and largest shareholder, Mr. George Liszicasz, in which we borrowed a total of $233,253, at a rate of 7.0% per annum, with loans maturing on November 17, 2005; we also have the option to borrow an additional $100,000 CDN from Mr. Liszicasz. On November 20, 2004 we received a subscription agreement from one of the members of our Board of Directors, His Highness Sheikh Al Hassan Bin Ali Bin Rashid Al Nuaimi, to purchase 250,000 units at a price of $2.00 per unit. Each unit consists of one common share and a warrant to purchase one additional common share for $2.75 within the next year.  We expect to close on this subscription agreement and receive the subscription proceeds during the second quarter of 2005.

On December 1, 2004, we raised an additional $1,000,000 through the private placement of 571,429 shares, which included the issuance of warrants to purchase an additional 610,000 shares at $2.75 per share with a term of one (1) year.

RISK FACTORS

Uncertainties And Risk Factors That May Affect NXT'S Future Results And Financial Condition

You should consider an investment in the common shares to involve a high degree of risk and to be subject to many uncertainties.  The following section contains a description of the material risk factors associated with an investment in NXT and should be read and considered carefully. The risk factors and uncertainties enumerated below may materially adversely affect our business, operating results and financial condition, and could result in a complete loss of any value in the common shares.

Uncertainties And Risk Factors Generally Relating To Our Business

Our business plans are still unproven.  The failure of our plans could ultimately force us to reduce or suspend operations and even liquidate our assets and wind-up and dissolve our company

Exploration and development of oil and natural gas is extremely risky. An investment in our company should be considered highly speculative due to the nature of our involvement in the exploration, development and production of oil and natural gas.  Oil and gas exploration involves a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to overcome.  There is a risk that expenditures we make on future exploration might not result in new discoveries of oil or gas.  Exploratory drilling is subject to numerous risks, including the risk that no commercially productive oil and natural gas reservoirs will be encountered.  The cost to drill, complete and operate wells is often uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors including unexpected drilling conditions, abnormal pressures, equipment failures, premature declines of

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reservoirs, blow-outs, cratering, sour gas releases, fires, spills or other accidents, as well as weather conditions, compliance with governmental requirements, delays in receiving governmental approvals or permits, unexpected environmental issues and shortages or delays in the delivery of equipment.  Our inability to locate commercial quantities of oil and natural gas would have a material adverse effect on our business, consolidated financial condition and results of operations.

Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after exploration, drilling, operating and other costs.  Completion of wells does not necessarily mean that we will earn a profit on the investment or recovery of exploration, drilling, completion and operating costs.  Drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect production.  Adverse conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions.

We have accumulated losses since our inception, and our continued inability to generate sufficient revenues and profits would adversely affect our ability to participate in land acquisition, seismic and drilling projects or raise additional capital, and could ultimately force us to reduce or suspend operations and even liquidate our assets and wind-up and dissolve our company

We anticipate that we will continue to incur operating losses in 2005 unless and until we are able to locate and monetize oil and gas prospects.

If we do not raise sufficient additional capital to fully fund our survey and operational requirements, we will be forced to reduce or even suspend our operations, and may even be forced to liquidate our assets and wind-up and dissolve our company

We hope to activate our assets through farm-ins, drilling or dispositions to raise additional capital. There is significant risk that we might not be able to secure the additional capital we require to fully or partially fund our plans in a manner which will not be objectionable to our company or our shareholders, including substantial dilution.  Our inability to raise sufficient additional working capital in the longer-term would likely force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company.

Our current financial condition is tenuous and poses a risk that we may not be able to continue as a going concern.

Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and obtain the necessary financing to meet our obligations and repay liabilities arising from normal business operations when they come due.  The outcome of these matters cannot be predicted with any certainty at this time.

For the year ended December 31, 2003, we incurred a loss of $2,352,359. In the nine months ended September 30, 2004, we incurred a loss of $2,473,521, have an accumulated deficit of $25,275,628 and have a working capital deficiency of $19,208 as at the end of the period.  We expect to continue incurring net losses from operation and have negative operating cash flows until we can secure revenue-generating activities.  These circumstances raise substantial doubt about our ability to continue as a going concern.

Additional information regarding NXT’s ability to continue as a going concern can be found in the prospectus under the heading  Liquidity and Capital Resources – Sources of Cash , which is part of the section entitled “Operating and Financing Review and Prospects”.

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Our future success is dependent upon our ability to successfully identify commercially viable hydrocarbon accumulations

Our future success is dependent upon our ability to successfully identify commercially viable hydrocarbon accumulations for development.  Based on our business plan, we will be dependent on:

  To date, we have not identified the physical nature of the SFD process nor have we successfully      identified commercial oil and gas properties with the SFD process.

Our revenues and cash flow will be principally dependent upon the success of drilling and production from prospects in which we participate

Pursuant to our business plan, our revenues and cash flow will, at least in the near-term, be principally dependent upon the success of drilling and production from prospects in which we participate in the form of an overriding royalty or a working interest or other participation right.  Exploratory drilling is subject to numerous risks, including the risk that no commercially productive oil and natural gas reservoirs will be encountered.  The cost to drill, complete and operate wells is often uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors including unexpected formation and drilling conditions, pressure or other irregularities in formations, equipment failures or accidents, as well as weather conditions, compliance with governmental requirements and shortages or delays in the delivery of equipment.  

Our future operating results may fluctuate significantly

Our future operating results may fluctuate significantly depending upon a number of factors including industry conditions, prices of oil and natural gas, rate of drilling success, rates of production from completed wells and the timing of capital expenditures.  This variability could have a material adverse effect on our business, consolidated financial condition and results of operations.  In addition, any failure or delay in the realization of expected cash flows from initial operating activities could limit our future ability to continue exploration and to participate in economically attractive projects.

Volatility of oil and natural gas prices could have a material adverse effect on our business

Oil and natural gas are commodities whose prices are determined based on world demand, supply and other factors, all of which are beyond our control.  It is impossible to predict future oil and natural gas price movements with any certainty, as they have historically been subject to wide fluctuations in response to a variety of market conditions, including:

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Any extended or substantial decline in oil and natural gas prices would have a material adverse effect on:

We do not currently intend to engage in hedging activities and may be more adversely affected by fluctuations in oil and natural gas prices than other industry participants that do engage in such activities.  A sustained material decline in prices from historical average prices could add additional limitation factors to our borrowing base, reducing credit available to our company.  Our business, consolidated financial condition and results of operations would be materially and adversely affected by adverse changes in prevailing oil and natural gas prices.  

We compete directly with independent, technology-driven exploration and service companies and with major oil and natural gas companies in our exploration for and development of commercial oil and natural gas properties.    

There is a risk that other companies or individuals may develop exploration services that are superior to our SFD technology.  Increased competition could impair our ability to attract viable industry participants, and to negotiate favorable participations and joint ventures with such parties, which could materially and adversely affect our business, consolidated financial condition and results of operations.

The oil and natural gas industry is highly competitive.  Many companies and individuals are engaged in the business of acquiring interests in and developing oil and natural gas properties and the industry is not dominated by any single competitor or a small number of competitors.  We will compete with numerous industry participants for the acquisition of land and rights to prospects, and for the equipment and labor required to drill and develop those prospects.  Many of these competitors have financial, technical and other resources substantially in excess of those available to us.  These competitive disadvantages could adversely affect our ability to participate in projects with favorable rates of return.

Our inability to retain our key managerial and research and development personnel could have a material adverse effect on our business

Our success depends to a significant extent on the continued efforts of our executive officer, Mr. George Liszicasz, the inventor of our SFD technology, who is our Chief Executive Officer and who is responsible for the continuing development of our SFD technology.  The loss of Mr. Liszicasz could have a material adverse effect on our business, consolidated financial condition and results of operations.  Mr. Liszicasz would not be prevented from working for other companies in the oil and natural gas industry so long as they did not employ SFD technology should he elect to terminate his employment with us. We also do not carry key person life insurance policies on our executive officer.  

Our success also depends on the continued efforts of our SFD research and development team, which is composed of a small number of individuals.  Replacement of these individuals would be very difficult as they are the only ones with any theoretical or working knowledge of how to interpret SFD data or how our SFD technology operates, and it would take a significant period of time to train any replacement personnel.  Until such time as we have a fully trained complement of SFD research and development team, the loss of any members of this team could adversely affect the pace at which we interpret SFD data or affect improvements to our SFD technology, which could adversely impact our business, consolidated financial condition and results of operations.

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We may be unable to attract the qualified managerial, geological and geophysical, and research and development personnel required to implement our longer-term growth strategies

Our ability to implement our longer-term growth strategies depends upon our continuing ability to attract and retain highly qualified geological, technical, scientific, information management and administrative personnel.  It is quite possible that we will not be able to retain our key managerial, professional or technical employees, or that we will not be able to attract and retain additional highly qualified managerial, professional or technical personnel in the future.  Our inability to attract and retain the necessary personnel could impede our growth.

Our limited operating history could adversely affect our business

We are subject to all the risks and issues inherent in the establishment and expansion of a new business enterprise including, among others, problems of using a newly developed technology, hiring and training personnel, acquiring reliable facilities and equipment, and implementing operational controls. Our failure to successfully address these risks could have a material, adverse effect on our business, financial condition and results of operations.

We may be unable to effectively manage our expected growth

Our success will depend upon the expansion of our business.  Expansion will place a significant strain on our financial, management and other resources, and will require us, among other things, to:

Our business may be adversely affected by currency fluctuation, regulatory, political and other risks associated with international transactions

 We currently operate within Canada and anticipate we will also operate in other countries in the foreseeable future.  These risks include fluctuating exchange rates; regulation by the government of Canada as well as by foreign governments of fund transfers and export and import duties and tariffs. Up to the date of this prospectus, we have only transferred funds into an account held in the United Arab Emirates.  We have not tried to transfer any funds from the United Arab Emirates. or any other Middle Eastern jurisdiction.  Therefore, we are not aware if there will be any restrictions on the transfer of funds from that region.

We do not currently engage in activities to mitigate the effects of foreign currency fluctuations.  If earnings from international operations increase, our exposure to fluctuations in foreign currencies may increase.

Operations in foreign jurisdictions may encounter potentially unstable political environments that will put our staff and/or resources at risk.

We are actively pursuing opportunities in Syria and the  United Arab Emirates Certain members of our staff have spent up to two months in Syria as part of efforts to establish business relations. Moreover,  the United States has classified Syria as one of the countries with which U.S. companies are restricted from doing business.  While we are not a U.S. company and thus such restrictions are not applicable to our company, there is some concern that ultimately we might suffer some consequence of operating or attempting to operate in Syria.  However, we have no information that would support such concern.  Therefore, we cannot specifically describe this risk or its consequences on us or an investment in our company.  We may also have dealings with other countries in the Middle East region. Our success depends upon our ability to manage or avoid situations which could lead to having our staff or assets at risk.

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Our business within Canada may be adversely affected by the enforcing of the Kyoto Accord

In December of 2002, the Canadian government ratified the Kyoto Accord.  Under the Kyoto Accord, industrialized countries and countries in transition to a market economy agreed to bring their emissions of greenhouse gases to 5% less than 1990 levels. They also agreed to foster energy efficiency in their economies, promote the development of cleaner energy sources, and employ agricultural practices that have a sustainable environmental impact. By ratifying the Kyoto Accord, the Canadian government agreed to reduce greenhouse gas emissions to 6% below 1990 levels by 2012. This would represent a 26% reduction from projected 2012 levels.   It is expected that the Canadian government will enact new environmental regulations in order to meet the goals set out in the Kyoto Accord.  We believe that these new regulations will have negative repercussions on our Canadian operations but cannot determine the full impact of these at this time.

A single shareholder retains the ability to influence or control our company

Mr. George Liszicasz, our principal executive officer and largest shareholder, beneficially owns approximately 24% of the common shares outstanding as of the date of this prospectus, and therefore has a substantial influence in all shareholder matters.  

