As
filed with the Securities and Exchange Commission on
April 15, 2005
  **UNITED
STATES**
 **Securities
And Exchange Commission**
 **Washington,
D.C. 20549**
 **_________________**
 **FORM 10-K**
 **_________________**
 
 
 [X]
    ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2004[
      ]
    TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      the transition period from ___________ to
___________
 
 Commission
file number:  0-24027
 
 **ENERGY
      EXPLORATION TECHNOLOGIES INC**(Exact
      name of registrant as specified in its charter)**Alberta,
      Canada**
    
    **N/A**(State
      or other jurisdiction of incorporation or organization)
    
    (I.R.S.
      Employer Identification No.)**700-840-7
      Avenue SW, Calgary, Alberta, Canada,**
    **T2P
      3G2**(Address
      of principal executive offices)
    (Zip
      Code)
 
 Registrant's
telephone number, including area
code:  (403) 264-7020
 
 Securities
registered pursuant to Section 12(b) of the
Act:  None
 
 Securities
registered pursuant to Section 12(g) of the Act:  Common
stock
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
 Yes [X] No   [
]
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this Chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.   [
]
 
 Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act) Yes
[ ] No [X]
 
 The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2004 was approximately $31,469,879 based upon the
closing price per share of the r egistrant's
common shares of $2.15 on that date.
 
 The
number of shares outstanding of the registrant's common stock as of March
18, 2005: 21,315,077  shares.
 
 
 
 Advisement
 
 
 Our
reporting currency is the United States of America dollar. All references to
" *dollars* "
in this annual report 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 December 31, 2004, was
CDN $1.2020 to U.S. $1. For information relative to the conversion of
Canadian amounts into US dollars, see the section contained in explanatory
Note 2 to our consolidated financial statements captioned " *Foreign
Currency Translation* ".
 
 **Special
Note Regarding The Observations, Beliefs And Opinions Expressed In This Annual
Report Relating To The Scientific Basis And Principles Of Our SFD
Technology** ****
 
 The
observations, beliefs and opinions we express in this annual report relating to
the scientific basis and principles of our SFD technology, and the ability of
our SFD Technology to detect subsurface conditions, represent those of our
company and our management alone, and should not be construed as representing
those of any third party, except to the extent expressly stated in this annual
report.
  -2-
  
 
 **TABLE
OF CONTENTS**
 ****
 **PART I**
    **Page**Item
      1. Business
    4Item
      2. Properties
    20Item
      3. Legal Proceedings
    21Item
      4. Submission of Matters to a Vote of Security Holders
    21**PART
      II**Item
      5. Market for the Registrant’s Common Shares and Related Stockholder
      Matters
    22Item
      6. Selected Financial Data
    25Item
      7. Management’s Discussion and Analysis of Financial Condition and ResultsOf Operations
    27Item
      7A. Quantitative and Qualitative Disclosures About Market
    Risk
    36Item
      8. Financial Statements and Supplementary Data
    38Item
      9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure
    68Item
      9A. Controls and Procedures
    69**PART
      III**Item
      10. Directors and Executive Officers of the Registrant
    69Item
      11. Executive Compensation
    73Item
      12. Security Ownership of Certain Beneficial Owners and
      Management
    76Item
      13. Certain Relationships and Related Transactions
    79Item
      14. Principal Accounting Fees and Services
    79**PART
      IV**Item
      15. Exhibits, Financial Statement Schedules and Reports on Form
      8-K
    80
  -3-
  
 **PART
I**
 
 **Item
1. Business**
 
  **Overview**
 
 Energy
Exploration Technologies Inc. (referred to herein as the “Company”, NXT, “we”,
“us” and “our”) is a technology company focused on using its proprietary Stress
Field Detector (SFD) technology for oil and gas exploration. NXT utilizes the
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 using conventional exploration
technologies of seismic and drilling. Our SFD technology 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. Total finding costs include SFD survey,
seismic data acquisition and interpretation, purchasing mineral rights and
drilling and completing exploration wells.
 
 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.  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.
 
  **Corporate
History**
 
 We
were initially incorporated in the State of 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 our shareholders, at a special shareholders’ meeting, approved
the continuance of the company from the State of Nevada to the Province of
Alberta, Canada. At that time we modified our name to Energy Exploration
Technologies Inc.
  
 -4-
 
 **Corporate
Objective**
  NXT
will use the proprietary SFD technology to become a technology leader in oil and
gas exploration. As we enter the commercialization stage of the SFD technology
development, we must acquire projects and business opportunities that build the
credibility of the SFD technology and develop NXT’s ability to deliver quality
oil and gas
exploration Prospect Areas.
  **Business** **Strategy**
 
 Our
primary objective is the achievement of profitability and self-sustaining
growth:
 
 ·
    through
      the development or sale of our current inventory of
      properties;·
    by
      providing SFD survey services to third parties on a fee for service
      basis;·
    by
      using the SFD survey technology to identify oil and gas prospects that
      have the potential to justify the acquisition of mineral rights for oil
      and gas developments;·
    through
      the use of conventional exploration technologies to confirm the oil and
      gas prospects identified with the SFD survey
technology;·
    by
      either directly participating in the selection of drilling locations or
      joint venturing with partners who will earn an interest by drilling the
      prospects at their cost and risk; and·
    by
      the monetization of the properties as they reach the development
      stage.
 
 We
believe that by successfully exploiting our SFD technology 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**
  **Summary**
  The
SFD sensor is a passive transducer that responds to the energy emitted by stress
fields associated with significant subsurface tectonic events, which are in
turn, associated with the trapping mechanisms for oil and natural gas and the
presence of fluids (oil natural gas or water) in those traps. The exact nature
of the energy field, which the sensor responds to and referred to as Stress
Induced Energy field is under study and is not well understood. According to the
Inventor, George Liszicasz, who is also our President, CEO and largest
shareholder, this naturally occurring energy field is inherently linked to
materials that are subject to stresses caused by subsurface tectonic events
(geomechanical stresses). We have a substantial body of empirical evidence
arising from our SFD surveys in Canada and the United States that shows a strong
correlation between the observed response of the SFD Sensors with the
development of oil and gas trapping mechanisms.
  The
following is a summary of some of the key elements of the development and status
of the SFD technology.
  Identification
      of the source of energy causing the SFD sensor response was discovered as
      a result of experimentation and
observation.
  In
      Petroleum Engineering technical literature there is a substantial body of
      research on the identification and application of stress fields associated
      with optimization of production operations for oil and gas. Determination
      of stress fields is also important in the operation of underground mines.
      Understanding stress fields associated with subsurface rocks is important
      to several industrial sectors.
  -5-
 The
      SFD sensor is the first device to our knowledge that can remotely measure
      the gradient of stress energy related to rocks in the subsurface. The SFD
      shows a measurable multiple sensor response to the presence of
      faults.
  George
      Liszicasz and NXT have maintained the confidentiality of the design of the
      SFD to preserve the competitive advantage of the company. No patents have
      been sought in respect of the SFD because the technology continues to be
      improved and enhanced and there is a possibility that future modifications
      could be made to the concepts and Sensors that would not be subject to the
      patent thereby nullifying NXT’s competitive
advantage.
  **SFD
Development History**
 
 The
observations that led to the development of the SFD technology originally
occurred more than 10 years ago. George Liszicasz was conducting experiments
with respect to the property of certain materials when he observed a phenomenon
with respect to crystalline structures that he could not explain. Mr. Liszicasz
theorized that the change in the electronic transport capability of the material
was related to certain dynamic events in the environment, which he later
characterized as stress events. Mr. Liszicasz tested this hypothesis through the
development of successive generations of the sensor and concluded that it was
responding to the redistribution of stress regimes in the subsurface primarily
caused by tectonic events. With the SFD technology it is possible to measure a
stress gradient. Mr. Liszicasz arrived at this conclusion after conducting
numerous SFD tests against known major geological events such as faulting and
obtaining measurable responses over significant hydrocarbon traps.
  Seeing
a commercial application of the SFD technology, Mr. Liszicasz focused research
and development in relation to sensors that would respond to oil and gas
trapping mechanisms with a higher degree of certainty. At the same time, Mr.
Liszicasz commenced development of a theoretical basis for his observation. He
theorized the existence of stress energy field associated with tectonic stress
regime changes surrounding petroleum and natural gas accumulations and other
geological events. It took a number of years to identify certain key processes
taking place in the sensor and develop a remote sensing capability suitable for
hydrocarbon exploration. In 1997, he moved the sensor system from a ground-based
vehicle into an airplane.
 
 **Theoretical
Basis**
 
 The
existence of stresses in the subsurface materials associated with tectonic
events is well documented in technical papers by experts in the petroleum,
mining and geophysical industries. However there is essentially no data on the
ability to measure stress fields directly or remotely. There is some suggestion
in the geophysical science that more detailed analysis of acoustic data
associated with seismic may indicate stress anomalies. The fields, which are
being measured by the SFD appear to be something new. To distinguish these
fields from conventional energy fields and their measurement, the SFD sensors
have been subjected to nuclear radiation, electromagnetic radiation, magnetic
interference, static electric fields and inertial and gravitational
acceleration. The sensor’s response has been insensitive to these energy forms,
indicating that the sensors are responding to some other energy
field.
 
 While
we consider with interest the possible theoretical underpinnings of the SFD
technology, the application of the SFD technology focuses primarily on the
substantial body of empirical evidence that shows the relationship exists and it
can be further developed and refined in time to provide a valuable tool for the
exploration of hydrocarbons.
 
 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.
 
 -6-
 
 **SFD
Response**
 
 The
evidence supporting the existence of stress gradients in the subsurface is well
established. The difference between the conventional measurement techniques and
the SFD method is that the former is a direct in situ measurement of strains to
calculate stress and the latter measures the stress gradient remotely. The
sensors respond as they pass over various stress regimes and the character of
the signal response is indicative of specific geological events, such as the
presence of faults and fractures and an indication of the presence of fluids in
reservoirs. The SFD Technology Evaluation Survey conducted by NXT in Syria in
March 2004 illustrated SFD signal responses related to known faults in the
basins of Syria.
 
 The
interpretation of the SFD signals is based on pattern recognition and NXT has
developed templates to qualify signal anomalies. In a SFD survey only a two
dimensional line is surveyed and it is necessary to conduct the survey in a grid
pattern to identify and confirm the strongest signal responses associated with
structure and reservoir development. During the SFD survey the grid pattern can
be modified to re-confirm and rank prospect areas that have a high potential for
petroleum and natural gas development.
 
 SFD
signal responses related to hydrocarbon trapping mechanisms have also been
observed. In order for the SFD to respond to changes in stress, it must itself
be in motion.
 
 **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:
 
 ·
    ***Stress
      Field Detector*****—**the
      stress field detector or SFD is a unit, which houses the SFD sensor, the
      principal component of our technology. As discussed above, the SFD sensor
      is a passive transducer that interacts with energy fields created by
      subsurface stresses and registers that interaction in the form of digital
      electronic signals. When NXT conducts SFD surveys, we use an SFD array
      incorporating twelve interchangeable SFD sensors, which allows us to
      collect twelve sets of SFD signals. The ability to collect data from
      multiple SFD sensors is important for several reasons. First, it
      facilitates repeatability and signal verification, and cuts down on the
      need for additional SFD survey flights. Second, we use different SFD
      sensor designs, which allow us to collect different qualitative
      information. For example, one design of SFD sensor appears to better
      identify anomalies associated with subsurface structures, while another
      design appears to offer more information concerning faults and a third
      appears to offer information concerning the quality of the reservoir in
      the subsurface structure. Finally, the SFD sensors are extremely sensitive
      devices, and the operational ability of any one sensor while on an SFD
      survey flight may be adversely impacted. The array of twelve sensors
      provides a population of three of each type of sensor and ensures that the
      quality of data recorded remains high.·
    ***Data
      Acquisition System*****—**used
      in conjunction with the SFD sensor array on surveys, our data acquisition
      system is a compact, portable computer system which concurrently acquires
      the twelve electronic digital signals from the SFD array in two different
      data formats per sensor or twenty-four signal sets in total, marks each of
      the signal sets with their geographic location using global positioning
      satellite coordinates and then stores this information for subsequent
      processing and interpretation at our home base.·
    ***Data
      Processing and Interpretation Systems*****—**once
      returned to our home base, the SFD data collected is processed and
      converted into a format that can be used by our interpretive staff. All
      processing is performed by our staff using computer workstations and
      processing software, which has been developed in-house. Once the SFD data
      has been processed, our geological and geophysical staff review the data,
      plot the flight lines and produce computer-generated base maps using our
      processing software and industry standard mapping software and
      databases.
 
 -7-
 
 
 **SFD
Data Interpretation**
 
 Our
SFD survey system is flown over pre-selected exploration areas in a pre-set
pattern using flight lines of varying altitudes and from different directions.
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:
 
 ·
    First,
      we screen the SFD data for anomalous signals on the flight line, which we
      refer to as SFD**anomalies.
      These SFD anomalies represent the re-distribution of material stresses in
      the subsurface. The signal anomalies are from either known oil and natural
      gas pools or unknown and non-producing areas. In the course of the SFD
      survey significant signal anomalies are confirmed on multiple flight lines
      forming the survey grid pattern. The cluster of confirmed SFD anomalies
      form a "Prospect Area".·
    Then
      our geological team puts each identified SFD "Prospect Areas” into
      subsurface context using available geological databases. Where we have
      sufficiently qualified an SFD Prospect Area it is ready for further
      geological and geophysical evaluation.·
    Lastly,
      should the recommended SFD prospect be targeted for exploration,
      traditional geological and geophysical methods, usually 2D or 3D seismic,
      are employed to evaluate the potential commercial viability of the
      prospect and to pinpoint drilling sites.
 
 **SFD
Time Frames**
 
 We
conduct our SFD surveys at speeds of approximately 200 mph, and survey
approximately 600 linear miles in an operating day. For each operating
survey day, our staff requires approximately four days to complete the data
processing and initial SFD signal interpretation to sufficiently identify and
recommend the SFD Prospect Areas 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 to process the data, followed by several weeks for interpretation. As a
result, it can take a minimum of six months to record, process and
interpret 600 linear miles of new 2D seismic data.
 
 **Analysis
Of SFD Survey Results To Date**
 
 In
March 2004, NXT conducted an SFD Technology Evaluation Survey in cooperation
with the Syrian Ministry of Petroleum and Mineral Resources and the Syrian
Petroleum Company (SPC). The Exploration Department of the Syrian Petroleum
Company designed the survey flight grid over 61,000 square kilometers (23,552
square miles). This area contained subsurface structures and hydrocarbon
accumulations whose location was known only to the Syrian Petroleum Company. The
SFD Technology Evaluation Survey was designed to be a "blind survey" because NXT
did not have any access to the geological databases of SPC or other companies
operating in Syria. Using the interpretation protocol described above, NXT
identified 17 Prospect Areas and 108 subsurface structures from the
interpretation of the SFD sensor signals from 5,800 kilometers (3,625 miles) of
SFD survey lines.
 
 SPC
had designed the SFD survey grid so that there were 137 known subsurface
structures under the flight lines. With a coincidence of 108 of 137 subsurface
structures the SFD technology was 79% accurate in structure identification. In
addition, NXT identified 17 Prospect Areas. A Prospect Area is a cluster of SFD
signal anomalies on multiple flight lines. The quality of the signal indicated
that the Prospect Areas had a high potential for hydrocarbon accumulations. The
staff at SPC Exploration Department reviewed the location and ranking of the
Prospect Areas and confirmed that SPC had drilled 12 of the 17 Prospect Areas.
To date 11 of the 12 were in commercial production at a cumulative daily rate of
over 200,000 barrels of oil per day. The other drilled Prospect Area was
non-commercial. Of the remaining 5 Prospect Areas three had been identified by
SPC on conventional seismic surveys and the last two were new prospects for
SPC.
 
 -8-
 NXT
retained the services of Dr. Nimr Arab PhD Geophysics to review the results of
the SFD Technology Evaluation Survey and the data available to the Syrian
Petroleum Company that was used to compare to the SFD results. The following are
the results of that work.
 
 **CONCLUSIONS**
 
 The
survey conducted with the SFD technology in Syria during 2004 confirms the
application of the technology as a wide area reconnaissance tool that can be
applied to focus conventional exploration activities.
 
 The
SFD technology can be applied to high-grade prospects that can be confirmed with
conventional exploration techniques, including seismic, significantly increasing
the success of exploration while materially reducing both time and
costs.
 
 SFD
sensors are airborne exploration tools that employ a unique technology at a low
cost to measure stress regime distributions associated with tectonic events. The
tools can identify subsurface structures that have a high likelihood of bearing
hydrocarbons over a wide range of geological environments and depths, focusing
and reducing the time and expense associated with conventional
exploration.
 
 NXT
conducted a 5,800 km (3,635 miles) blind survey test over an area comprising
61,000 km 2 (23,835 miles 2 )
encompassing one third of the area of Syria. The survey data was acquired over a
period of six days and was closely controlled by the Syrian air force personnel.
The Syrian Petroleum Company (“SPC”) established the SFD flight parameters and
survey grid. Using SFD interpretation protocols developed in North America, NXT
evaluated the resulting data without any access to geological or production
information. NXT had no opportunity to modify or calibrate interpretation
protocols developed in North America and NXT was not permitted to retrace flight
patterns or to cross anomalies from several directions other than when anomalies
occurred at the intersection of survey lines in the preset grid.
 
 NXT
identified and submitted 17 “Prospect Areas” which are significant anomalies
crossed by more than one grid line, and contain structure(s) with high potential
for hydrocarbon accumulation. NXT’s Prospect Areas correctly identified 12 known
drilled areas, 11 of which are cumulatively producing over 200,000 boepd and one
of which is not presently economic. Three known but undrilled seismic anomalies
were also identified as Prospect Areas, along with two Prospect Areas in
unexplored regions that were recommended by NXT for future exploration. NXT also
submitted tables identifying individual structures to SPC. By letter dated May
11 th ,
2004, SPC advised NXT that the survey had successfully identified 108 known
structures crossed by the grid and had missed 29, a success rate of 79%. NXT has
flown, acquired, processed and interpreted all SFD data and submitted all
reports, maps and tables within 32 days to the Syrian Petroleum Company and the
Ministry of Petroleum and Mineral Resources of Syria
 
 In
November 2003, NXT’s joint venture partner commenced drilling on an SFD
identified prospect at Adsett in northeastern British Columbia, Canada. The
subsurface structure had been confirmed with conventional seismic. In February
of 2004 the operator of the drilling abandoned the well as non-commercial. The
SFD interpretation predicted subsurface structure with the potential for
reservoir and possible hydrocarbon accumulation. The result of the completion
operations was the production of natural gas. However, the well also produced
significant quantities of water along with the natural gas making future
production operations uneconomical.
 