There is an inherent conflict of interest arising as a result of the relationship between our principal stockholder and the licensor of our SFD technology

Mr. George Liszicasz indirectly controls our company and is a major shareholder and director of Momentum Resources, which has granted us an exclusive license to identify oil and natural gas prospects, using the SFD technology, while reserving the exclusive right to use the SFD technology for purposes other than oil and natural gas exploration. As a result of the foregoing relationships, certain conflicts of interests between our company, Momentum Resources and Mr. Liszicasz may directly or indirectly arise, including the proper exercise by Mr. Liszicasz of his fiduciary duties on our behalf as a controlling stockholder and, to the extent applicable, as a director of our company in connection with any matters concerning Momentum Resources such as, by way of example and not limitation:

At present, Mr. Liszicasz directs 100% of his time at the business of NXT.

We may be unable to protect our intellectual property

The licensor of our SFD technology, our president, George Liszicasz, claims common law ownership of that technology, but has not obtained patent or copyright protection for those rights.  In the absence of significant patent or copyright protection, we may be vulnerable to competitors who attempt to imitate the SFDs, or to develop functionally similar technologies.

We rely upon trade secret protection and confidentiality and non-disclosure agreements with our employees, consultants and others to protect our proprietary rights.  Furthermore, if Mr. Liszicasz were to apply for and receive patent protection, we do not believe that the patent would necessarily protect Mr. Liszicasz or our company from competition.   Mr. Liszicasz and our company therefore anticipate continued reliance upon contractual rights and on common law to protect our trade secrets.  The steps taken by our company and Mr. Liszicasz to protect our respective rights may not be adequate to deter misappropriation, or to preclude an independent third party from developing functionally similar technology.

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There is a risk that others will independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to Mr. Liszicasz’s or our trade secrets, or otherwise disclose aspects of the SFD device, or that we will not be able to meaningfully protect our trade secrets.  There is also a risk that Mr. Liszicasz or our company will be required to defend against litigation or to enforce or defend intellectual property rights relating to SFD devices due to the fact that the SFD technology does not have any patent protection.  Legal and accounting costs relating to prosecuting or defending intellectual property rights may be substantial.

Uncertainties And Risks Relating To Common Shares

There is only a limited public market for our common shares on the OTC/Bulletin Board, and there is a risk that that a broader or more active public trading market for our common shares will never develop or be sustained, or that current trading levels will not be sustained.

.  

The market price for the common shares on the OTC Bulletin Board 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, drilling results, advances in technology or other business developments.

Because we have a limited operating history and no profits 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 prospects.  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.  

Sales of substantial amounts of the common shares on the public market, or the perception that substantial sales could occur, could adversely affect the prevailing market prices for those shares and also, to the extent the prevailing market price for the common shares is reduced, adversely impact our ability to raise additional capital in the equity markets.  In addition, our employees, former employees, directors and consultants currently hold vested options entitling them to acquire 653,663 common shares.  Should these persons exercise these options, it is likely they would sell some or all of the underlying common shares on the public markets in order to procure liquidity to pay taxes as well as other reasons they may deem pertinent.

You will be subject to the penny stock rules to the extent our stock price on the OTC Bulletin Board is less than $5.00

Since the common shares are not listed on a national stock exchange or quoted on the NASDAQ Market within the United States, trading in the common shares on the OTC Electronic Bulletin Board 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 require a broker-dealer to deliver a standardized risk disclosure document prepared by 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, and to make a special written determination that the penny stock is a suitable investment for the purchaser and 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

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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

We have never paid any cash dividends on shares of our capital stock, 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.  Subject to compliance with applicable corporate and securities laws, 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 their discretion, determine to be necessary and appropriate.  Your proportionate ownership and voting rights as a common shareholder could be adversely affected by the issuance of additional common shares, including a substantial dilution in your net tangible book value per share.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND AUDITORS

A.

DIRECTORS AND SENIOR MANAGEMENT.

The following sets forth the names, business addresses, and functions of our directors and senior management:

Donald E. Foulkes

39 Pinnacle Ridge Dr., Calgary, Alberta T3Z 3N7

Mr. Foulkes is a member of NXT's Board of Directors.

Dennis Hunter

Box 9069, Santa Rosa, CA  95403

Mr. Hunter is a member of NXT's Board of Directors.

George Liszicasz - Chief Executive Officer and President

383 Arbour Lake Way NW, Calgary, Alberta, T3G 4A2

Mr. Liszicasz is responsible for setting corporate goals and strategy, as well as providing SFD date interpretation.

Douglas Rowe

246 Artist View Way, Calgary Alberta, T3N 3N1

Mr. Rowe is a member of NXT's Board of Directors.

Scott R. Schrammar - Corporate Secretary

9438 U.S. 19 North, PMB 210, Port Richey, Fl 34668

Mr. Schrammar is responsible for our company’s corporate filings.

Robert Van Caneghan

123 Redcliff Road, Staten Island, NY 10305

Mr. Van Caneghan is a member of NXT's Board of Directors.

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Brian Kohlhammer

6612 Silverview Drive NW

Calgary, AB, T3B 3K8

Mr. Kohlhammer is a member of NXT’s Board of Directors and a member of its Audit Committee.

Lloyd Robert Lipsett

4316 Passchendaele Rd SW, Calgary AB,T2T 6A8

Mr Lipsett is General Manager and is responsible for day-to-day operations such as business development, management of our oil and gas interests, surveys, oil and gas operations and land management.

B.

AUDITORS

Deloitte & Touche LLP

3000 Scotia Centre, 700-2^nd Ave SW, Calgary Alberta T2P OS7

Auditors since July 9, 2002

Members of: Canadian Institute of Chartered Accountants

OFFER STATISTICS AND EXPECTED TIMETABLE

A.

OFFER STATISTICS

We are registering 3,558,998 common shares on behalf of the selling shareholders.  The shares offered by this prospectus are being offered by the selling shareholders on a continuous or delayed basis until sold.  The selling shareholders will offer the shares at the prevailing market price at the time of sale by each selling shareholder and therefore no specific price has been set for this offering.

B.

EXPECTED TIMETABLE

The time period during which this offering will be open is until all of the shares are sold. Sales of shares may be effected by selling shareholders from time to time in one or more types of transactions (which may include block transactions) in the over-the-counter market, in negotiated transactions, through put or call options transactions relating to the shares, through short sales of shares, or a combination of such methods of sale, at market prices prevailing at the time of sale, or at negotiated prices.  Such transactions may or may not involve brokers or dealers.  The selling shareholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of shares by the selling shareholders.

The selling shareholders may effect such transactions by selling shares directly to purchasers or to or through broker-dealers, which may act as agents or principals.  Such broker-dealers may receive compensation in the form of discounts, concessions, or commissions from the selling shareholders and/or purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions).

As the selling shareholders have already paid for the shares offered hereunder, NXT will not receive any proceeds from the sale of the shares.

KEY INFORMATION

The following information has been derived from NXT’s audited financial statements for the periods ended December 31, 2003, 2002, 2001, 2000, 1999 and its unaudited financial statements for the period ended September 30, 2004 and 2003.

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A.  SELECTED FINANCIAL DATA

13

B.

CAPITALIZATION AND INDEBTEDNESS

Following is a statement of NXT’s capitalization and indebtedness as of September 30, 2004.

(1)

Our company is authorized to issue an unlimited number of common shares and preferred shares with no par value. At December 31, 2003 our issued and outstanding common shares were 19,306,852. We have no outstanding shares of preferred stock.

(2)

The increase in common shares outstanding at September 30, 2004 is due to: (a) the issue of 706,269 common shares as part of a private placement at $2.00 per share; the gross proceeds were $1,412,538; (b) the exercise of options for a total of 157,621 common shares as follows: 1,000 at $0.29, 56,665 at $0.38 and 16,666 at $0.43, c) the issue of 30,000 common shares at $1.80 per share for services and d) the issue of 200,000 common shares at $2.00 per share for services.

C.

REASONS FOR THE OFFER AND USE OF PROCEEDS

Not Applicable.

INFORMATION ON THE COMPANY

A.

HISTORY AND DEVELOPMENT OF NXT

OVERVIEW

NXT is an oil and gas exploration company that utilizes the Stress Field Detector (SFD) technology invented by George Liszicasz, our CEO, President and largest shareholder. The SFD technology is a remote-sensing airborne survey technology comprised of SFD sensors, integrated electronic data

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acquisition, processing and interpretation subsystems and software. Our principal executive offices are located at 700, 840 - 7 Avenue SW, Calgary, Alberta, Canada and our telephone number is (403) 264-7020.

We use the airborne SFD technology to survey large exploration areas from leased aircraft at speeds of approximately 200 mph to identify and prioritize oil and gas prospects for further evaluation and potential drilling.  Our SFD affords us the relatively inexpensive ability to acquire, analyze and interpret data on potential hydrocarbon prospects in a matter of days or weeks, as compared to months or years for other wide-area exploration activities.  These advantages can dramatically reduce finding costs and the time required to identify oil and gas prospects. Once SFD prospects are identified, highly focused conventional geological and geophysical methods are employed to evaluate the potential commercial viability of the prospects. Finding costs include seismic acquisition, purchasing mineral rights and drilling and completing exploration wells.

Corporate History

We were initially incorporated in Nevada on September 27, 1994 under the name Auric Mining Corporation.  In January 1996, we acquired all of the common stock of NXT Energy USA (then known as Pinnacle Oil Inc.) from its stockholders in exchange for our common stock.  As a consequence of this reverse acquisition, NXT Energy USA became our wholly-owned subsidiary and its stockholders acquired a 92% controlling interest in our common stock.

Prior to this transaction, we were a corporate shell conducting no active business, and NXT Energy USA was a development stage research and development enterprise holding world-wide rights to use the SFD technology for hydrocarbon exploration purposes.  Immediately after this transaction, we changed our name to Pinnacle Oil International, Inc, and subsequently, on June 13, 2000, we changed our name to Energy Exploration Technologies. On October 24, 2003, we continued or were re-incorporated in the Province of Alberta, Canada under the Business Corporations Act (Alberta), which was approved by a majority of our shareholders at a special meeting held on that date.

From January 1, 2001, to September 30, 2004, NXT has invested a total amount of $6,428,883 in capital expenditures.  Of such amount of capital expenditures, $3,674,103 was spent on acquisition costs, exploration cost and development costs of properties located in the United States.  In March 2003, NXT sold these properties in exchange for $720,000 cash and the return to treasury of all of the outstanding shares of preferred stock.  During the period from January 1, 2001 to September 30, 2004, the total amount invested by NXT in capital expenditure on assets located in Canada equaled $2,754,780.  This amount can be broken down in the following categories:  (a) acquisition costs associated with purchasing land of $789,023; (b) exploration costs, including seismic and drilling costs of $1,882,523; and development costs associated with the construction of facilities, pipelines and development drilling of $83,234.  NXT currently is not in the process of making any capital expenditures at this time.

B.

BUSINESS OVERVIEW

Corporate Objective

Our corporate objective is to become an industry leader in technology-driven oil and natural gas exploration.  We believe our SFD technology has the potential to provide significant competitive advantages.

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Business Strategy

Our primary objective is the achievement of profitability and self-sustaining growth:

We believe that the majority of the value of hydrocarbon reserves is added early in the development cycle and we plan to sell the reserves as the value-adding curve begins to level off. We do not plan to be a long-term production based company, although we may hold properties after they begin production for periods of time while we wait for oil and natural gas prices to increase. Reserves will be treated as portfolio investments and will be sold off as product prices rise and held when prices drop. This strategy will require discipline and focus, as it tends to be contrary to the activities of many industry participants. Also, we will need to build a financial reserve to enable us to sustain operations through the cyclical price downturns that regularly occur in this industry.

We believe that by successfully exploiting our SFD we will be able to achieve market acceptance and access to additional capital to fund the exploration, land acquisition and drilling efforts that will be necessary to sustain our future growth and expansion.

Stress Field Detector Technology

Nature of SFD

Our SFD allows us to measure variations in energy fields, which we believe to be related to subsurface structures under stress and hydrocarbon accumulations.  By analyzing these field patterns, we are able to determine the probability of locating commercially viable hydrocarbon deposits.  

Subsurface mechanical stresses are caused by tectonic forces that disrupt the stress and pressure equilibrium in buried strata. Sedimentary basins are created in a marine environment and initially consist of relatively undisturbed flat-lying or gently dipping sediments or sedimentary rock generally maintaining balanced pressure equilibrium and therefore low constant stress.  Where the sedimentary package is exposed to tectonic forces that compress, fold, fault or fracture the sedimentary column, a balanced mechanical equilibrium is not maintained. The sedimentary rock strata must absorb the additional stress caused by these tectonic forces. In other areas where the regional strata are characterized by non-uniform geologic layering or intrusive geological features, there appears to be exhibited higher residual stress than the surrounding regional strata.

Subsurface hydraulic stresses are caused by the presence of fluids (liquids and gases) such as water, oil and natural gas, within the strata and, more particularly, the inherent and directional pressures resulting from the relative buoyancy of the fluids.  Oil and gas will percolate upwards through the strata by way of fractures or permeable strata until they either reach the surface or are stopped or trapped by a non-porous barrier, in which case they will continue to exert pressure against the trapping barrier.

While the response of our SFD to known structurally trapped accumulations is more readily demonstrated, responses to stratigraphically trapped accumulations have led us to infer that a hydraulic component of stress exists in certain trapping conditions.  As a consequence, our SFD technology has practical applications as an oil and natural gas finding tool.

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The exact nature of the energy fields the SFD reacts to and measures are unknown.  The two known energy sources to which the SFD may respond are electromagnetic fields (i.e., of an electric, magnetic or electromagnetic character) and gravitational fields.  For the reasons explained below, we believe that the energy fields we are measuring are both non-electromagnetic and non-gravitational in character.

We hypothesize that the principal component of our SFD technology, which we refer to as the SFD sensor, is a passive transducer that creates and maintains a stress-related non-electromagnetic and non-gravitational energy field that interacts with stress-related non-electromagnetic and non-gravitational energy fields associated with subsurface conditions.  

Our testing and development of the SFD technology to date has been almost entirely focused on an applied basis toward the identification of hydrocarbon related subsurface conditions. We have not scientifically proven our hypothesis and, at this time, we do not plan to conduct more comprehensive scientific evaluations.  

SFD Survey System

Our SFD technology is comprised of the following components, which we collectively refer to as our SFD survey system, used for the following functions:

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SFD Data Acquisition

Our SFD survey system is flown over pre-selected exploration areas at varying altitudes and from different directions.  The SFD sensors interact with the constantly changing stress fields and responses are recorded in the form of digital electronic signals resembling waveforms, referred to as SFD signals.  Our proprietary data acquisition system acquires and records these signals and marks their geographic location with global positioning satellites. These integrated signals are now referred to as SFD data. The SFD signals are also displayed in real time on board our survey aircraft, which allows our on-board technical crew to immediately identify areas of particular interest for further investigation. SFD Data Interpretation

Once SFD datasets are returned to our offices, our geological and geophysical interpretive staff process the data, plot the flight lines and produce computer-generated base maps. We then commence the following screening and interpretation process:

SFD Time Frames

We conduct our SFD surveys at speeds of approximately 200 mph, and survey approximately 600 linear miles in a three-hour survey.  For each survey, it takes our staff between one to two days of data processing and interpretation—including plotting flight routes, screening and analyzing anomalies, putting the anomalies in geologic context and ranking the anomalies—to sufficiently identify and recommend the SFD prospects from that survey.  

As a consequence, we are able to record and interpret approximately 600 linear miles of SFD data acquired in one SFD survey flight over a period of only a few days.  By way of comparison, traditional land-based seismic crews record up to five linear miles of 2D seismic per day.  Two or more weeks are then required

18

to process the data, followed by several weeks for interpretation.  As a result, it can take a minimum of six months to record and interpret 1,000 linear miles of new 2D seismic data.  

We identify approximately twenty SFD leads on average for each three-hour survey, and ultimately on average, two or 10% of these leads are considered for further evaluation.  The SFD prospects which we tender can be pool to field-sized targets that could require two to ten wells or more to exploit depending upon the accumulation.  The actual number of these recommended SFD prospects that are accepted and ultimately drilled would, however, be dependent upon any number of competitive, geological and environmental variables.

Analysis Of SFD Survey Results To Date

We have not identified and drilled any commercially viable prospects. The drilling results have validated the effectiveness of our SFD technology in locating the proper structures as most of the wells drilled have encountered hydrocarbon bearing formations.

Joint Ventures

We form standard industry joint ventures on a prospect-by-prospect basis with various partners, depending upon the requirements of the specific prospect.  The joint venture agreements that we previously entered into have expired; our previous joint venture agreement with Camwest Exploration expired in May 2003; and our joint venture agreement with Encal Energy expired in September 2002. However, we have retained our working interests in those joint ventures and such working interests are governed by standard industry operating agreements.

BUSINESS AND GEOGRAPHIC SEGMENTS

We currently operate in only one business segment, oil and natural gas exploration and development. We intend to develop oil and natural gas exploration prospects identified using our SFD technology to the point of mineral rights acquisition either with or without joint venture partners.  We do not currently sell or market our SFD data or surveying services as a separate product to third parties. For geographical segment information, see explanatory Note 17 to our annual consolidated financial statements.

Future Activities

We are in the process of implementing the changes we have made to our business strategy.  In the past, we were compelled by our joint venture agreements to accept our partners’ decisions on which prospects were to be drilled. The prospects selected by our partners were often not the preferred SFD targets.

As a result of the low success rates achieved in those joint ventures, which previously expired, we believe that we must:

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By taking control in certain circumstances, we will attempt to ensure that the following objectives are appropriately addressed:

Our future activities will be aggressively directed towards creating value from our existing lands through an active program of soliciting farm-ins, participating in the most attractive drilling prospects as well as dispositions of those prospects and reserves which we feel have limited upside potential or are not core to our plans.  

Management will be seeking to monetize assets on a continuous basis to fund exploration efforts. A number of properties have been identified as disposition candidates and are being marketed. Creating a consistent revenue stream to fund on-going operations is critical at this point and will be a prime focus for much of 2005. At the same time, we will be seeking opportunities that do not require large outlays of capital but which will enable us to earn interests in mineral rights through the application of SFD.

Competition

Since we use our SFD technology for wide-area oil and natural gas reconnaissance exploration, our competition would generally be described as other companies using other technologies for wide-area oil and natural gas reconnaissance exploration.  The principal competitive technology in this regard is seismic, which is well accepted in the industry and has been used for over 70 years.  While there are numerous seismic service companies, none use their technology for their own exploration but rather they sell the service to the oil and gas industry. The largest seismic providers to our knowledge are Compagnie Generale de Geophysique, S.A, Seitel, Inc., Veritas DGC Inc. and Petroleum Geo-Services A.S.A.

There are also a number of other technologies used in the industry for passive wide-area oil and natural gas reconnaissance exploration, including aeromagnetic, gravity surveys, ground or surface radar, satellite surveys, telemetrics and spectrum analyzers.  However, we do not believe that any of these technologies have been widely accepted in the industry as a highly predictive general exploration tool.

To our knowledge, there are no other companies in the oil and natural gas exploration industry who commercially employ any technology similar to our SFD technology.

Employees

We utilize specialized skill and knowledge in the identification and evaluation of prospects and in the research, development and improvement of the SFD technology.  We have obtained the necessary skill and knowledge to operate our technology through our current employees.  .  As of December 31, 2004, we had a staff of 13 consisting of  7 full-time employees and 6 consultants including 3 financial staff, 6 operations staff, 1 electronics engineer, a research scientist holding a Ph.D. in micro-electronics and 2 administrative staff.  

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Manufacturing Capacity And Suppliers

We are not dependent upon any third party contract manufacturers or suppliers to satisfy our technology requirements.  Our SFD sensors and the SFD unit in which they are incorporated are custom designed, fabricated and assembled in-house.  The customized software used in our data acquisition system are written and modified by outside consulting programmers with whom we have long-standing relationships.  The computer 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.

Subsidiaries

We have two wholly-owned operating subsidiaries:   NXT Energy Canada Inc. and NXT Aero Canada Inc., federal Canadian corporations formed on April 1, 1997 and October 30, 2000, respectively. NXT Energy Canada focuses on Canadian-based exploration and the survey flight activities are conducted through NXT Aero Canada. We also have two wholly-owned inactive subsidiaries: NXT Energy USA, Inc. and NXT Aero USA, Inc., Nevada corporations formed on October 20, 1995 and August 28, 2000, respectively.

Governmental And 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 with the exception of flight rules issued by Transport Canada governing the use of private aircraft, including rules relating to low altitude flights.  

Oil and Gas Exploration and Development Projects

The oil and natural gas industry in general is subject to extensive controls and regulations imposed by various levels of the federal and provincial governments in Canada.  In particular, oil and natural gas exploration and production is subject to laws and regulations governing environmental quality and pollution control, limits on allowable rates of production by well or proration unit, and other similar regulations.  Laws and regulations are generally intended to prevent the waste of oil and natural gas, to protect rights to produce oil and natural gas between owners in a common reservoir, to control the amount of oil and natural gas produced by assigning allowable rates of production, and to reduce contamination of the environment.  Environmental regulations affect our operations on a daily basis.  Drilling in certain areas has been opposed by environmental groups and, in certain areas, has been restricted.  We believe that the trend to stricter environmental legislation and regulations will continue.

We do not expect that any of these government controls or regulations will affect projects in which we participate in a manner materially different than they would affect other projects of similar size or scope of operations.  All current legislation is a matter of public record and we are not able to accurately predict what additional legislation or amendments may be enacted.  Governmental regulations may be changed from time to time in response to economic or political conditions.  Any laws enacted or other governmental action taken which prohibit or restrict onshore and offshore drilling or impose environmental protection requirements that result in increased costs to the oil and natural gas industry in general would have a material adverse effect on our business, financial condition and results of operations.

Operating Hazards

SFD Survey Flight Operations

The operations of SFD survey flights are subject to the usual hazards incident to general and low-level flight operations.  These hazards can cause personal injury and loss of life, as well as severe damage to and destruction of property.  We maintain general business insurance coverage and insurance specific to the operation of a third party aircraft.

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Oil and Gas Exploration and Development Projects

The oil and natural gas exploration and development projects in which we participate will be subject to the usual hazards incident to the drilling of oil and natural gas wells, including the risk of fire, explosion, blow-out, pipe failure, casing collapse, abnormally pressured formations and environmental hazards such as oil spills, gas leaks, ruptures and discharges of toxic gases.  These hazards can cause personal injuries or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations.  

The project operator will, in accordance with prevailing industry practice, maintain insurance against some, but not all, of these risks.  The insurance maintained by the project operator generally would not cover claims relating to failure of title to oil and natural gas leases, trespass during survey acquisition or surface damage attributable to seismic operations, or business interruption, nor would it protect against loss of revenues due to well failure.  There can be no assurance that any insurance obtained by the project operator covering claims related to worker's compensation, comprehensive general liability for bodily injury and property damage, comprehensive automobile liability and pollution, cleanup, underground blowout and evacuation will be adequate to cover any losses or liabilities which may be incurred within projects in which we participate.  We also cannot predict the continued availability of insurance coverage or the availability of insurance at premium levels that justify its purchase.  

In cases where we have direct liability as a result of our participation on a working interest basis, the failure or inability of the project operator to procure insurance at an acceptable cost or the occurrence of a significant adverse event not fully insured or indemnified against could have a direct material, adverse effect on our business, financial condition and results of operations.  In these cases, our exposure will be commensurate with our participation percentage.

While we would have no direct liability in cases where our participation is limited to an overriding royalty interest, the failure or inability of the project operator to procure insurance at an acceptable cost or the occurrence of a significant adverse event not fully insured or indemnified against could have an indirect material, adverse effect on our business, financial condition and results of operations to the extent it adversely affects our joint venture partner's ability to complete current projects or explore for and develop additional projects.

SFD Technology Agreement

Our rights to use the SFD Technology arises from a technology agreement that we entered into with Momentum Resources Corporation in August 1996 and our subsequent contribution to the development of the SFD sensors by providing research and development funding and technical support.