 **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.
 
 -9-
 
 
 **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 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.
  **OPERATIONAL
RESULTS**
 
 During
2004, the following significant events occurred
 
 l
    In
      February the 11-18-27-25w4 well operated by Centrica was placed on
      production. The value to the company is net operating income of
      approximately $4,000 per month;l
    In
      February the Seneca Adsett well was abandoned by the operator as
      non-commercial due to the significant volume of water being produced in
      conjunction with the natural gas;l
    In
      March we conducted the Syrian SFD Technology Evaluation
      Survey;l
    In
      April we submitted the interpretation of the SFD Technology Evaluation
      Survey to the Exploration Department of the Syrian Petroleum
      Company;l
    In
      July we received a report from the Syrian Petroleum Company evaluating the
      Prospect Areas identified in the SFD Technology Evaluation
      Survey;l
    In
      July we retained Dr. Nimr Arab to complete a third party and independent
      review of the SFD Technology Evaluation Survey conducted in
      Syria;l
    In
      August, we completed a series of agreements with our President, Mr. George
      Liszicasz defining NXT's ownership of the SFD sensors and providing for a
      long-term service agreement between Mr. Liszicasz and NXT. The service
      agreement provides future support in the SFD sensor technology and
      interpretation protocol development;l
    In
      September we released the completed Dr. Nimr Arab report on the SFD
      Technology Evaluation Survey conducted in Syria;l
    In
      November we participated in the drilling and completion of a well Virtus
      Wildwood 16-2-55-9w5. The well costs qualified for Flow Through expenses
      and completed our commitment to shareholders who had invested in flow
      through shares. The well completion operations carried forward into
      February 2005;l
    In
      December we completed a $1,000,000 financing with Dynamic Focus Resource
      Fund of Toronto, ON, Canada;l
    At
      December 31, 2004 we had raised a total of $2,366,044 in a private
      placement with the unit price of $2.00 and each unit consisting of one
      common share and one full common share purchase warrant with an exercise
      price of $2.75;l
    In
      December we appointed Ms. Jarmila Manasek as our Vice President of Finance
      and Controller;l
    In
      December the Board of Directors of NXT appointed Mr. Brian Kohlhammer, CA,
      as a member of the Board of Directors and of the Audit
      Committee.
 
 -10-
 During
2003, the following significant events occurred:
 
 ·
    In
      February we actively commenced the business development activities in the
      Middle East·
    In
      March we sold all of our U.S. properties for $720,000 cash and the return
      to treasury of all of our outstanding preferred shares·
    Also
      in March, a well at Dalroy, Alberta that we have a small interest in was
      completed and tested. Right of way delays persisted until 2004 and the
      well was tied in to the gathering system in early 2004.
      The
      well at Carbon, Alberta commenced production and we have a 5% overriding
      royalty.·
    In
      May we conducted a 5,000 kilometer survey in B.C.·
    In
      June we sold our interest in the Monarch property·
    In
      August we acquired our Tenaka property in British Columbia,
      Canada;·
    In
      September, we closed a private placement for $750,000 for which we issued
      1,875,000 common shares·
    Also,
      in September our proposal to conduct an SFD technology evaluation survey
      in Syria was accepted by the Syrian Petroleum Company·
    In
      October we continued NXT from Nevada to Alberta·
    In
      November, drilling commenced on our South Adsett prospect in
      B.C.·
    In
      December we commenced two private placements and closed the 2003
      flow-through placement segment·
    In
      December the South Adsett drilling was completed. It was tested in
      February 2004 and abandoned.
 
 
 **Summary
of Exploration Costs**
 
 Summarized
below are the oil and natural gas property costs we capitalized for the year
ended and as of December 31, 2004 and 2003:
 
 -11-
   **Capitalized
      for the Years Ended**
    
    **Capitalized
      As of****December
      31**
    
    **December
      31****2004**
    
    **2003**
    
    **2004**
    
    **2003**
    
    **2002**Acquisition
      costs
    
    **$**
    **161,465**
    
    $
    389,679
    
    **$**
    **1,819,811**
    
    $
    1,658,346
    
    $
    1,268,667Exploration
      costs
    
    
    **-**
    
    
    865,926
    
    
    **8,257,804**
    
    
    8,257,804
    
    
    7,391,878Development
      Costs
    
    
    **-**
    
    
    -
    
    
    **83,234**
    
    
    83,234
    
    
    83,234Oil
      and natural gas properties
    
    
    **161,465**
    
    
    1,255,605
    
    
    **10,160,849**
    
    
    9,999,384
    
    
    8,743,779Less
      impairment
    
    
    **(172,623**
    **)**
    
    (17,291
    )
    
    **(7,150,018**
    **)**
    
    (6,977,395
    )
    
    (5,612,387
    )Less
      dispositions
    
    
    **(1,359**
    **)**
    
    (1,365,008
    )
    
    **(1,671,529**
    **)**
    
    (1,670,170
    )
    
    (227,351
    )Less
      depletion
    
    
    **(20,298**
    **)**
    
    (1,442,819
    )
    
    **(177,711**
    **)**
    
    (157,413
    )
    
    (140,122
    )Net
      oil and natural gas properties
    
    **$**
    **(32,815**
    **)**
    $
    (1,569,513
    )
    **$**
    **1,161,591**
    
    $
    1,194,406
    
    $
    2,763,919
 The
property costs net of depletion, impairments and dispositions, by proved and
unproved classification, are as follows at
December 31, 2004, 2003, 2002:
 ****
    
    **Capitalized
      As of **December 31******2004**
    
    **2003**
    
    **2002**Proved
      property costs
    
    **$******
    ******35,543**
    
    $
    -
    
    $
    781,446Unproved
      property costs
    
    
    **1,126,048**
    
    
    1,194,406
    
    
    1,982,473**$******
    ******1,161,591**
    
    $
    1,194,406
    
    $
    2,763,919
 **Summary
of Drilling Results**
 
 Summarized
below are our drilling results relative to natural gas or oil wells in which we
have an interest.
 
 -12-
   **Wells
      Shut-In Pending**
    
    **Wells
      Abandoned Because****Total
      Wells Drilled in Period (1)**
    
    **Wells
      Placed in Commercial Production**
    
    **Connection
      to Pipeline**
    
    **Further
      Development Decisions**
    
    **Dry
      or NonCommercial**
    
    **Junked
      for Mechanical Reasons****(Gross
      Wells/Net Wells)**2004:United
      States
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Canada
    
    
    1/0.20
    
    
    1/0.225
    
    
    -
    
    
    1/0.20
    
    
    -
    
    
    -Total
    
    
    1/0.20
    
    
    1/0.225
    
    
    
    
    
    1/0.202003:United
      States
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Canada
    
    
    2/0.375
    
    
    1/0.225
    
    
    1/0.225
    
    
    1/0.15
    
    
    -
    
    
    -Total
    
    
    2/0.375
    
    
    1/0.225
    
    
    1/0.225
    
    
    1/.015
    
    
    -
    
    
    -2002:United
      States
    
    
    1/0.17
    
    
    -
    
    
    -
    
    
    -
    
    
    1/0.17
    
    
    -Canada
    
    
    1/0.21
    
    
    -
    
    
    -
    
    
    -
    
    
    1/0.21
    
    
    -Total
    
    
    2/0.38
    
    
    -
    
    
    -
    
    
    -
    
    
    2/0.38
    
    
    -Cumulative
      to date
    
    
    32/5.025
    
    
    2/0.45
    
    
    13/1.925
    
    
    7/1.09
    
    
    9/1.41
    
    
    1/0.15Notes:2004
      well placed in commercial production drilled in 20032003
      well placed in commercial production drilled in 2001
 (1)
    Based
      on rig release dates.
 
 
 **Summary
of Proved Reserves**
 
 We
have proven producing reserves at Centrica Ardenode 11-18-27-25w4.
 
 
 **Summary
of Acreage**
 
 Summarized
below is the acreage of land holdings in which we hold either direct working
interest agreements, or have a right to acquire a working interest.
   **As
      of December 31, 2004****Unproved****Interest
      (geographical area)**
    
    **Gross
      Acres**
    
    **Net
      Acres**Alberta
    
    
    21,760
    
    
    8,328British
      Columbia
    
    
    13,045
    
    
    3,626Total
    
    
    34,805
    
    
    11,954
     Note:
In Alberta 2,254 net acres expired between January 1, 2005 and March 31, 2005.
An additional 1,534 net acres will expire from April 1, 2005 to December 31,
2005.
  -13-
 **Description
Of Properties**
 
 **Alberta,
Canada**
 
 ·
    ***Ardenode
      -***-We
      hold a 22.5% working interest in 640 acres. The producing well
      11-18-25-27w4 was drilled and completed in 2003 and tied into the
      production system in February 2004. The total net production from February
      to December 31, 2004 was 11 mmcf.·
    ***Carbon
      —***We
      hold a 2.5% overall net overriding royalty interest in this 640
      acre exploration block located in the Carbon area of southwestern Alberta
      and receive a monthly royalty.·
    ***Fincastle
      —***We
      hold 21% to 50 % interests in 1,280 acres in this prospect which targets
      Jurassic Sawtooth sands in the Taber area. In December 2002, a partner
      drilled and abandoned a well on this prospect.·
    ***Wildwood
      —***We
      hold a 20% working interest in 640 acres. In December 2004, a partner
      drilled and suspended a well on this
property.
 
 **British
Columbia, Canada**
 
 ·
    ***South
      Adsett—***This
      land was purchased in August 2002 and was drilled in late 2003. Although
      there were gas shows the well was abandoned in late February 2004. We hold
      a 26.7 % interest in 9,607 acres.·
    ***Tenaka—***This
      land was purchased in August 2003 and we plan to run seismic on it in
      2004. We hold a 33% interest in 2,703
acres.
 
 **Future** **Activities**
 
 We
are in the process of implementing the changes we have made to our business
strategy. As a result of the successful completion of the SFD technology
Evaluation Survey in Syria we have identified potential marketing opportunities
in the Middle East and North Africa for NXT to provide SFD surveys on a fee for
service basis to international and national oil companies. In the past, we
focused our utilization of the SFD technology towards the fulfillment of our
obligations in the exploration joint ventures and 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 have
now expired, we believe that we must:
 
 ·
    Take
      the lead in applying SFD technology to larger, relatively unexplored
      basins, including regions outside of North America;·
    Continue
      marketing the SFD survey technology on a fee for service basis to the
      international oil and gas exploration industry including national oil
      companies in the Middle East and North Africa;·
    Upon
      identification of likely prospects, run gravity and 2D seismic to pinpoint
      drilling locations;·
    Acquire
      mineral rights or negotiate participation rights; and·
    Drill
      the selected sites, either directly or with interested joint venture
      partners.
 