Our president, Mr. George Liszicasz, developed the prototype sensor for the SFD technology, which later transferred to Momentum Resources Corporation, a Bahamian corporation (“Momentum”), of which Mr. Liszicasz is a part-owner. Eventually, the prototype became the subject of a Restated Technology Agreement dated August 1, 1996 and amended on April 3, 1998.  Pursuant to this agreement, Momentum agreed to provide certain services for the acquisition and provision of raw SFD data and to undertake the further technical development and commercial advancement of the Prototype Stress Field Detector, However, Momentum was unwilling or unable to fulfill its obligations under the agreement and NXT was required to acquire and provide raw SFD data and to financially contribute to the enhancement and development of the second generation of SFD sensors. NXT engaged additional staff with specialized knowledge and skills in semi-conductor and quantum technology to assist Mr. Liszicasz in developing such sensors.

The ownership and sharing of the SFD technology has been recently documented and agreed to between NXT and Mr. Liszicasz by entering into an Interim Operating Agreement and a Technical Services Agreement, with the first agreement effective August 25, 2004 and the second agreement effective January 1, 2006.

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The Interim Operating Agreement states that NXT has an undivided and unencumbered title to the four (4) operating stress field detectors engineered and constructed by Mr. Liszicasz from June 1, 1999 plus all sensors which might be manufactured by Mr. Liszicasz in the future with the financial contribution of NXT.  This agreement also states that Mr. Liszicasz is to provide NXT with his know-how and technical expertise in connection with NXT's use of the sensors, which includes construction, redesign and advancement of the sensors; and interpretation and analysis of data produced by surveys using the sensors. The Interim Operating Agreement expires on December 31, 2005.

The Technical Services Agreement goes into effect following the expiration of the Interim Operating Agreement and expires on January 1, 2011.  This agreement continues the obligations of Mr. Liszicasz to provide NXT with his know-how and technical expertise in connection with NXT’s use of the sensors and confirms NXT’s title to the sensors. The other purpose of this agreement is to provide additional consideration to Mr. Liszicasz for providing his services under this agreement.

The material terms of the Technical Services Agreement are as follows:

-

Mr. Liszicasz is to be employed by NXT as its President and Chief Executive Officer.

-

In the course of his employment, Mr. Liszicasz is to provide the SFD with certain support services so that NXT can carry out its operations in the exploration for hydrocarbon resources.

-

Mr. Liszicasz granted to NXT an exclusive, world-wide license to use, develop, copy and modify the existing sensors and to the extent necessary also the theories of quantum physics which are utilized in the operation of the sensors, and which theories remain the property of Mr. Liszicasz.

-

Mr. Liszicasz shall be paid an annual salary that is set by NXT’s Compensation Committee.

-

Mr. Liszicasz shall be entitled to participate in NXT’s bonus plan or plans that may be provided from time to time by NXT.

-

Mr. Liszicasz shall receive 10,000,000 shares of NXT’s preferred stock which may be converted into shares of NXT’s common stock on a one for one basis; conversion of the preferred shares in conditional upon NXT reaching certain milestones: (a) the first 2,000,000 shares are immediately convertible; (b) the next 2,000,000 shares are convertible upon NXT reaching $50 million in annual gross revenues; (c) the next 2,000,000 shares are convertible upon NXT reaching $100 million in annual gross revenues; (d) the next 2,000,000 shares are convertible upon NXT reaching $250 million in annual gross revenues; and (e) the final 2,000,000 shares are convertible upon NXT reaching $500 million in annual gross revenues.

-

Half of the 10,000,000 shares of NXT’s preferred stock to be issued to Mr. Liszicasz are subject to approval by NXT’s shareholders at NXT’s next annual meeting of shareholders. In the event that such approval is not given, 5,000,000 shares of the preferred stock shall be cancelled.

The material terms of the Restated Technology Agreement, as amended by the Amendment to the Restated Technology Agreement, dated April 3, 1998, are summarized as follows:

We hold the exclusive worldwide right to use, possess and control all SFDs created as of August 1, 1996, as well as any enhancements and know-how relating thereto, through December 31, 2005.

•

We are also entitled to the exclusive use of all SFD data generated by the SFDs for hydrocarbon identification and exploration purposes.

•

The agreement provides for the Company to pay Momentum Resources a data fee equal to (i) 1% of the “Prospect Profits” actually received by us or our subsidiaries with respect to the commercial exploitation of each Prospect for which SFD data is provided by Momentum on or before December 31, 2000; and (ii) 5% of any Prospect Profits actually received by us or our subsidiaries

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with respect to the commercial exploitation of each Prospect for which SFD data is provided by Momentum after December 31, 2000, up to December 31, 2005. As of the date of this prospectus, we have not generated any Prospect Profits and thus have not paid any data fees to Momentum Resources. “Prospect Profits” generally means the aggregate of all gross revenues that we or our subsidiaries receive with respect to the commercial exploitation of all Prospects calculated, less all project expenses actually paid by us or our subsidiaries with respect to the commercial exploitation of all Prospects. “Prospects” generally means any identified search areas that have commercially extractable amounts of hydrocarbons as determined by the interpretation of the SFD data.

In addition to the noted royalty the agreement provides for the Company to grant Momentum Resources "performance options" entitling it to purchase 16,000 unregistered common shares for each month in which production from SFD prospects exceeds 20,000 barrels of hydrocarbons. The exercise price for these warrants will be the "fair market value" of our common shares as determined by the mean between the closing representative bid and asked price for our common shares on the last business day of the quarter of calculation as reported by NASDAQ or NASD or if the common shares are not traded on such date, on the next preceding trading day. The options automatically expire to the extent unexercised three years from the date of grant. We are not obligated, under any circumstances, to grant options which would entitle the holders to acquire more than 8% of our common shares, after taking into consideration outstanding unexercised options. The performance options are also non-transferable except to Momentum Resource's affiliates. As of the date of this prospectus, no performance options have been earned by Momentum Resources.

•

Momentum Resources is prohibited during the term of the license from (i) engaging in the identification or exploitation of hydrocarbons for its own account or any party other than the Company; (ii) granting any license or sublicense to any third party to use SFDs or SFD data to any other party for any purpose; (iii) disclosing confidential and/or proprietary information relating to the SFD or SFD data to any other party; or (iv) selling, assigning or transferring its business, or license or sublicense the SFD or SFD data to any party.

•

The initial term of the Agreement expires on December 31, 2005, however, it renews automatically for additional one year terms unless we give written notice to Momentum Resources, no later than 60 days prior to the expiration of the pending term, of our election not to automatically renew the Agreement.  NXT intends to notify Momentum Resources of its election not to automatically renew the Agreement.

•

Momentum Resources, in turn, reserves the right to terminate the SFD technology Agreement upon the occurrence of any of the following events:

o

our failure to make any payment required under the Agreement;

o

our abandonment or discontinuance of the conduct of the oil and gas exploration business;

o

our dissolution or liquidation; our assignment of our assets for the benefit of our creditors, or our filing bankruptcy, or the appointment of a receiver for our business or property; or  

o

our failure to perform any other material covenant, agreement or term of the Agreement.

C.

ORGANIZATIONAL STRUCTURE

NXT conducts its activities primarily through its wholly owned subsidiary, NXT Energy Canada Inc., which focuses on Canadian-based exploration. We also have a division office in the United Arab Emirates. Prior to the sale of our U.S. properties in March of 2003, we also operated through NXT Energy USA Inc., which focused on United States-based exploration.  Survey flight activities are conducted through our

24

subsidiary, NXT Aero Canada Inc. The parent company concentrates on improving our SFD survey system and oversees the operations of and provides management, financial and administrative services to our subsidiaries.

D.

PROPERTY, PLANT AND EQUIPMENT

Facilities

Our principal executive office and research and development facilities are located at 700-840-7 Avenue SW, Calgary, Alberta, T2P 3G2.  Our sublease, consisting of approximately 6,600 square feet, expires on January 31, 2006.   Our combined obligations for base lease payments and building operating cost and other pass-through items under this lease are approximately CDN $13,100 per month. We are currently considering new premises.

Survey Aircraft

We have developed a universal platform for our SFD equipment that can be readily installed into most types of aircraft and we no longer require custom fitted airplanes.  We lease airplanes as needed to conduct surveys.

Petroleum Properties

For a description of our petroleum properties, Note 5,  of our annual consolidated financial statements.

Legal Proceedings

On November 27, 2002, we were served a Statement of Claim which had been filed on November 25, 2002, in the Court of Queen’s Bench of Alberta, Judicial District of Calgary (Action No. 0201-19820), naming Energy Exploration Technologies Inc. and George Liszicasz as defendants.  Mr. Dirk Stinson, the plaintiff, alleges that NXT failed to pay him compensation of $74,750, plus interest, under a consulting agreement and further alleges that NXT, without lawful justification, obstructed Mr. Stinson from trading his shares of NXT. On December 10, 2002, we filed our Statement of Defence.  On July 14, 2003, we received notice that the Mr. Stinson had dropped all claims except for the claim regarding compensation under the consulting agreement. Mr. Stinson is a past President and director of NXT and is currently a director and shareholder of Momentum Resources.

We believe the claim against us is contentious because of the ambiguity of the arrangements  and are vigorously defending ourselves against the claim.

On March 18, 2003, we were served a Statement of Claim which had been filed on March 14, 2003, in the Court of Queen’s Bench of Alberta, Judicial District of Calgary (Action No. 0301-04309), naming Glen Coffey, Murray’s Aviation Repairs (1980) Ltd., Energy Exploration Technologies, its wholly-owned subsidiary, NXT Energy Canada, Inc., Dennis Wolsky, as Administrator of the Estate of Jerry Wolsky, deceased and Embassy Aero Group Ltd. as defendants.  Tops Aviation Ltd., Spartan Aviation Inc. and John Haskakis (the “Plaintiffs”) allege that the defendants were negligent and in breach of a Ferry Flight Contract between one or some of the defendants and one or some of the Plaintiffs under which Mr. Jerry Wolsky was to deliver a Piper Twin Comanche aircraft to Athens, Greece.  The aircraft crashed in Newfoundland enroute to Athens killing Mr. Wolsky. The Plaintiff is seeking, among other things, damages in the amount of $450,000 Cdn for loss and damages to the aircraft and cargo; and damages in respect to search and rescue expenses, salvage, storage, transportation expenses and pollution and contamination expenses.

Neither we nor our subsidiary, NXT Energy Canada, Inc., were parties to the Ferry Flight Contract.  We believe the claim against us and our subsidiary is without merit and intend to vigorously defend ourselves against the claim and will seek an expeditious dismissal of the claim.

25

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and their explanatory notes included as part of this prospectus.

Overview

Energy Exploration Technologies Inc. is an oil and gas exploration company that utilizes the Stress Field Detector (SFD) technology invented by George Liszicasz, our CEO, President and largest shareholder. The SFD technology is a remote-sensing airborne survey technology comprised of SFD sensors, integrated electronic data acquisition, processing and interpretation subsystems and software. Our principal executive offices are located at 700, 840 - 7 Avenue SW, Calgary, Alberta, Canada and our telephone number is (403) 264-7020.

We use the airborne SFD technology to survey large exploration areas from leased aircraft at speeds of approximately 200 mph to identify and prioritize oil and gas prospects for further evaluation and potential drilling.

The Company utilizes leased aircraft for the purpose of conducting the SFD surveys. Our survey equipment racks have been aircraft type certified by the Canadian Ministry of Transport for both the Piper Cheyenne and Piaggio aircraft models. SFD has been successfully field tested for independent geologists and joint venture partners. Our SFD provides us with the ability to identify the location of potential hydrocarbon prospects in a matter of days or weeks, as compared to months or years using conventional seismic methods employed in wide-area exploration activities.  Once the location of potential hydrocarbon deposits are identified through the analysis and interpretation of the SFD data, the Company uses conventional geophysical technologies to further confirm and qualify the prospects prior to the selection of drilling sites.

We now conduct our activities primarily through our wholly owned subsidiary, NXT Energy Canada Inc., which focuses on Canadian-based exploration. We also have a division office in the United Arab Emirates. Prior to the sale of our U.S. properties in March of 2003, we also operated through NXT Energy USA Inc. which focused on United States-based exploration.  Survey flight activities are conducted through our subsidiary, NXT Aero Canada Inc. The parent company concentrates on improving our SFD survey system and oversees the operations of and provides management, financial and administrative services to our subsidiaries

The following discussion of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and their explanatory notes included as part of this prospectus.

A. RESULTS OF CONSOLIDATED OPERATIONS

Operating Revenues –September 30, 2004

On February 4, 2004, a well at Entice, Alberta, in which we have a 22.5% working interest, commenced production. Our share of production averaged 35 thousand cubic feet (mcf) per day during the quarter ended September 30, 2004.  Revenues, net of royalty expenses, for the period were $16,181.  The average price received was $4.66 per mcf and the operating cost was $0.65 per mcf.

Operating Revenues − 2003 compared to 2002

Our U.S. production commenced in late April 2002 and our share of on-going production was approximately 500 thousand cubic feet per day from that time until the sale of all of the U.S. properties on March 1, 2003.We have had no production since that time. The related revenue and expenses are included in loss from discontinued operations.

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We commenced production in late March 2002 from the Beiseker property in Alberta, Canada. Our share of production from the three wells was approximately 200 thousand cubic feet per day from that point until it was sold on July 1, 2002. It generated $75,628 in revenue for the period from commencement of production until the property was sold for a gain of $42,046.

Operating Revenues − 2002 compared to 2001

There was no production in 2001.

Operating loss from continuing operations – September 30, 2004

We incurred an operating loss of $416,450 for our quarter ended September 30, 2004, as compared to a loss of $485,469 for the corresponding period in 2003, representing a $69,019 (15%) overall decrease.  This decrease was primarily attributable to the following changes:  

Operating Loss from Continuing Operations – 2003 compared to 2002

The operating loss of $2,975,090 for 2003 was $954,274 (48%) greater than the loss of $2,020,816 for 2002. This was primarily attributable to the following:

and this was partially offset by:

Operating Loss from Continuing Operations – 2002 compared to 2001

The operating loss was $2,020,816 for 2002, compared to a loss of $3,246,772 for 2001, representing a $1,225,956 (38%) overall decrease. This was primarily attributable to the following:

27

Interest income – September 30, 2004

Interest income for the quarter ended September 30, 2004 was $831 compared to the loss of $1,017.  This increase is attributable to the interest received on the money held in escrow for the prepaid rent on our office space.

Other comprehensive income – September 30, 2004

The foreign currency exchange gain of $64,413 for the quarter ended September 30, 2004 was caused by the change in the United States – Canadian currency rates from $1.3338 at June 30, 2004 to $1.2616 at September 30, 2004.  The foreign currency exchange loss of $13,128 for the same period in 2003 was due to the change in rates from $1.3475 at June 30, 2003 to $1.34999 at September 30, 2003. Comprehensive gains or losses arise in consolidating our accounting records for financial reporting purposes as a result of the fluctuations in during the period.

Other Income and Expense – 2003 compared to 2002

Other Income and Expense – 2002 compared to 2001

Income (loss) from discontinued operations – September 30, 2004

Income from discontinued operations for the quarter ended September 30, 2004 was $5,052 compared to the 2003 loss of $26,660.  In 2004, the income is due to the sale of aircraft equipment which had previously been written off.  The loss in 2003 was attributed to our write-off of the remaining aircraft equipment held for sale.

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Loss from Discontinued Operations – 2003 compared to 2002

Loss from Discontinued Operations – 2002 compared to 2001

Relationships and Transactions on Terms That Would Not Be Available From Clearly Independent Third Parties

On May 9, 2003, we sold all of our U.S. properties for $1,450,000, which consisted of $720,000 in cash and the remainder in the redemption of all of our issued and standing preferred shares.  We believe that this transaction, although entered into with the holder of our preferred stock, consisted of commercial terms due to the fact that the price for these properties was set by arm’s length negotiations between the parties.  Liquidity And Capital Resources

Foreign Exchange

We have not previously engaged in activities to mitigate the effects of foreign currency. At our current levels of activity, a U.S. $0.01 change in the U.S. / Canadian exchange rate will impact our net income by $63,000.

Sources of Cash

In the quarter ended September 30, 2004 we had a net cash outflow of $218,062 compared to the third quarter of 2003 when we had a cash inflow of $46,402. The 2004 results were  due to the operating activities use of cash of $883,259,  the effects of the fluctuations in foreign exchange on the oil and gas properties book values in 2004 of $72,292 and  the effects of the fluctuations in foreign exchange on other properties’ value of $16,293  partially offset by funds received from options exercised of $27,067, the funds received from the issuance of shares of $655,617, proceeds from sale of oil and gas property in the amount of $1,633, income generated from discontinued operations in the amount of $5,025  and exchange gains of $64,413. The 2003 results were due to the funds received from the private placement of $740,815, partially offset by the operating activities of $450,439 and the funds invested in Canadian oil and natural gas properties of $221,005.  Net cash used by our operating activities during the three month period ended September 30, 2004 of $745,658 was an increase of $295,219 over the same period from 2003 and was caused by the reduction of current liabilities.

On November 3, 2004, we entered into a loan agreement with our CEO and largest shareholder, Mr. George Liszicasz, in which we borrowed $250,000 CDN (which was converted into US$231,499).  On November 16, 2004, we amended the loan agreement whereby we borrowed an additional $31,000 USD.  On November 17, 2004, we entered into an additional loan agreement with Mr. Liszicasz for further $100,000 CDN, which has not yet been drawn upon.  These agreements provide that the loans accrue interest at the rate of 0.58% per month (7.0% per annum).  On November 19, 2004, we entered into a Loan Agreement Amendment, whereby the maturity date for all three (3) loans was extended to November 17, 2005.

On November 20, 2004 we received a subscription agreement from one of the members of our Board of Directors, His Highness Sheikh Al Hassan Bin Ali Bin Rashid Al Nuaimi, to purchase 250,000 units at a price of $2.00 per unit.  Each unit consists of one common share and a warrant to purchase one additional

29

common share for $2.75 within the next year.  We expect to close on this subscription agreement and receive the committed funds during the second quarter of 2005.

Our cash flow requirements for 2003 were funded principally by: (i) the sale of our U.S. properties for $720,000 in cash and the return to treasury of our preferred shares in March 2003; (ii) a private placement which closed in September 2003 of 1,875,000 common shares for total gross proceeds of $750,000; and (iii) the private flow-through share placement in December 2003 of 101,700 common shares for total gross proceeds of $203,400.

Except as described below, there are no guarantees, commitments, leases, debt agreements or other agreements which could be triggered by an adverse change in our credit rating, earnings, cash flows or stock price, including requirements to perform under standby agreements.

NXT received certain investments totaling $203,400 in 2003 and $72,000 in 2004, for which it has passed on exploration tax credits to the investors.  As a result of these investments, NXT was required to expend a total of $295,400 on oil and gas projects in Canada.  The total amount was expended in 2004 on completion of a gas well located in Canada.

Current Cash Position and Historical Changes in Cash Position – September 30, 2004

Our cash position as of September 30, 2004 was $308,151 as compared to $1,024,201 as of December 31, 2003.  This decrease in our cash position was attributable to the cash used in operating activities of $2,375,035, cash increase from financing activities of $1,817,877, net cash used in investing activities of $92,160, net cash used by discontinued operations of $13,100 and the net comprehensive loss of $53,632. Our cash position as of September 30, 2003 was $1,009,289 as compared to $585,070 as of December 31, 2002.

Our working capital deficiency of $19,208 as of September 30, 2004 was a decrease of $583,065 compared to working capital of $563,857 as of December 31, 2003. The subscriptions payable of $377,320, which is the main cause of the deficiency, will be extinguished by the issue of shares in the second quarter of 2005.

Cash used in operating activities in the quarter ended September 30, 2004 increased by $432,820 (96%) to $883,259 for 2004 as compared to the same period in 2003. The increased cash draws were attributable to the reduction of current liabilities.

Financing activities in 2004 generated $655,617 from the issue of common shares and $27,067 from the exercise of stock options, compared to financing activities in 2003, which generated $740,815 from the issue of common shares.

Investing activities used cash of $86,952 for the quarter ended September 30, 2004 as compared to $225,255 used in the quarter ended September 30, 2003. The reason for the increase was attributable to the effects of fluctuations in foreign exchange on the oil and gas properties book values in 2004.  In 2003 we had invested in oil and natural gas properties.

Discontinued operations generated cash of  $5,025 in the quarter for the actual billing as compared to the tax accruals.  The quarter ended September 30, 2003 used $5,591 of cash from discontinued operations for small on-going administrative expenses.

Other comprehensive income, specifically currency exchange, was a gain of $64,413 in the quarter ended September 30, 2004 as compared to the loss $13,128 in the quarter ended September 30, 2003. The reasons for the change are explained above.

30

Current Cash Position and Historical Changes in Cash Position –December 31, 2003

Our cash position as of December 31, 2003 was $1,024,201 as compared to $585,070 as of December 31, 2002.  

The $439,131 increase in our cash position for 2003 compared to 2002 was attributable to:

The $2,409,538 decrease in our cash position for 2002 compared to 2001 was attributable to:

Operating Activities - 2003 compared to 2002

Our operating activities required cash in the amount of $1,026,374 for 2003, as compared to cash requirements of $2,065,594 for 2002

Financing Activities - 2003 compared to 2002

Financing activities in 2003 generated cash of $1,025,767compared to the cash of $nil generated from financing activities in 2002.

Investing Activities- 2003 compared to 2002  

Investing activities used cash of $746,108 in 2003 compared to a $372,825 use of cash 2002.

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Discontinued Operations- 2003 compared to 2002

Plan of Operation and Prospective Capital Requirements

We have approximately $233,500 in cash on hand as of March 29, 2005 to fund our plans and to contribute toward our administration, operational and research and development requirements for the next twelve months.  We will be required to raise additional financing through equity issues, borrowings or property dispositions.

Our consolidated financial statements included with the registration statement in which this prospectus is included are prepared using generally accepted accounting principles in the United States of America that are applicable to a going concern, which assumes the realization of assets and the settlement of liabilities in the normal course of operations. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and obtain the necessary financing to meet our obligations and repay liabilities arising from normal business operations when they come due.  The outcome of these matters cannot be predicted with any certainty at this time. Our consolidated financial statements do not include any adjustments to amounts and classifications of assets and liabilities that may be necessary should we be unable to continue as going concern.

In the nine months ended September 30, 2004, we incurred a loss of $2,473,521, have an accumulated deficit of $25,275,628, and have a working capital deficiency of $19,208 as at the end of the period.  We had capital commitments of $203,400 related to flow-through share obligations that was met in 2004 and an additional $72,000 that must be utilized by the end of 2005.  

We expect to continue incurring net losses from operations and have negative operating cash flows until we can secure revenue generating activities.  These circumstances raise substantial doubt about our ability to continue as a going concern.

We have taken the following measures to ensure the ongoing viability of the company:

•

On November 3, 2004, we entered into a loan agreement with our CEO and largest shareholder, Mr. George Liszicasz, in which we borrowed $250,000 CDN.  On November 16, 2004, we amended the loan agreement whereby we borrowed an additional $31,000 USD.  On November 17, 2004, we entered into an additional loan agreement with Mr. Liszicasz for a further $100,000 CDN, which we have not yet drawn down on.  These agreements provide that the loans accrue interest at the rate of 0.58% per month (7.0% per annum). On November 19, 2004, we entered into a Loan Agreement Amendment, whereby the maturity date for all three (3) loans was extended to November 17, 2005. On November 20, 2004 we received a subscription agreement from one of the members of our Board of Directors, His Highness Sheikh Al Hassan Bin Ali Bin Rashid Al Nuaimi, to purchase 250,000 units at a price of $2.00 per unit.  Each unit consists of one common share and a warrant to purchase one additional common share for $2.75 within the next year.  We expect to close on this subscription agreement and receive the committed funds in the second quarter of 2005.

•

On December 3, 2004, we received 1,000,000 USD for the private placement of 521,429 common shares and warrants entitling the holder to purchase 621,700 common shares at the exercise price of 2.75 USD.

•

We have undertaken a variety of cost reduction activities including but not limited to termination of contract employees, reduction of officer’s salary and reduction of corporate travel.   