 By
taking control in certain circumstances, we will attempt to ensure that the
following objectives are appropriately addressed:
 
 -14-
 ·
    focus
      our exploration efforts on areas where SFD will be most
      effective;·
    expeditiously
      pursue seismic, land acquisition and drilling operations to prove
      prospects when we believe the circumstances to be warranted;
      and·
    focus
      on exploration areas where we can acquire rights to all prospective zones
      as our SFD technology cannot determine the depth of subsurface reservoirs
      or other potential hydrocarbon-bearing features with a sufficient degree
      of accuracy.
 
 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 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.
  ****
 **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 identified a requirement to
increase our interpretation capacity. We will be dedicating our expenditures in
the areas of base research for sensor design and to enhance application
interpretation capability. Research and development expenses in 2004 and 2003
were nil and $152,862 in 2002.
  -15-
 **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. We previously conducted our U.S. operations through NXT Energy USA
Inc. and NXT Aero USA Inc. but these companies have been inactive since the sale
of the U.S. properties in early 2003. The headquarters of all our subsidiaries
are in Calgary, Alberta, Canada.
  ****
 **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. Based upon our experience in Syria we expect that for our international
survey operations we will require approvals of the SFD survey flight pattern
from the appropriate ministries and governmental departments in the country of
operations.
 
 **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.
  
 -16-
  **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.
 
 **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** ****
 ****
 Energy
Exploration Technologies Inc. has entered into two (2) agreements with its Chief
Executive Officer and President, Mr. George Liszicasz, regarding the ownership
of, use of and access to the technology that NXT has jointly developed with Mr.
Liszicasz and is known by the parties as the “SFD technology”. The agreements
entered into by NXT and Mr. Liszicasz are an Interim Operating Agreement and a
Technical Services Agreement. Both agreements were approved by NXT’s board of
directors on November 4, 2004. The Interim Operating Agreement is effective as
of August 25, 2004 and expires on January 1, 2006. The Technical Services
Agreement is effective as of January 1, 2006 and expires on January 1, 2011. Mr.
Liszicasz developed the prototype sensor for the SFD technology, which was 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 including but not limited to 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 the 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. NXT
reviewed the performance under the Restated Technology Agreement and concluded
that Momentum had not fulfilled its obligations. The agreements entered into
between Mr. Liszicasz and NXT and outlined above was the choice of action to
ensure NXT maintained control over the SFD sensors. 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 are 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, 2004. The agreement with
Momentum Resources is due for renewal on December 31, 2005 subject to 60 days’
notice. We intend not to renew the agreement.
 -17-
 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 since June 1, 1999 to-date, 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 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 conditioned 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.
  Initially,
our rights to use our SFD technology arose from the technology agreement that we
had entered into with Momentum Resources Corporation whereby we had been granted
the exclusive worldwide right to use, possess and control the SFD Data for
hydrocarbon identification and exploration purposes.
  -18-
 The
terms of the agreement are set forth in a document entitled “Restated Technology
Agreement” and dated August 1, 1996, which purpose was to supercede a prior
agreement dated January 1, 1996. Momentum Resources is a Bahamas corporation,
which is directly owned and controlled by Messrs. George Liszicasz and R. Dirk
Stinson, who were also parties to the Restated Technology Agreement. Mr.
Liszicasz, who is the inventor of the SFD technology, is also our largest
stockholder and the Chief Executive Officer and a director of our company. Mr.
Stinson is a past director and officer of NXT.
  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.
   ·
    We
      are also entitled to the exclusive use of all SFD data generated by the
      SFDs for hydrocarbon identification and exploration purposes.
   ·
    Momentum
      Resources is obligated to use its best efforts to survey with the SFD
      certain geographic areas throughout the world, which have been mutually
      selected by Momentum Resources, and us and to provide all raw SFD data
      resulting form such surveys to us for our exclusive use for the
      identification and exploitation of hydrocarbons. Momentum Resources
      further agreed to provide no less than 500 hours per year of trained
      manpower to generate the SFD data with respect to the selected areas.
      Despite this obligation, the Restated Technology Agreement does not set
      forth any provisions in the event that Momentum Resources fails to live up
      to these obligations.
   ·
    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 with respect to the commercial exploitation of each
      Prospect for which SFD data is provided by Momentum after
      December 31, 2000. As of the date of this annual report, 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 annual report, 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.
  -19-
  ·
    We
      are prohibited during the term of the license from (i) identifying or
      exploiting deposits other than hydrocarbons which have been identified
      using the SFD; (ii) licensing or sublicensing or providing the SFD data or
      interpretations thereof to any party (other than our subsidiaries and
      joint venture partners); (iii) disclosing confidential and/or proprietary
      information relating to the SFD or SFD data to any other party; or (iv)
      selling, assigning or transferring our business, or rights to the SFD
      data.
   ·
    The
      initial term of the Agreement expires on December 31, 2005 if
      either party provides the other with 60 days prior written notice of its
      election not to automatically renew the Agreement. NXT intends not to
      extend the agreement.
   ·
    Momentum
      Resources, in turn, reserves the right to terminate the SFD technology
      Agreement upon the occurrence of any of the following events:
   ·
    our
      failure to make any payment required under the Agreement;
   ·
    our
      abandonment or discontinuance of the conduct of the oil and gas
      exploration business;
   ·
    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
   ·
    our
      failure to perform any other material covenant, agreement or term of the
      Agreement.
   **Item
2. Properties**
 
  **Facilities**
 
 Our
principal executive offices 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 $ 13,092 per
month.
 
  **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 our aerial
surveys.
 
  **Petroleum
Properties**
 
 For
a description of our petroleum properties, see the sections of this annual
report on Form 10-K captioned " *Summary
of Exploration Costs* "
and " *Description
of Properties* "
under "Item 1. Business" and Note 4 of our consolidated financial
statements included at the end of this annual report.
  
 -20-
  **Item
3. 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 Defense. 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 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 or loss and damages to the aircraft and cargo; and damages in respect to
search and rescue expenses, salvage, storage, transportation expenses and
pollution and contamination expenses.
  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.
  **Item
4. Submission Of Matters To A Vote Of Security Holders**
 
 NXT’s
Annual Meeting of Shareholders was held on June 24, 2004, at which the following
items were voted upon:
 
 1.
The following directors were elected to the board of directors to hold such
position until the next annual meeting of the shareholders or until their
successor is duly elected and qualified:
 
 **Voting
      Results**
    **For**
    **Against**
    **Abstain**Sheikh
      Al Hassan
    13,464,016
    0
    6,608Donald
      Foulkes
    13,465,516
    -0-
    5,108Dennis
      R. Hunter
    13,465,516
    -0-
    5,108George
      Liszicasz
    13,465,516
    0
    5,108Douglas
      Rowe
    13,465,516
    -0-
    5,108Robert
      Van Caneghan
    11,228,295
    -0-
    13,050
 
 
 2.
The shareholders ratified the appointment of Deloitte & Touche LLP as our
auditors, who have been our auditors since July 9, 2002.
 
 **Voting
      Results**
    **For**
    **Against**
    **Abstain**13,470,424
    0
    200
 
 -21-
 
 
 
 **PART
II**
 
  **Item
5. Market Price Of And Dividends On Our Common Shares And Related** **Shareholder
Matters**
 
  **Market
Information**
 
 Our
common shares currently trade on the Over-the-Counter Bulletin Board under the
trading symbol "ENXTF". ** The
following table lists, by calendar quarter, the volume of trading and the high
and low sales prices of our common shares for each of the periods indicated. Our
common shares were listed on the Frankfurt and Berlin Exchanges in January, 2005
under the trading symbol “EFW”. We do not have data available about our shares
traded on the Frankfurt or Berlin Exchanges.
 
 
   **Sales
      Price****Period**
    
    **Volume**
    
    **High**
    
    **Low****2004:**First
      quarter
    
    
    2,243,309
    
    $
    2.72
    
    $
    1.10Second
      quarter
    
    
    1,716,245
    
    $
    2.68
    
    $
    1.65Third
      quarter
    
    
    675,745
    
    $
    2.55
    
    $
    1.90Fourth
      quarter
    
    
    1,357,222
    
    $
    3.00
    
    $
    1.355,992,521**2003:**First
      quarter
    
    
    1,010,100
    
    $
    0.20
    
    $
    0.09Second
      quarter
    
    
    2,624,000
    
    $
    0.55
    
    $
    0.13Third
      quarter
    
    
    5,198,500
    
    $
    1.04
    
    $
    0.30Fourth
      quarter
    
    
    3,281,034
    
    $
    2.90
    
    $
    0.7012,113,634
      
 
 
 The
above information was obtained from the Finance.Yahoo.com website. The closing
price for our common shares on the OTC Bulletin Board as of February
9 , 2005
was $ 1.92. These over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
 
 A
shareholders' list provided by our transfer agent showed 233 registered
shareholders and 21,315,077 common shares outstanding as of March 1, 2005.
We estimate that there are approximately 1,700 beneficial holders of our
common shares.
  ****
 **Dividend
Policy**
 
 We
have never paid any cash dividends on our common shares and do not anticipate
paying any dividends in the foreseeable future. Our current business plan is to
retain any future earnings to finance the expansion and development 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 financial
condition, results of operations, capital requirements and other factors as our
board may deem relevant at that time.
 