32

We can give no assurance that any or all projects in our pending programs will be commercial, or if commercial will generate sufficient revenues in time to cover our operating or other costs. Should this be the case, we would be forced, unless we can raise sufficient additional working capital, to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company.

OTHER MATTERS

Foreign Exchange

Foreign currency translation gains or losses are included as a comprehensive income (loss) item on our statements of loss and comprehensive loss and shareholders' equity (deficit) in consolidating our accounting records for financial reporting purposes as a result of the fluctuation in United States-Canadian currency exchange rates during that period.  We cannot give you any assurance that our future operating results will not be adversely affected by currency exchange rate fluctuations.  

Effect of Inflation

We do not believe that our operating results were unduly affected during the third quarter of 2004 or 2003 by inflation or changing prices.

Critical Accounting Policies

We follow the full cost method of accounting for oil and natural gas properties and equipment whereby we capitalize all costs relating to our acquisition of, exploration for and development of oil and natural gas reserves.  Our consolidated financial condition and results of operations are sensitive to, and may be adversely affected by, a number of subjective or complex judgments relating to methods, assumptions or estimates required under the full cost method of accounting concerning the effect of matters that are inherently uncertain.  For example:

33

Recent Accounting Pronouncements

In August 2001, the U.S. Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations".  SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.  The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.  We were required to adopt the provisions of SFAS No. 143 on January 1, 2003.  We have sold our U.S. properties, along with the associated abandonment liabilities, and we have no retirement liabilities associated with the Canadian properties.  Therefore, this SFAS has no impact on us at this time.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, that revised FASB Statement No. 123, Accounting for Stock-based Compensation and superseded APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services through share-based employee transactions. SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. SFAS is effective as of the beginning of the first or annual reporting period that begins after June 15, 2005. The ultimate amount of increased compensation expense will be dependent on whether the company adopts SFAS 123R using the modified prospective or retrospective method, the number of option shares granted during the year, their timing and vesting period, and the method used to calculate the fair value of the awards, among other factors.

The company has begun, but has not completed, evaluating the impact of adopting ASFAS 123R on its results of operations. The company currently determines the fair value of stock-based compensation using a Black-Scholes option-pricing model.  In connection with evaluating the impact of adopting SFAS 123R, the company is also considering the potential implementation of different valuation models to determine the fair market value of stock-base compensation, although no decision has been yet made. However, the company does believe that the adoption of SFAS 123R will have a material impact on its results of operations, regardless of the valuation technique used.

The following standards issued by the FASB do not impact us at this time:

•

Statement No. 149 – Amendment for Statement 133 on Derivative Instruments and Hedging Activities effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.

•

Statement No. 150 – Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity effective for financial instruments issued at the beginning of the first interim period beginning after June 15, 2003.

•

Fin 45 – Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others effective prospectively for guarantees issued or modified after December 31, 2002 for initial recognition and initial measurement provisions; for financial statements of interim or annual periods ending after December 15, 2002 for disclosure requirements. Interpretation No. 46 - Consolidation of Variable Interest Entities, effective for financial statements issued after January 31, 2003.

•

Interpretation No. 46 - Consolidation of Variable Interest Entities, effective for financial statements issued after January 31, 2003.

34

•

Interpretation No. 46R - Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, requires consolidation of entities in which the Corporation is the primary beneficiary, despite not having voting control, effective for financial statements issued after December 31, 2003.

•

SFAS 146 – Accounting for Costs Associated with Exit or Disposal Activities, effective prospectively for such activities initiated after December 31, 2002. It requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.

•

In September 2004, the SEC released SAB 106, which expresses the staff’s views on the application of SFAS 143 by oil and gas producing companies following the full cost accounting method.  SAB 106 provides interpretive responses related to computing the full cost ceiling to avoid double-counting the expected future cash outflows associated with asset retirement obligations, required disclosures relating to the interaction of SFAS 143 and the full cost rules, and the impact of SFAS 143 on the calculation of depreciation, depletion, and amortization. This has no impact on our company at this time.

•

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29 that amends Opinion 29 to eliminate the exception from fair market measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. The provisions of this statement are effective for all nonmonetary exchanges occurring in fiscal years beginning after June 15, 2005. The adoption of this Statement is not expected to have material effect on the results of operations or financial position of the company.

Research and Development

Our research and development activities have focused on developing, improving and testing our SFD survey system and related components.  As we are now in the more mature stage of full practical application we have reduced our expenditures in the base research and are devoting our resources to enhanced application capability. Research and development expenses in 2003 were nil, $152,862 in 2002 and $418,422 in 2001.

Off–Balance Sheet Arrangements

None

Tabular Disclosure of Contractual Obligations

Contractual Obligations

           From November 3 through November 19^th, NXT entered into a series of loan agreements with its CEO and largest shareholder, Mr. George Liszicasz, pursuant to which NXT borrowed a total of $233,253, at a rate of 7.0% per annum.

          Mr. Liszicasz is employed as our Chief Executive Officer under a five-year employment agreement

35

entered into on December 1, 2002, which contains the following principal compensatory provisions:

At the conclusion of his initial term, Mr. Liszicasz’s employment agreement renews automatically each year for a successive one-year term, unless we or Mr. Liszicasz elects by a written, 60-day notice not to renew; or the agreement is terminated earlier in accordance with its terms.

On January 3, 2005 Energy Exploration Technologies, Inc signed a contract for investor awareness and promotion services in Europe with  CoMarCon Germany. Under this contract, NXT has the obligation to pay CoMarCon $25,000 in cash and to issue 50,000 shares. As of the date of this report the $25,000 cash has been paid and 50,000 shares have been issued.

In March 2005 a contract was signed with Pangaea Investments under which Pangaea will provide investor relations and public relations services for a monthly fee of $5,000 CDN plus reimbursement of certain expenses, 100,000 common shares and a grant of an option to buy 100,000 additional common shares.  The 100,000 common shares have been issued as of the date of this report. The contract may be terminated by either party upon 30 days’ notice.

In January 2005, a 12 month agreement was signed with Aware Capital under which Aware will provide investor relations and promotional services for a finders’ fee that will equal 3% of any financing arranged for by Aware and accepted and closed by NXT subject to certain limitations. As of the date of this report no fees have been paid or earned. The agreement also provides for $150,000 restricted shares of common stock to be delivered to NXT’s legal counsel and held in escrow pending Aware’s performance and completion of duties and obligations under the agreement. To the date of this report no shares have been issued under this agreement.

NXT’s office lease was renewed in November 2004 and expires on January 31, 2006.  From October 1, 2004 through the date of expiration, NXT s obligated to make $171,477 in total payments for this lease. As of the date of this statement $108,918 of this amount was payable to January 31, 2006.

On August 25, 2004 the Technical Service Agreement was signed between NXT and George Liszicasz, its CEO. According to the terms of the agreement Mr. Lisziczsz is entitled to receive  preferred shares convertible into common shares as follows:

Stage

Number of Preferred Shares

Annual Gross Revenue of the Company

1

2,000,000

N/A – convertible on signing

2

2,000,000

$ 50,000,000

3           

2,000,000

$100,000,000

4

2,000,000

$250,000,000

5

2,000,000

$500,000,000

The ratification of the agreement by the Board of Directors is subject to the receipt of fairness opinion. J.D. McCormick Financial Services has been retained to provide the fairness opinion. The target date for the ratification is the date (to be announced) of the next Annual General Meeting in June 2005. The first 2,000,000 shares will be issued after the ratification.

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Financial Statements

TABLE OF CONTENTS

          Page

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANT

Deloitte & Touche LLP

3000 Scotia Centre

700 Second Street S.W.

Calgary  AB  T2P 0S7

Canada

Tel: (403) 267-1700

Fax: (403) 264-2871

www.deloitte.ca

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Shareholders of Energy Exploration Technologies Inc.:

We have audited the consolidated balance sheet of Energy Exploration Technologies Inc. as at December 31, 2003 and  2002 and the consolidated statements of loss and comprehensive loss, cash flows and shareholders’ equity (deficit) for the years then ended.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Energy Exploration Technologies Inc. as at December 31, 2003 and  2002 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

The consolidated financial statements of Energy Exploration Technologies Inc. for the year ended December 31, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statements in their report dated March 22, 2002. These financial statements have been revised to give effect to the discontinued operations, as described in Note 16. Our procedures included agreeing previously reported amounts related to the discontinued operations to the previously issued financial statements, agreeing the amounts classified as discontinued operations and related disclosures to Energy Exploration Technologies Inc.’s underlying records obtained from management and testing mathematical accuracy of the amounts related to the discontinued operations applicable to the 2001 amounts. In our opinion, the adjustments related to the discontinued operations for 2001 are appropriately and properly applied. However, we were not engaged to audit, review or apply any procedures to the 2001 consolidated financial statements of Energy Exploration Technologies Inc. other than with respect to such adjustments and disclosures, and accordingly, we do not express an opinion or any other form of assurance on the 2001 consolidated financial statements taken as a whole.

Calgary, Alberta, Canada

                                                                      /s/ Deloitte & Touche LLP

March 17, 2004

Independent Registered Chartered Accountants

(Except for Note 18 which is as of March 11, 2005)

F-2

Deloitte & Touche LLP

3000 Scotia Centre

700 Second Street S.W.

Calgary,  AB  T2P 0S7

Canada

Tel: (403) 267-1700

Fax: (403) 264-2871

www.deloitte.ca

Comments by Auditor on Canada-United States of America Reporting Difference

The standards of the Public Company Accounting Oversight Board (United States) for auditors require the addition of an explanatory paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in note 1 to the financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), our report is expressed in accordance with Canadian reporting standards, which do not permit a reference to such conditions and events in the auditors’ report when these are adequately disclosed in the financial statements.

Calgary, Alberta, Canada                                                 /s/ Deloitte & Touche LLP

March 17, 2004

Independent Registered Chartered Accountants

(Except for Note 18 which is as of March 11, 2005)

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THIS REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS IS A COPY OF THE REPORT

PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED.

To the Shareholders of
Energy Exploration Technologies Inc.:

We have audited the consolidated balance sheets of ENERGY EXPLORATION TECHNOLOGIES INC. as at December 31, 2001 and 2000, and the consolidated statements of loss and comprehensive loss, shareholders’ equity (deficit) and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2001 and 2000 and the results of its operations and its cash flows for the years then ended in accordance with generally accepted accounting principles in the United States.

/s/ Arthur Andersen LLP

Chartered Accountants

Calgary, Canada
March 22, 2002

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

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

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The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements of shareholders' equity (deficit)

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

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1. Organization and Ability to Continue Operations

Energy Exploration Technologies Inc. ("we", "our company" or "NXT") was incorporated under the laws of the State of Nevada on September 27, 1994.

In March 2003 we divested all our U.S. properties. For reporting purposes, the results of operations and the cash flows of the U.S. properties have been presented as discontinued operations.  Accordingly, prior period financial statements have been reclassified to reflect this change. For details, refer to note 16.

NXT was continued from the State of Nevada to the Province of Alberta, Canada on October 24, 2003. The shareholders voted on and approved this change which moved the jurisdiction of incorporation from the U.S. to Canada. The tax effects are disclosed in the proxy statement circulated to shareholders for the Special Meeting on October 24, 2003. As a result of the continuance into Canada, our common and preferred shares no longer have a par value assigned, as is the practice in the United States. Therefore the amount that was disclosed as “Additional paid-in Capital” in prior years on the consolidated balance sheets and consolidated statements of shareholders’ equity (deficit) has been added to the share issued amount. This is a legal jurisdiction reporting difference only.

We are a technology-based reconnaissance exploration company which utilizes our proprietary stress field detection (SFD) remote-sensing airborne survey technology to quickly and inexpensively identify and high-grade oil and natural gas prospects.  

We conduct our reconnaissance exploration activities, as well as land acquisition, drilling, completion and production activities through our wholly-owned subsidiary, NXT Energy Canada Inc and we conduct the aerial surveys through our wholly owned subsidiary, NXT Aero Canada Inc.

 NXT Energy USA Inc. and NXT Aero USA Inc. are two wholly owned subsidiaries through which we previously conducted our U.S. operations but these companies have been inactive since the sale of the U.S. properties in early 2003.