 -22-
 
 
 
 **Equity
Compensation Plans**
 
 
 **Plan
      Category**
    **Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights****(6)**
    **Weighted
      average exercise price of outstanding options, warrants and
      rights**
    **Number
      of securities remaining available for future issuance under equity
      compensation plans****(1)**Independent
      Option Grants(3)
    15,000
    $2.00
    195,0001997
      Employee Stock Option Plan(2)
    952,335
    $1.54
    47,1451999
      Executive Stock Option Plan(3)
    180,000
    $1.77
    800,8002000
      Director Stock Option Plan(4)
    375,000
    $0.78
    25,0002003
      Stock Option Plan(5)
    100,000
    $0.82
    20,0002004
      Stock Option Plan(7)
    70,000
    $1.47
    1,130,000(1)
      Excluding securities reflected “Number of securities to be issued upon
      exercise of outstanding options, warrants and rights”(2)
      Approved by security holders on July 25, 1997.(3)
      Not approved by our shareholders.(4)
      Approved by security holders on September 20, 2002.(5)
      Not approved by our shareholders(6)
      Outstanding as of December 31, 2004(7)
      Not approved by our shareholders.
 
 ****
 
  *Independent
Option Grants*
 
 The
following individuals hold independent stock option certificates:
 
 On
May 20, 1997, we granted stock options to Mr. Liszicasz, our Chairman and Chief
Executive Officer, entitling him to purchase 45,000 common shares. The exercise
price for the options was $5.25 per share, which corresponded with the trading
price of the common shares as of the date of grant. The options were subject to
vesting conditions based upon continued performance of services as a director,
pursuant to which one-third of the granted options vested on the date of grant,
and one-third of the granted options would prospectively vest on each of the
first and second anniversaries of the date of grant, respectively.
 
 On
January 3, 2001, as part of a broader arrangement for all of our then serving
employees, our Board approved the cancellation of the foregoing outstanding
options, and the grant of new options to Mr. Liszicasz on the same terms
(including number of shares, vesting, term and expiration) as the original
grant, with the exception of the exercise price, which would be fixed at the
closing price for our common shares as of the close of business on July 5, 2001
(subsequently fixed at $2.00). In May of 2003, 30,000 of these options expired.
The remaining 15,000 are fully vested and will expire on March 31,
2006.
 
 -23-
 
 
 
 *1999
Pinnacle Oil International, Inc. Executive Stock Option Plan*
 
 Our
board of directors approved the 1999 Pinnacle Oil International, Inc. Executive
Stock Option Plan on April 27, 1999. Under the plan, the plan administrator may
issue up to 1,000,000 common shares to executive officers who are a natural
person and an employee. There are 180,000 options outstanding under this plan:
Mr. Liszicasz holds 40,000 options, Mr. Schrammar, the Corporate secretary,
holds 40,000 options and Ms. Manasek, VP Finance, holds 100,000
options.
 
 The
Stock Option Plan is intended to attract, compensate and motivate selected executives providing them with the opportunity to share in the
potential capital appreciation in NXT’s shares. Each issuance of an award shall
be deemed to vest immediately upon issuance and shall expire on the first
business day prior to the tenth anniversary of the issuance, unless otherwise
outlined in the agreement underlying the issuance.
 
 The
Plan Administrator fixes the exercise price for issuances in the exercise of its
sole discretion, except that the exercise price for an incentive stock option
must be at least the fair market value per share of the common shares at the
date of grant (as determined by the plan administrator in good faith), or in the
case of greater-than ten percent shareholders, at least one hundred ten percent
of the fair market value per share. The exercise price may be paid in cash or,
with the approval of the Plan Administrator, by other means, including
withholding of option shares or delivery of previously held shares.
 
 All
issuances under this stock option plan made to date have a termination clause
for vested portions of the issuance of two years from the date of termination if
that date is earlier than the expiry date, otherwise the expiry date takes
precedence.
 
 Should
the recipient pay the exercise price of their stock options with common shares
of NXT previously held by them, then, at the discretion of the Plan
Administrator, replacement stock options may be issued to the recipient to
purchase shares equal to the number of shares of common shares delivered to NXT
as payment of the exercise price. These stock options shall vest immediately,
have an exercise price equal to the fair market value of the common shares on
the date of conversion and shall expire on the same date as the original stock
option.
 
 On
February 12, 2004, NXT completed a private placement of 573,269 units at $2.00
per unit for gross proceeds of $1,143,633. 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. No underwriters were utilized in this offering. NXT paid finders
fees of $80,356 in connection with this offering. The offering was sold to a
total of 56 investors, who are employees, former employees and consultants of
NXT as well as certain accredited investors introduced to NXT by its management
and employees.
  On
July 22, 2004, NXT raised $264,245 in gross proceeds through a private placement
of 133,000 units.  Each unit consisted of a common share at $2.00 ($2.60
CDN) per share and a warrant with a strike price of $2.75 and a one year life.
 No underwriters were utilized in this offering.  NXT paid finders
fees of $8,480 in connection with this offering.  The offerings were sold
to a total of 18 investors, who are employees, former employees and consultants
of NXT as well as certain accredited investors introduced to NXT by its
management and employees.
 
 Of
the 706,269 units sold, 380,269 were exempt from registration due to the
exemption found in Regulation S promulgated by the Securities and Exchange
Commission under the Securities Act of 1933. These sales were offshore
transactions since all of the offerees were not in the United States and the
purchasers were outside the United States at the time of the purchase. Moreover,
there were no directed selling efforts of any kind made in the United States
neither by us nor by any affiliate or any person acting on our behalf in
connection with any of these offerings. All offering materials and documents
used in connection with the offers and sales of the securities included
statements to the effect that the securities have not been registered under the
Securities Act of 1933 and may not be offered or sold in the United States or to
U.S. persons unless the securities are registered under the Act or an exemption
there from is available and that no hedging transactions involving those
securities may not be conducted unless in compliance with the Act. Each
purchaser under Regulation S certified that it is not a U.S. person and is not
acquiring the securities for the account or benefit of any U.S. person and
agreed to resell such securities only in accordance with the provisions of
Regulation S, pursuant to registration under the Act or pursuant to an available
exemption from registration. The shares sold are restricted securities and the
certificates representing these shares have been affixed with a standard
restrictive legend, which states that the securities cannot be sold without
registration under the Securities Act of 1933 or an exemption there from and we
are required to refuse to register any transfer that does not comply with such
requirements.
 
 -24-
 Of
the remaining 326,000 units, such units were exempt from registration pursuant
to Rule 506 of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act of 1933. Neither we nor any person acting on
our behalf offered or sold these securities by any form of general solicitation
or general advertising. The shares sold are restricted securities
and the certificates representing these shares have been affixed with a standard
restrictive legend, which states that the securities cannot be sold without
registration under the Securities Act of 1933 or an exemption there from. Each
purchaser represented to us that he was purchasing the securities for his own
account and not for the account of any other persons. Each purchaser was
provided with written disclosure that the securities have not been registered
under the Securities Act of 1933 and therefore cannot be sold without
registration under the Securities Act of 1933 or an exemption therefrom.
  
 **Item
6. Selected Consolidated Financial Information**
 
 The
following tables present selected historical consolidated financial data for
each of our five most recent annual fiscal periods ended December 31,
derived from our consolidated financial statements prepared in accordance with
United States generally accepted accounting principles.
 
 The
selected statement of loss and comprehensive loss data set forth below for our
fiscal periods ended December 31, 2004, 2003 and 2002 and the selected
balance sheet data set forth below as at December 31, 2004, 2003 and
2002, have been derived from our consolidated financial statements audited by
Deloitte & Touche LLP, independent registered chartered accountants, as
indicated in their report contained in the consolidated financial statements
included as part of this annual report.
 
 The
selected statements of loss and comprehensive loss data set forth below for our
fiscal periods ended December 31, 2001 and 2000 and the selected
balance sheet data set forth below as of December 31, 2001 and 2000
are derived from our audited consolidated financial statements not included in
this annual report.
 
 The
following selected financial data should be read in conjunction with our
consolidated financial statements and the explanatory notes to those statements
included as part of this annual report, as well as the section of this annual
report captioned " *Management's
Discussion and Analysis of Financial Condition and Results of
Operations* ".
 
 -25-
 
  
 **CONSOLIDATED
      STATEMENTS OF LOSS AND**
    
    **Year
      Ended December 31****COMPREHENSIVE LOSS**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000**RevenuesOil
      and natural gas revenue
    
    **$**
    **48,031**
    
    $
    -
    
    $
    75,628
    
    $
    -
    
    $
    -Gain
      on sale of properties
    
    
    **30,294**
    
    
    12,003
    
    
    42,046
    
    
    -
    
    
    -**78,325**
    
    
    **12,003**
    
    
    **117,674**
    
    
    **-**
    
    
    **-**Operating
      expensesOil
      and natural gas operating expenses
    
    
    **5,735**
    
    
    -
    
    
    1,559
    
    
    -
    
    
    -Administrative
    
    
    **2,370,380**
    
    
    1,782,952
    
    
    1,442,477
    
    
    1,435,367
    
    
    1,368,841Depletion
      and impairment of oil andnatural
      gas properties
    
    
    **192,921**
    
    
    1,004,973
    
    
    210,871
    
    
    915,528
    
    
    93,625Amortization
      and depreciation
    
    
    **57,930**
    
    
    56,666
    
    
    239,766
    
    
    336,924
    
    
    343,225Research
      and Development
    
    
    **-**
    
    
    -
    
    
    152,862
    
    
    418,422
    
    
    373,249Survey
      operations and support
    
    
    **666,743**
    
    
    130,499
    
    
    48,909
    
    
    140,531
    
    
    106,083**3,293,709**
    
    
    2,975,090
    
    
    2,096,444
    
    
    3,246,772
    
    
    2,285,023Operating
      loss from continuing operations
    
    
    **(3,215,384**
    **)**
    
    (2,963,087
    )
    
    (1,978,770
    )
    
    (3,246,772
    )
    