For the year ended December 31, 2003, we incurred a loss of $2,352,359 and our ability to continue as a going concern will be dependent upon successfully identifying hydrocarbon bearing prospects, and financing, developing and monetizing these assets for a profit. We anticipate that we will continue to incur further losses until such time as we receive revenues from production or sale of properties with respect to currently held prospects or through prospects we identify and exploit for our own account.

We have divested our U.S. properties, raised capital through private placements in 2003 and we are in the midst of additional fund raising in 2004. As a result of these measures, we believe we will be able to pursue and exploit our goals and opportunities throughout 2004.

We can give no assurance that any or all pending projects will generate sufficient revenues to cover our operating or other costs.  Should this be the case, we would be forced, unless we can raise sufficient additional working capital, to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company.

These consolidated financial statements are prepared using generally accepted accounting principles that are applicable to a going concern, which assumes the realization of assets and the settlement of liabilities in the normal course of operations. Should this assumption not be appropriate, adjustments in the carrying amounts of the assets and liabilities to their realizable amounts and the classification thereof will be required and these adjustments and reclassifications may be material.

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2. Significant Accounting Policies

Basis of Presentation

We have prepared these consolidated financial statements for our years ended December 31, 2003, 2002 and 2001 and as at December 31, 2003 and 2002 in accordance with accounting principles generally accepted in the United States of America for annual financial reporting.

Consolidation

We have consolidated the accounts of our wholly-owned subsidiaries with those of NXT in the course of preparing these consolidated financial statements.  All significant inter-company balances and transactions amongst NXT and its subsidiaries have been eliminated as a consequence of the consolidation process, and are therefore not reflected in these consolidated financial statements.

Estimates and Assumptions

The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amount of revenues and expenses during the reporting periods.  Actual results may differ from those estimates.

Cash and Cash Equivalents

For purposes of preparing the consolidated balance sheets and statements of cash flows contained in these consolidated financial statements, we consider all investments with original maturities of ninety days or less to constitute "cash and cash equivalents".

Debt Issuance Costs

We amortize debt issuance costs on a straight-line basis over the life of the related debt.

Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, trade payables, accrued liabilities and subscriptions payable. The book value of these financial instruments approximates their fair values due to their short-term to maturity and similarity to current market rates.  It is the opinion of our management that we are not exposed to significant interest, currency or credit risks arising from these financial instruments.

Flight Equipment Held For Sale

Both aircraft were sold in 2002. We carry our flight equipment held for sale at the lower of the carrying amount or the fair value less cost to sell. These assets are not depreciated as long as they are held for sale.  

Oil and Natural Gas Properties

We follow the full cost method of accounting for oil and natural gas properties and equipment whereby we capitalize all costs relating to our acquisition of, exploration for and development of oil and natural gas reserves.  These capitalized costs include:

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We only capitalize overhead that is directly identified with acquisition, exploration or development activities. All costs related to production, general corporate overhead and similar activities are expensed as incurred.

Under the full cost method of accounting, capitalized costs are accumulated into cost centers on a country-by-country basis.  These costs, plus a provision for future development costs (including estimated dismantlement, restoration and abandonment costs) of proved undeveloped reserves, are then depleted and depreciated using the unit-of-production method, based on estimated proved oil and gas reserves as determined by independent engineers where significant.  For purposes of the depletion and depreciation calculation, proved oil and gas reserves are converted to a common unit of measure on the basis of their approximate relative energy content. NXT was a development stage enterprise until 2002 and any net revenues received prior to achieving commercial production were accounted for as an adjustment to capitalized costs. NXT achieved commercial operations at the beginning of the second quarter of 2002.

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

The carrying values of unproved oil and natural gas properties, which are excluded from the depletion calculation, are assessed on a quarterly basis to ascertain whether any impairment in value has occurred.  This assessment typically includes a determination of the anticipated future net cash flows based upon reserve potential and independent appraisal where warranted.  Impairment is recorded if this assessment indicates the future potential net cash flows are less than the capitalized costs.

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

We conduct oil and natural gas exploration, drilling, development and production activities through joint venture partners.  These consolidated financial statements reflect only our proportionate interest in these activities.

Other Property and Equipment

We carry our other capitalized property and equipment at cost, and depreciate or amortize them over their estimated service lives using the declining balance method as follows:

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When we retire or otherwise dispose of our other capitalized property and equipment, we remove their cost and related accumulated depreciation or amortization from our accounts, and record any resulting gain or loss in the results of operations for the period.  Our management periodically reviews the carrying value of our property and equipment to ensure that any permanent impairment in value is recognized and reflected in our results of operations. For details, refer to note 6.

Revenue Recognition

Revenue associated with sales of crude oil and natural gas is recorded when title passes to the customer.

Research and Development Expenditures

We expense all research and development expenditures we incur to develop, improve and test our SFD survey system and related components, including allocable salaries.

Survey Operations and Support

We expense all survey operations and support expenditures we incur and these consist primarily of the cost to:

Foreign Currency Translation

Foreign currency translation adjustments resulting from the translation of the financial statements of our Canadian subsidiaries, whose functional currency is Canadian dollars, into U.S. dollar equivalents for purposes of consolidating our financial statements, are included in other comprehensive income (loss).  We use the following methodology to convert Canadian dollar denominated accounts and transactions into U.S. dollars:

We record the cumulative gain or loss arising from the conversion of the noted Canadian dollar denominated accounts and transactions into U.S. dollars as a foreign currency translation adjustment as a component of the accumulated other comprehensive loss for that period.  

 Income Taxes

We follow the liability method of accounting for income taxes (see Note 13). This method recognizes income tax assets and liabilities at current rates, based on temporary differences in reported amounts for financial statement and tax purposes. The effect of a change in income tax rates on future income tax assets and future income tax liabilities is recognized in income when substantively enacted.

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Stock-Based Compensation for Employees and Directors

In accounting for the grant of our employee and director stock options, we have elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations. Under APB 25, companies are not required to record any compensation expense relating to the grant of options to employees or directors where the awards are granted upon fixed terms with an exercise price equal to fair value at the date of grant and the only condition of exercise is continued employment.  See note 11.

Summarized below is pro forma financial information for the three years ended December 31, 2003.2002 and 2001 which presents the net loss for the year and loss per common share for the year calculated in accordance with SFAS No. 123:

Recent Accounting Pronouncements

In August 2001, the U.S. Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations".  SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.  The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.  We were required to adopt the provisions of SFAS No. 143 on January 1, 2003.  We have sold our U.S. properties, along with the associated abandonment liabilities, and we have no retirement liabilities associated with the Canadian properties.  Therefore, this SFAS has no impact on us at this time.

In January 2003, the FASB issued Statement No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of FASB Statement No. 123” (FAS 148).  FAS 148 amends FAS 123 “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair-value method of accounting for stock-based compensation.  The impact of this accounting standard is discussed more fully in note 11.

The following standards issued by the FASB do not impact us at this time:

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Statement No. 149 – Amendment for Statement 133 on Derivative Instruments and Hedging Activities effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.

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Statement No. 150 – Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity effective for financial instruments issued at the beginning of the first interim period beginning after June 15, 2003.

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Interpretation No. 45 – Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others effective prospectively for guarantees issued or modified after December 31, 2002 for initial recognition and initial measurement provisions; for financial statements of interim or annual periods ending after December 15, 2002 for disclosure requirements.

•

Interpretation No. 46 - Consolidation of Variable Interest Entities, effective for financial statements issued after January 31, 2003

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•

Interpretation No. 46R - Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, requires consolidation of entities in which the Corporation is the primary beneficiary, despite not having voting control, effective for financial statements issued after December 31, 2003.

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SFAS 146 – Accounting for Costs Associated with Exit or Disposal Activities, effective prospectively for such activities initiated after December 31, 2002. It requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.

3. Note Receivable from Former Officer

In September 1998, we loaned the sum of CDN $54,756 (US $35,760 as of that date) to one of our officers in connection with his relocation to Calgary, Alberta.  The interest rate averaged 5%. Pursuant to the terms of an underlying promissory note, the officer was required to repay the loan on a monthly basis, with a balloon payment due on October 3, 2003. The officer left NXT in 2002 and we are pursuing repayment of the note.

4. Flight Equipment Held for Sale

Both aircraft were sold in 2002.

Summarized below are our capitalized costs for the aircraft and flight equipment held for sale as of December 31, 2003 and 2002:

These assets are reported as part of assets from our United States operations as of December 31, 2002. See note 17.

5. Oil and Natural Gas Properties

Summarized below are the oil and natural gas property costs we capitalized for our years ended December 31, 2003 and 2002, and as of December 31, 2003 and 2002:

      The property costs net of depletion, impairments and dispositions, by proved and unproved classification, are as   follows     at December 31, 2003 and 2002:

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As there were no proved properties at the end of 2003, a ceiling test was not performed. For 2002, the ceiling tests resulted in write-downs of $263,000.

The impairment of oil and natural gas properties also includes the write-down of the cost of drilling and completing wells which are either non-commercial or which we are unable to complete for technical reasons.  We have written-off these individual well costs as an impairment cost since this determination was made prior to the establishment of proved reserves.

At the end of each quarter, our management performs an overall assessment of each of our unproved oil and natural gas properties to determine if any of these properties had been subject to any impairment in value (see note 2).  The method we use is to compare the average price paid per acre for petroleum and natural gas rights in the province, after applying a discount to recognize the shorter remaining life of certain of our leases and the possible reduced economic value, to the recorded carrying cost of our leases. Based upon these evaluations, we have determined that our unproved properties continued to have prospective commercial viability as of these dates but that an impairment of $945,000 had occurred in 2003 ($Nil in 2002).  Based upon these considerations, we have recorded these impairments against our properties to date as noted above.

6. Other Property and Equipment

Summarized below are our capitalized costs for other property and equipment as of December 31, 2003 and 2002:

7. Long-Term Debt

At December 31, 2001, we owed $1,535,136 on an asset-based loan collateralized by our Piaggio P180 Avanti aircraft.  On May 1, 2002, we completed the sale of our Piaggio Avanti P180 aircraft to a third party and used the proceeds to settle the principal and interest due on this loan in full. We also expensed the remaining unamortized debt issuance costs of $22,805.  For 2002, we paid $61,264 of interest on this long-term debt.

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8. Common Stock

We calculate basic earnings per common share from continuing operations using net income from continuing operations, net of income taxes, divided by weighted average number of common shares outstanding. We calculate basic earnings per common share using net income attributable to common shareholders and the weighted average number of common shares outstanding. We calculate diluted earnings per common share from continuing operations and diluted earnings per common share in the same manner as basic, except we use the weighted-average number of diluted common shares outstanding in the denominator.

In calculating diluted earnings per common share for the years ended December 31, 2003, 2002 and 2001,we excluded all options either because the exercise price was greater than the annual average market price of our common shares in those years or the exercise of the options would have been anti-dilutive. During these three years, outstanding stock options were the only potentially dilutive instrument.

On September 11, 2003, we raised $750,000 in gross proceeds through a private placement of 1,875,000 common shares at $0.40 per share.  Net proceeds to our company were $744,050 after deducting $5,950 in offering expenses and we also issued 124,000 shares as finders’ fees.

On December 31, 2003 we closed a private placement of 101,700 flow-through common shares at $2.00 ($2.60 CAN) per share for $203,400 in gross proceeds. Net proceeds were $186,517. We issued 7,496 warrants with a strike price of $2.75 and a one year term and paid $14,992 in cash as finders’ fees.

9. Preferred Shares

The series 'A' preferred shares were not entitled to payment of any dividends, although they were entitled under certain circumstances to participate in dividends on the same basis as if converted into common shares.  Each series 'A' preferred share carried a $7.50 liquidation preference should our company wind-up and dissolve.  Each series 'A' preferred share was convertible by either the holder or NXT into common shares based upon a $7.50 per share conversion price, subject to adjustment should NXT sell common shares or common share purchase options or warrants at prices less than $7.50 per share in specified circumstances.