    (2,285,023
    )Other
      incomeInterest
    
    
    **(531**
    **)**
    
    2,190
    
    
    26,499
    
    
    80,113
    
    
    348,213Other
    
    
    **-**
    
    
    (12,742
    )
    
    (1,636
    )
    
    (662
    )
    
    17,520**(531**
    **)**
    
    (10,552
    )
    
    24,863
    
    
    79,451
    
    
    365,733Net
      loss from continuing operations
    
    
    **(3,215,915**
    **)**
    
    (2,973,639
    )
    
    (1,953,907
    )
    
    (3,167,321
    )
    
    (1,919,290
    )Income
      (loss) from discontinuedoperations
    
    
    **33,494**
    
    
    159,765
    
    
    (3,722,213
    )
    
    (1,221,269
    )
    
    (738,524
    )Net
      loss
    
    
    **(3,182,421**
    **)**
    
    (2,813,874
    )
    
    (5,676,120
    )
    
    (4,388,590
    )
    
    (2,657,814
    )Other
      comprehensive income (loss):Foreign
      currency translation adjustments
    
    
    **(12,107**
    **)**
    
    461,515
    
    
    39,211
    
    
    (158,952
    )
    
    (34,625
    )Comprehensive
      loss
    
    **$**
    **(3,194,528**
    **)**
    $
    (2,352,359
    )
    $
    (5,636,909
    )
    $
    (4,547,542
    )
    $
    (2,692,439
    )Basic
      and diluted net loss per share fromcontinuing
      operations
    
    **$**
    **(0.16**
    **)**
    $
    (0.17
    )
    $
    (0.12
    )
    $
    (0.22
    )
    $
    (0.15
    )Basic
      and diluted net loss per share fromdiscontinued
      operations
    
    **$**
    **0.00**
    
    **$**
    **0.01**
    
    **$**
    **(0.22**
    **)**
    **$**
    **(0.09**
    **)**
    **$**
    **(0.06**
    **)**Basic
      and diluted loss per share
    
    **$**
    **(0.16**
    **)**
    $
    (0.13
    )
    $
    (0.33
    )
    $
    (0.31
    )
    $
    (0.20
    )Weighted
      average common shares outstanding
    
    
    **20,132,989**
    
    
    17,599,783
    
    
    16,971,153
    
    
    14,222,820
    
    
    12,987,297
  
 
 -26-
  **As
      at December 31****CONSOLIDATED
      BALANCE SHEET DATA:**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000**Working
      Capital
    
    $
    688,128
    
    $
    563,857
    
    $
    842,530
    
    $
    2,515,338
    
    $
    4,045,536Current
      Assets
    
    $
    1,319,714
    
    $
    1,250,908
    
    $
    991,563
    
    $
    3,342,224
    
    $
    5,093,622Oil
      and natural gas properties, net
    
    
    1,161,591
    
    
    1,194,406
    
    
    2,763,919
    
    
    4,917,558
    
    
    3,160,808Other
      property and equipment, net
    
    
    176,651
    
    
    190,810
    
    
    229,131
    
    
    3,448,416
    
    
    3,854,206Total
      Assets
    
    $
    2,657,956
    
    $
    2,636,124
    
    $
    4,018,825
    
    $
    11,763,100
    
    $
    12,168,228Current
      Liabilities
    
    
    631,586
    
    
    687,051
    
    
    149,033
    
    
    826,886
    
    
    1,048,086Long-Term
      Liabilities
    
    
    233,253
    
    
    -
    
    
    -
    
    
    1,463,729
    
    
    1,535,136Total
      Liabilities
    
    $
    864,839
    
    $
    687,051
    
    $
    149,033
    
    $
    2,290,615
    
    $
    2,583,222Shareholder's
      Equity
    
    $
    1,793,117
    
    $
    1,949,073
    
    $
    3,869,792
    
    $
    9,472,485
    
    $
    9,585,006
  
 
 
 **Item
7. Management's Discussion And Analysis Of Financial Condition And Results** **Of
Operations**
 
 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 annual
report.
 
  **Overview**
 
 We
are a technology-based reconnaissance exploration company that utilizes our SFD
technology to identify and prioritize oil and natural gas prospects. We conduct
our activities through our wholly-owned operating subsidiary, NXT Energy Canada,
Inc. which focuses on Canada-based exploration and is also investigating
international opportunities. The parent company concentrates on improving the
capability of our SFD survey system and oversees the operations of and provides
management, financial and administrative services to our
subsidiaries.
 
 **Results
Of Consolidated Operations**
 
 **Operating
Revenues − 2004 compared to 2003**
 
 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 33 thousand
cubic feet (mcf) per day during the year ended December 31, 2004. Gross
production revenue for the year was $51,453. The average price received was
$4.62 per mcf and the operating cost was $0.57 per mcf.
  Total
operating revenue including royalty income and net of royalty expense for 2004
was $48,031. We had no production in 2003.
  **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.
 
 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.
 
 -27-
 
 **Operating
Loss from Continuing Operations - 2004 compared to 2003**
 
 We
incurred an operating loss of $3,215,384 in 2004, which is 8.1% ($240,294)
greater than the loss of $2,963,087 for incurred in 2003. This decrease was
attributable mainly to the combination of the
following:
 
 ·Administrative
      costs increased $587,428 (33%) in 2004 (total of $2,370,380) compared to
      2003 (total $1,782,952). This increase was caused by higher consulting
      fees in 2004 ($1,084,688 as opposed to $421,645 in 2003) in the areas of
      technical development, marketing, and preparation of business development
      plan and investor relations and by a 35% increase in audit
      fees.·Survey
      operations and support expenses increased by $536,244 (411%) and reached
      $666,743 in 2004 compared to $130,499 in 2003, due to the SFD Technology
      Evaluation Survey completed in 2004.
      ·Depletion
      and impairment decreased to $192,921 (80.8%) in 2004 from $1,004,973 in
      2003 due to the fact that the bulk of our property was written off in 2004
      and no new property was purchased in 2004.
 
 **Operating
Loss from Continuing Operations - 2003 compared to 2002**
 
 The
operating loss of $2,963,087 for 2003 was $984,317 (50%) greater than
the loss of $1,978,770 for 2002. This was primarily attributable to the
following:
 
 ·
    a
      reduction of oil and natural gas revenues of $75,628 due to sale of the
      Canadian producing properties in July 2002;·
    an
      increase of $340,475 (24%) in administrative expenses due to costs
      associated with the corporate continuance, reduced allocations of expenses
      to research and increased costs associated with the efforts to establish a
      presence in the Middle East;·
    an
      increase of $794,102 (377%) in depletion and impairment expenses due to
      impairment of the Canadian properties; and·
    an
      increase of $81,590 (167%) in survey operations and support as we made
      several survey flights in 2003 and none in
2002;
 
 and
this was partially offset by:
 
 ·
    a
      decrease in amortization and depreciation of $183,100 (76%) from $239,766
      in 2002 to $56,666 in 2003. This was due to the sale of the aircraft in
      2002; and·
    a
      decrease of $152,862 in research and development from $152,862 in 2002 to
      $nil in 2003. This reduction was due to resources being applied fully to
      application of the technology as well as reduced staff levels in this
      area.
 
 **Other
Income and Expense - 2004 compared to 2003**
 
 ·
    Interest
      income was offset by interest expense resulting in $531 net expense as
      compared to $2,190 interest income in 2003.
 
 
 
 
 
 -28-
 **Other
Income and Expense - 2003 compared to 2002**
 
 ·
    Interest
      income was down by $24,309 (92%) to $2,190 in 2003 from $26,499 in 2002
      and this was caused by reduced cash balances in 2002.·
    Other
      income/expense:
      expense
      increased by $11,106 from $1,636 in 2002 to $12,742 in 2003 due to the
      reconciliation of realized intercompany
losses.
 
 **Income
from Discontinued Operations - 2004 compared to 2003**
 
 ·
    The
      gain of $33,494 from discontinued operations in 2004 was derived from the
      exchange of previously written off airplane parts for flying time. The
      income of $159,765 in 2003 was a gain on disposal of US oil and gas
      properties.
 
 **Loss
from Discontinued Operations - 2003 compared to 2002**
 
 ·
    The
      loss of $3,722,213 from discontinued operations in 2002 decreased and
      became income of $159,765 in 2003. The main reasons are the production
      revenue received in early 2003 before the sale, a small gain on the sale
      of the U.S. properties and large property impairments in
    2002.
 
 **Relationships
and Transactions on Terms That Would Not Be Available From Clearly Independent
Third Parties**
 
 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. On November 17, 2004, we entered into an additional loan
agreement with Mr. Liszicasz and borrowed a further $100,000 CDN. 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 February 7, 2005, we entered into a Loan Agreement
Amendment, whereby the maturity date for all three (3) loans was extended to
April 15, 2006.
 
 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.
 
 **Liquidity
And Capital Resources**
 
 **Sources
of Cash**
 
 Our
cash flow requirements for 2004 were funded principally by:
 (i)
    a
      loan from our CEO George Lizsicasz (the equivalent of $202,253, which was
      received on November 4 and $31,000 on November
16);
 (ii)
    proceeds
      from the sale of shares: 728,269 common shares were sold at $2.00 per
      share and 571,729 common shares were sold at $1.75 per share. The
      proceeds, net of issuance costs, were $1,366,221 and $999,823,
      respectively.
 (iii)
    proceeds
      from options exercised for cash throughout the year: 218,621 options were
      exercised at share prices between $0.29 and $2.00 per share and yielded
      $218,527 in total;
 (iv)
    proceeds
      from sale of oil and natural gas properties in the amount of $31,653
 -29-
 (v)
    change
      in subscriptions payable in the amount of $33,956
 
 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.
 
 The
company is currently negotiating a private placement through an Offering
Memorandum. The objective of the private placement is to raise sufficient funds
to commercialize the SFD technology through obtaining a contract to provide the
SFD survey as a service to third parties. There are no guarantees that the
Company will be able to close the private placement.
  **Current
Cash Position and Historical Changes in Cash Position**
 
 Our
cash position as of December 31, 2004 was $287,431 as compared
to $1,024,201 as of December 31, 2003.
 
 The $736,770
decrease in our cash position for 2004 compared to 2003 was attributable
to:
 
 ·
    $2,769,518
      cash used in operating activities;·
    $2,783,866
      cash provided by financing activities;·
    $550,000
      was converted into redeemable short-term investments and $173,580 cash
      used in other investing activities;·
    $15,431
      cash used in discontinued operations·
    $12,107
      comprehensive loss due to the effect of exchange rate
    changes.
 
 The $439,131
increase in our cash position for 2003 was attributable to:
 
 ·
    $1,508,615
      cash used in operating activities;·
    $1,498,268
      cash provided by financing activities;·
    $736,368
      cash used in investing activities;·
    $724,331
      cash provided by discontinued operations; and·
    a $461,515
      comprehensive gain due to the effect of exchange rate
    changes.
 
 **Operating
Activities**
 
 Our
operating activities required cash in the amount of $2,769,518 for 2004, as
compared to cash requirements of $1, 508,615
for 2003.
 
 ·
    The $2,769,518
      in cash used in operating activities for 2004 reflected our net loss
      of $3,215,915 for that period, adjusted for non-cash deductions and a
      net decrease in non-cash working capital balances.·
    The $1,508,615
      in cash used in operating activities for 2003 reflected our net loss
      of $2,973,639 for that period, adjusted for non-cash deductions and a
      net increase in non-cash working capital balances.
 
 
 
 -30-
 
 **Financing
Activities**
 
 Financing
activities in 2004 generated cash of $2,783,866 compared to the cash of
$1,498,268 generated from financing activities in 2003.
 
 ·
    During
      2004 we raised $2,366,044 net through private placements and $218,527 in
      cash was provided through the exercise of options.·
    During
      2003 we raised $930,567 net through private placements and $95,200 in cash
      was provided through the exercise of options.
 
 **Investing
Activities**
 
 Investing
activities used cash of $723,580 in 2004 compared to a $736,368 use of cash
2003.
 
 ·
    a
      sale of land at Scandia, eastern Alberta in 2004 generated $31,653 in
      cash; the primary use of cash was for other property and equipment
      ($44,358) and oil and natural properties ($160,875). $550,000 was
      converted into redeemable short-term investments.·
    In
      2003 there were small property sales, which generated $86,125 in cash and
      the primary use of cash was for other property and equipment ($41,330) and
      oil and natural properties ($808,879).
 
  **Discontinued
Operations**
  ·
    Cash
      used in discontinued operations in 2004 was $15,431 paid for preparation
      of tax returns and filing fees.·
    Cash
      generated from discontinued operations in 2003 was $724,331, which was the
      proceeds on the sale of the U.S. properties.
      .
 
  **Contractual
Obligations**
  **Tabular
Disclosure of Contractual Obligations as at December 31,
2004**
   
 ****
    
    **Payments
      due by period****Contractual
      Obligations As of December 31, 2004**
    
    **Total
      ($)**
    
    **Less
      than 1 year**
    
    **1-3
      years**Loan
      from Officer/Shareholder
    
    
    233,253
    
    
    -
    
    
    233,253Pangaea
      Investments
    
    
    4,160
    
    
    4,160
    
    
    -Rent
      or Operating Lease
    
    
    141,594
    
    
    130,702
    
    
    10,892Employment
      Agreements
    
    
    419,301
    
    
    104,825
    
    
    314,476
  
 
  From
November 3 through November 19 th 2004 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 entered into on December 1, 2002, which contains the
following principal compensatory provisions:
 
 -31-
 ·
    An
      initial base salary of CDN $21,000 per month, with an automatic increase
      of 5% on each anniversary date. However, Mr. Liszicasz reduced his monthly
      salary to CDN $10,500.·
    An
      annual bonus equal to 5% of our "net income after taxes" in the event we
      earn more than $5 million in net income after taxes in any
      year.·
    An
      annual performance bonus, as determined in the sole discretion of our
      board of directors.
 
 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.
 
 Restated
Technology Agreement was signed on August 1, 1996 with Momentum Resources
Corporation and amended on April 3, 1998. Pursuant to this agreement, Momentum
agreed to provide certain services including but not limited to 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.
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 the date of this annual
report. The agreement with Momentum Resources is due for renewal on December 31,
2005 subject to 60 days’ notice. We intend not to renew the
agreement.
 
 On
January 3, 2005 NXT 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, NXT signed a contract with Pangaea Investments under which Pangaea
will provide investor relations and public relations services for a monthly fee
of $5,000 CDN ($4,160
US) 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 annual 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 annual
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 annual report no shares
have been issued under this agreement.
   We
signed the extension of the sublease of the premises for our main office on
November 25, 2004 for the period of February 1, 2005 to January 31, 2006. The
monthly minimum lease payments beginning with January 1, 2005 are $13,092 CDN.
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:
 
 -32-
  
 Stage
    Number
      of Preferred Shares
    Annual
      Gross Revenue of the Company1
    2,000,000
    N/A
      - convertible on signing2
    2,000,000
    $
      50,000,0003
    2,000,000
    $100,000,0004
    2,000,000
    $250,000,0005
    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.
  **Off-Balance
Sheet Arrangements**
  None.
  **Capital
Requirements Going Forward**
  We
have approximately $257,917 in cash and redeemable short-term investments
on hand as of March 31, 2005. We will be required to raise additional financing
through equity issues, borrowings or property dispositions. We are actively
seeking equity investment in the company in the form of a private placement. In
December 2004 Dundee Securities Limited through their Dynamic Focus Resource
Fund invested $1 million US in NXT and provided a commitment to assist the
company in raising an additional $3 million. As part of the ongoing equity
financing Dundee and NXT have put together a group of investors. Dundee
Securities Limited will match the first $1.5 million US invested by third
parties. In addition, Dundee has agreed to act as the Agent for our listing
application with the TSX-V Exchange. Our
consolidated financial statements included with the Form 10-K in which this
annual report 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.
  We
can give no assurance that any or all projects in our pending programs will be
commercial, or if commercial 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. We need
to raise approximately 1.5 million dollars to cover our expenses for the next 12
months.
 
  **Other
Matters**
 
 **Foreign
Exchange**
 
 We
recorded a $12,107 foreign currency translation loss for 2004 (in 2003 we
had a gain of $461,515) as a comprehensive income 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.
 
 -33-
 **Effect
of Inflation**
 
 We
do not believe that our operating results were unduly affected by inflation
during our three years ended December 31, 2004.
 
 **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:
 
 ·
    Capitalized
      costs under the full cost method of accounting are generally depleted and
      depreciated on a country-by-country cost center basis using the
      unit-of-production method, based on estimated proved oil and gas reserves
      as determined by independent engineers where significant. In addition,
      capital costs in each cost center are also restricted from exceeding the
      sum of the present value of the estimated discounted future net revenues
      of those properties, plus the cost or estimated fair value of unproved
      properties (the "*ceiling
      test*").
      Should this comparison indicate an excess carrying value, a write-down
      would be recorded. In making these accounting determinations, we rely in
      part upon a reserve report prepared by independent engineers specifically
      engaged for this purpose. To economically evaluate our proved oil and
      natural gas reserves, these independent engineers must necessarily make a
      number of assumptions, estimates and judgments that they believe to be
      reasonable based upon their expertise and professional and U.S. Securities
      and Exchange Commission guidelines. Were the independent engineers to use
      differing assumptions, estimates and judgments, then our consolidated
      financial condition and results of operations would be affected. For
      example, we would have lower revenues and net profits (or higher net
      losses) in the event the revised assumptions, estimates and judgments
      resulted in lower reserve estimates, since our depletion and depreciation
      rate would then be higher and it might also result in a write down under
      the ceiling test. Similarly, we would have higher revenues and net profits
      (or lower net losses) in the event the revised assumptions, estimates and
      judgments resulted in higher reserve estimates.·
    Our
      management also periodically assesses the carrying values of unproved
      properties 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. Were
      our management to use differing assumptions, estimates and judgments, then
      our consolidated financial condition and results of operations would be
      affected. For example, we would have lower net profits (or higher net
      losses) in the event the revised assumptions, estimates and judgments
      resulted in increased impairment expense.
 
 **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 to the annual
consolidated financial statements.
 
 -34-
 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 SFAS
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. 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.**
  -35-
  ·
    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 Non-monetary
      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.
   **Item
7a. Quantitative and Qualitative Disclosure About Market
Risk**
 
  **Oil
And Gas Price Fluctuations**
 
 Our
primary market risk is market changes in oil and natural gas prices. Prospective
revenues from the sale of products or properties will be impacted by oil and
natural gas prices. Similarly, our ability to acquire petroleum and natural gas
rights and to drill the lands is also directly affected since competition for
and the cost to acquire petroleum and natural gas rights is generally a function
of oil and natural gas prices. Specifically, increases in oil and natural gas
prices are generally accompanied by increases in industry competition and costs
to acquire drilling rights, while decreases in oil and natural gas prices are
generally accompanied by a similar decline in competition and costs to acquire
drilling rights.
 
  **Currency
Fluctuations**
 
 We
currently hold our cash in Canadian and US currency. This does expose us to
exchange rate fluctuations between the Canadian and United States currencies.
However, we are planning to expand our operations in the international markets
and the U.S. dollar is the standard currency for international transactions in
the oil and gas industry. Therefore, we intend to continue using the U.S. dollar
as our reporting currency for the foreseeable future. As we become more active
in international markets we will transfer cash into U.S. currency based upon
expected needs at that time. We have not previously engaged in activities to
mitigate the effects of foreign currency. Based on the 2004 distribution of
revenue and cash flows a one percent change in the Canadian dollar rate relative
to the US dollar is estimated to affect revenues by $513 and expenses by
$26,208.
 