All of the outstanding preferred shares were returned to treasury effective May 9, 2003 as part of the consideration received for the sale of the U.S. properties   

10. Performance Warrants

On August 1, 1996, we granted a performance-based contractual right to acquire NXT warrants to the licensor of our SFD technology, to  Momentum Resources Corporation ("Momentum Resources"), in connection with the amendment of our exclusive SFD technology license with Momentum Resources to use the SFD technology for hydrocarbon exploration.  The primary purpose of the amendment was to indefinitely extend the termination date of the license.  Pursuant to this contractual right, Momentum Resources is entitled to a separate grant of warrants entitling it to purchase 16,000 common shares at the then current trading price for each month after December 31, 2000 in which production from SFD-identified prospects during that month exceeds 20,000 barrels of hydrocarbons.  Momentum Resources has not earned any warrants under the SFD technology license as of December 31, 2003.

11. Employee and Director Options

Description of Plans

Through December 31, 2003, we have granted options to selected employees, directors, advisors and consultants of our company pursuant to the following separate arrangements or plans (the "Plans"):

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Summary of Option Grants

We have summarized below all transactions involving option grants under the Plans for our three fiscal years ended December 31, 2003:

We have summarized below all outstanding options under the Plans as of December 31, 2003:

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The employee options outstanding as of December 31, 2003 vest over three to five years from the grant date, depending upon the recipient, based upon the continued provision of services as an employee. The director options granted after January 1, 2000 that are outstanding as of December 31, 2003 vest one-third each on the first through third anniversaries of the grant date, respectively, based upon the continued provision of services as a director.  Both the employee and director options generally lapse, if unexercised, five years from the date of vesting.

Compensation Expense Associated With Grant of Options

Pursuant to APB 25, we have recorded $89,100 ( 2002 – nil, 2001 – nil) in compensation expense relating to the grant of options for 2003 as the exercise price for certain options we have granted to our employees and directors was less than the market price of the underlying common shares on the effective date of grant.  See note 2.

Had we elected to follow the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation", we would have recorded additional compensation expense of approximately $464,798, $738,176 and $686,211 for the years ended December 31, 2003, December 31, 2002 and December 31, 2001, respectively.  These amounts are determined using an option-pricing model with the following assumptions:   

12. Investor Relations Options

On May 15, 2001, as additional compensation to our investor relations consultant pursuant to an investor and public relations services agreement, we granted that consultant options to purchase 155,000 common shares at $2.50 per share.  The underlying agreement provided that 50,000 options would vest immediately, and an additional 35,000 options would vest upon each of the first, second and third anniversary dates of the agreement, respectively, even if the agreement was not subsequently renewed so long as the agreement has not been terminated by either party prior to the end of the termination of the prior term or NXT has not terminated this agreement for "good cause" as defined in the agreement.  These options lapse, to the extent vested and unexercised, five years after the date of vesting.  Pursuant to SFAS No. 123, for the year ended December 31, 2003, we recorded compensation expense, as part of administrative expenses, determined in accordance with the Black-Scholes option pricing model in the amount of $46,773 in connection with the grant and vesting of these options.  

13. Income Taxes

Net Operating Losses Carried Forward

As of December 31, 2003, the following net operating losses are available to reduce our taxable income in future years:

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Deferred Income Tax Assets and Liabilities

As of December 31, 2003, our accounts contained the following deferred income tax assets and liabilities:

As of December 31, 2002, our accounts contained the following deferred income tax assets and liabilities:

We have not provided for any amount of current or deferred U.S. federal, state or foreign income taxes for the current period or any prior period presented.  We have provided a full valuation allowance on the deferred tax asset and liability, consisting primarily of net operating loss carry forwards, because of uncertainty regarding its realization.  The increase in the valuation allowance on the deferred tax asset during the year ended December 31, 2003 was $712,823 as compared to $1,727,592 for the year ended December 31, 2002.

14. Related Party Transactions

Summarized below is information concerning related party transactions and balances not disclosed elsewhere in these consolidated financial statements for the years ended December 31, 2003, 2002 and 2001:

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Our rights to use the first generation of our SFD technology sensors arises from a sharing of the technology with Momentum Resources Corporation, and an agreement pursuant to which we were originally granted the exclusive worldwide right to use, possess and control the SFD Data for hydrocarbon identification and exploration purposes and any SFD data derived from that use for the same purpose pursuant to a sharing of the SFD Technology permitted by Momentum Resources Corporation, which was originally the exclusive owner of the SFD. Momentum Resources is owned 50% by one of our significant stockholders who is a director and an executive officer of NXT as of December 31, 2003.  Under the terms of the SFD technology agreement, we are to pay Momentum a royalty equal to 5% of any Prospect Profits (as such terms is defined in the agreement) which we may receive based on data received from Momentum Resources Corporation. No such royalty was earned or payable as of December 31, 2003.

15. Commitments and Contingencies

The lease for the principal offices expired on January 31, 2003.  A new sub-lease from another tenant was signed with a term of eighteen months ending July 31, 2004.  The space is approximately 6,600 square feet and the monthly cost is about $13,100 CDN.

On November 27, 2002, we were served a Statement of Claim which had been filed on November 25, 2002, in the Court of Queen’s Bench of Alberta, Judicial District of Calgary (Action No. 0201-19820), naming Energy Exploration Technologies Inc. and George Liszicasz as defendants.  Mr. Dirk Stinson, the plaintiff, alleges that NXT failed to pay him compensation under a consulting agreement and further alleges that NXT, without lawful justification, obstructed Mr. Stinson from trading his shares of NXT.  At the time of the filing of this suit, Mr. Stinson was a major shareholder of our common stock.  He is a past President and director of NXT and is currently a director and shareholder of Momentum Resources.  Mr. Stinson was seeking, among other things, damages in the amount of $1,614,750 and an injunction directing NXT to instruct our transfer agent to immediately remove the legend from Mr. Stinson’s shares.  On December 10, 2002, we filed our Statement of Defence.  On July 14, 2003, we received notice that the plaintiff had dropped all claims except for a claim for $74,750 plus interest for compensation under a consulting agreement.  

We believe the claim against us  is contentious because of the ambiguity of the arrangements and we are vigorously defending ourselves against the claim.

On March 18, 2003, we were served a Statement of Claim which had been filed on March 14, 2003, in the Court of Queen’s Bench of Alberta, Judicial District of Calgary (Action No. 0301-04309), naming Glen Coffey, Murray’s Aviation Repairs (1980) Ltd., Energy Exploration Technologies, its wholly-owned subsidiary, NXT Energy Canada, Inc., Dennis Wolsky, as Administrator of the Estate of Jerry Wolsky, deceased and Embassy Aero Group Ltd. as defendants.  Tops Aviation Ltd., Spartan Aviation Inc. and John Haskakis (the “Plaintiffs”) allege that the defendants were negligent and in breach of a Ferry Flight Contract between one or some of the defendants and one or some of the Plaintiffs under which Mr. Jerry Wolsky was to deliver a Piper Twin Comanche aircraft to Athens, Greece.  The aircraft crashed in Newfoundland enroute to Athens killing Mr. Wolsky. The Plaintiffs are seeking, among other things, damages in the amount of $450,000 CDN for loss and damages to the aircraft and cargo; and damages in respect to search and rescue expenses, salvage, storage, transportation expenses and pollution and contamination expenses.

Neither we nor our subsidiary, NXT Energy Canada, Inc., were parties to the Ferry Flight Contract.  We believe the claim against us and our subsidiary is without merit and intend to vigorously defend ourselves against the claim and are seeking an expeditious dismissal of the claim.

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16.  Discontinued Operations

In January 2003, we adopted a formal plan to divest our U.S. oil and gas properties. On May 9, 2003 we closed a sale transaction with our U.S. joint venture partner to sell the properties for total consideration of $1,450,000 with proceeds of $720,000 in cash and the return to treasury of all the outstanding preferred shares.  The effective date of the transaction was March 1, 2003 and was recorded at fair market value.  For reporting purposes, the results of operations and the financial position of the properties have been presented as discontinued operations.  Accordingly, prior period financial statements have been reclassified to reflect this change.

17. Segment Information

We operate in only one business segment, oil and natural gas exploration and development, insofar as we develop oil and natural gas exploration prospects identified using our proprietary SFD airborne survey technology.

Summarized below with respect to our years ended December 31, 2003 and 2002is geographic information relating to:

Summarized below is geographic information relating to our assets as of December 31, 2003 and 2002, allocated amongst the geographic areas in which the assets were physically located or principally connected:

In preparing the above tables, we have eliminated all inter-segment revenues, expenses and assets.

18. Subsequent Events

   (a) During December 2003, NXT initiated a Private Placement which has not closed as of the date of this report. Each unit has an issue price of $2.00 and consists of one common share and one warrant with a strike price of $2.75 and a one year term. We had raised $472,501 in gross proceeds prior to December 31, 2003 and this amount is shown as subscriptions payable on the balance sheet.

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(b) From November 3 through November 19^th, NXT entered into a series of loan agreements with its CEO and largest shareholder, Mr. George Liszicasz, pursuant to which NXT borrowed a total of $233,253, at a rate of 7.0% per annum, with loans maturing on November 17, 2005; under these agreements, NXT has the option to borrow an additional $100,000 CDN from Mr. Liszicasz.

(c) On December 3, 2004, NXT entered into a subscription agreement for the issuance of 571,429 shares of common stock and warrants for the purchase an additional 610,000 shares of common stock at an exercise price of $2.75 per share with a term of one (1) year. The shares and warrants were issued for total consideration of $1,000,000 from an unaffiliated party located in Toronto, Ontario.  The proceeds in the amount of $1,000,000 were received  on  December  6, 2004.

(d) On  November 25, 2004, NXT renewed its lease for its office space to January 31, 2006. Under the terms of the lease, NXT will pay $140,894 in leases payments from January 1, 2005 through January 31, 2006.

(e) On November 4, 2004, NXT’s Board of Directors approved two (2) agreements entered into with NXT’S Chief Executive Officer and President, Mr. Liszicasz, regarding the ownership of, use of and access to SFD technology that NXT has jointly developed with Mr. Liszicasz.  The agreements entered into by NXT and Mr. Liszicasz are an Interim Operating Agreement and a Technical Services Agreement. The Interim Operating Agreement is effective as of August 25, 2004 and the Technical Services Agreement is effective as of January 1, 2006.

Mr. Liszicasz developed the prototype sensor for the SFD technology, which later transferred to Momentum Resources Corporation, a Bahamian corporation (“Momentum”), of which Mr. Liszicasz is a part-owner. Eventually, the prototype became the subject of a Restated Technology Agreement dated August 1, 1996 and amended on April 3, 1998.  Pursuant to this agreement, Momentum agreed to provide certain services for the further technical development and commercial advancement of the Prototype Stress Field Detector, However, Momentum was unwilling or unable to fulfill its obligations under the agreement and NXT was required to financially contribute to the enhancement and development of the second generation of SFD sensors. NXT engaged additional staff with specialized knowledge and skills in semi-conductor and quantum technology to assist Mr. Liszicasz in developing such sensors.

The Interim Operating Agreement states that NXT has an undivided and unencumbered title to the four (4) SFD devices engineered and constructed by Mr. Liszicasz from June 1, 1999, plus all sensors which might be manufactured by Mr. Liszicasz in the future with the financial contribution of NXT.  This agreement also states that Mr. Liszicasz is to provide NXT with his know-how and technical expertise in connection with NXT's use of the sensors, which includes construction, redesign and advancement of the sensors; and interpretation and analysis of data produced by surveys using the sensors. The Interim Operating Agreement expires on December 31, 2005.

The Technical Services Agreement goes into effect following the expiration of the Interim Operating Agreement and expires on January 1, 2011.  This agreement continues the obligations of Mr. Liszicasz to provide NXT with his know-how and technical expertise in connection with NXT’s use of the sensors and confirms NXT’s title to the sensors. The other purpose of this agreement is to provide additional consideration to Mr. Liszicasz for providing his services under this agreement.

   (f) Our management periodically reviews the carrying value of our property and equipment to ensure that any permanent in value is recognized and reflected in our results of operations. As a part of these reviews, our management performs an overall assessment of each of our unproved oil and natural gas properties to determine if any of these properties had been subject to any impairment in value.  As at December 31, 2004 we have determined that our unproved properties continue to have prospective commercial viability but that an impairment of $173,213   ($945,000 in 2003) should be recorded against our properties.