  **Interest
Rate Fluctuations**
 
 We
currently maintain the bulk of our available cash and redeemable short term
investments in US dollars and our reported interest income from these short-term
investments could be adversely affected by any material changes in US dollar
interest rates.
    
 -36-
  
   
  
  
   **ENERGY
EXPLORATION TECHNOLOGIES INC** **.**
 ****
 ****
 ****
 ****
 
 **CONSOLIDATED
FINANCIAL STATEMENTS**
 ****
 ****
 **For
The Years Ended December 31, 2004, 2003 And 2002**
 
 -37-
 **Item
8. Financial Statements And Supplementary** **Data**
 
 **TABLE
OF CONTENTS**
 **Page**
 **REPORTS
      OF INDEPENDENT REGISTERED CHARTERD ACCOUNTANTS**
    39**CONSOLIDATED
      FINANCIAL STATEMENTS**Consolidated
      Balance Sheets
    41Consolidated
      Statements of Loss and Comprehensive Loss
    42Consolidated
      Statements of Shareholders’ Equity (Deficit)
    43Consolidated
      Statements of Cash Flows
    44Notes
      to Consolidated Financial Statements
    45**SUPPLEMENTAL
      INFORMATION ON OIL AND GAS ACTIVITIES (UNAUDITED)**Table
      I - Total Costs Incurred In Oil And Natural Gas Acquisition, Exploration
      AndDevelopment Activities
    64Table
      II - Capitalized Costs Related To Oil And Natural Gas Producing
      Activities
    64Table
      III - Quantities Of Oil And Natural Gas Reserves
    65Table
      IV - Standardized Measure Of Discounted Future Net Cash Flows Related To
      ProvedOil
      And Natural Gas Reserve Quantities
    66**SUPPLEMENTAL
      INFORMATION - SELECTED QUARTERLY FINANCIAL DATA**
    68
 
 
 -38-
 
 **REPORT
OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS**
 
 To
the Board of Directors and the Shareholders of Energy Exploration Technologies
Inc.:
 
 We
have audited the consolidated balance sheet of Energy Exploration Technologies
Inc. as at December 31, 2004 and 2003 and the consolidated statements of loss
and comprehensive loss, cash flows and shareholders’ equity (deficit) for each
of the years in the three year period ended December 31, 2004. 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). These 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, 2004 and 2003 and the results of its operations and its
cash flows for each of the years in the three year period ended December 31,
2004 in accordance with accounting principles generally accepted in the United
States of America.
 
 The
Company is not required to have, nor were we engaged to perform, and audit of
its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.
 
 
 
 
 
 Calgary,
Canada
 April
6, 2005      Independent
Registered Chartered Accountants
 
 -39-
 
 **Comments
by Independent Registered Chartered Accountants on Canada-United States of
America Reporting Difference**
 
 The
standards of the Public Company Accounting Oversight Board (United States)
require the addition of an explanatory paragraph (following the opinion
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 consolidated 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 to the Board of Directors
and Shareholders dated April 6, 2005 is expressed in accordance with Canadian
reporting standards, which do not require a reference to such conditions and
events in the auditors’ report when these are adequately disclosed in the
financial statements.
 
 
 Calgary,
Canada
 April
6, 2005 Independent
Registered Chartered Accountants
 
 
 
 
 
 
 
 
 
 -40-
 
 
 
  
 **ENERGY
      EXPLORATION TECHNOLOGIES INC.****Consolidated
      Balance Sheets****(Expressed
      in U.S. dollars except share data)****December
      31, 2004**
    
    December
      31, 2003**Assets**Current
      assetsCash
    
    **$**
    **287,431**
    
    $
    1,024,201Short
      term investments
    
    
    **550,000**
    
    
    -Accounts
      receivable
    
    
    **387,943**
    
    
    76,133Due
      from officers and employees [note 14]
    
    
    **5,803**
    
    
    **-**Note
      receivable from former officer [note 3]
    
    
    **50,058**
    
    
    43,952Prepaid
      expenses
    
    
    **38,479**
    
    
    106,622**1,319,714**
    
    
    1,250,908Oil
      and natural gas properties, on the basis of full cost
      accounting,net
      of depletion and impairments [note 4]
    
    
    **1,161,591**
    
    
    1,194,406Other
      property and equipment, net of accumulated depreciation,amortization
      and impairment [note 5]
    
    
    **176,651**
    
    
    190,810**$**
    **2,657,956**
    
    $
    2,636,124**Liabilities
      And Shareholders' Equity**Current
      liabilitiesTrade
      payables
    
    **$**
    **102,562**
    
    $
    136,098Other
      accrued liabilities [note 6]
    
    
    **90,479**
    
    
    78,452Subscriptions
      payable [note 8]
    
    
    **438,545**
    
    
    472,501**631,586**
    
    
    687,051Long
      term liabilities:Note
      payable [note 7]
    
    
    **233,253**
    
    
    -**864,839**
    
    
    687,051Contingencies,
      continuing operations and commitments [notes 1 and 15]Shareholders'
      equityPreferred
      shares [note 9]Authorized:
      unlimitedIssued
      : nil
    
    
    **-**
    
    
    **-**Common
      sharesAuthorized:
      unlimitedIssued
      : 21,055,171 and 19,306,852 at December 31, 2004 andDecember
      31, 2003, respectively [note 8]
    
    
    **27,565,636**
    
    
    24,527,066Warrants
      [notes 8 and 10]
    
    
    **-**
    
    
    **-**Accumulated
      deficit
    
    
    **(26,038,158**
    **)**
    
    (22,855,919
    )Accumulated
      other comprehensive income
    
    
    **265,639**
    
    
    277,926**1,793,117**
    
    
    1,949,073**$**
    **2,657,956**
    
    $
    2,636,124The accompanying notes to consolidated financial statements
      are an integral part of these consolidated balance
      sheets
  
 
 
 -41-
 
 
   
 **ENERGY
      EXPLORATION TECHNOLOGIES INC.****Consolidated
      Statements Of Loss And Comprehensive Loss****(Expressed
      in U.S. dollars except share data)****Twelve
      months ended****December
      31,****2004**
    
    **2003**
    
    **2002**RevenuesOil
      and natural gas revenue
    
    **$**
    **48,031**
    
    $
    -
    
    $
    75,628Gain
      on sale of properties
    
    
    **30,294**
    
    
    12,003
    
    
    42,046**78,325**
    
    
    **12,003**
    
    
    **117,674**Operating
      expensesOil
      and natural gas operating expenses
    
    
    **5,735**
    
    
    -
    
    
    1,559Administrative
    
    
    **2,370,380**
    
    
    1,782,952
    
    
    1,442,477Depletion
      and impairment of oil andnatural
      gas properties [note 4]
    
    
    **192,921**
    
    
    1,004,973
    
    
    210,871Amortization
      and depreciation [notes 5]
    
    
    **57,930**
    
    
    56,666
    
    
    239,766Research
      and development
    
    
    **-**
    
    
    -
    
    
    152,862Survey
      operations and support
    
    
    **666,743**
    
    
    130,499
    
    
    48,909**3,293,709**
    
    
    2,975,090
    
    
    2,096,444Operating
      loss from continuing operations
    
    
    **(3,215,384**
    **)**
    
    (2,963,087
    )
    
    (1,978,770
    )Other
      incomeInterest
    
    
    **(531**
    **)**
    
    2,190
    
    
    26,499Other
    
    
    **-**
    
    
    (12,742
    )
    
    (1,636
    )**(531**
    **)**
    
    (10,552
    )
    
    24,863Net
      loss from continuing operations
    
    
    **(3,215,915**
    **)**
    
    (2,973,639
    )
    
    (1,953,907
    )Income
      (loss) from discontinuedoperations
      [note 16]
    
    
    **33,494**
    
    
    159,765
    
    
    (3,722,213
    )Net
      loss
    
    
    **(3,182,421**
    **)**
    
    (2,813,874
    )
    
    (5,676,120
    )Other
      comprehensive income (loss):Foreign
      currency translation adjustments
    
    
    **(12,107**
    **)**
    
    461,515
    
    
    39,211Comprehensive
      loss
    
    **$**
    **(3,194,528**
    **)**
    $
    (2,352,359
    )
    $
    (5,636,909
    )Basic
      and diluted net loss per share fromcontinuing
      operations [note 8]
    
    **$**
    **(0.16**
    **)**
    $
    (0.17
    )
    $
    (0.12
    )Basic
      and diluted net loss per share fromdiscontinued
      operations [note 8]
    
    **$**
    **0.00**
    
    $
    0.01
    
    $
    (0.22
    )Basic
      and diluted loss per share [note 8]
    
    **$**
    **(0.16**
    **)**
    $
    (0.13
    )
    $
    (0.33
    )Weighted
      average common shares outstanding
    
    
    **20,132,989**
    
    
    17,599,783
    
    
    16,971,153The
      accompanying notes to consolidated financial statements arean
      integral part of these consolidated statements of loss and comprehensive
      loss.
   -42-
 **ENERGY
      EXPLORATION TECHNOLOGIES INC.****Consolidated
      Statements Of Shareholders' Equity (Deficit)****(Expressed
      in U.S. dollars except share data)****Accumulated
      Other****Comprehensive**
    
    **Common
      Shares**
    
    **Preferred
      Shares**
    
    **Warrants**
    
    **Accumulated****Income
      (loss)**
    
    **Shares**
    
    **Amount**
    
    **Shares**
    
    **Amount**
    
    **Number**
    
    **Amount**
    
    **Deficit**
    
    **Total**Balance-December
      31, 2001
    
    $
    (222,800
    )
    
    16,971,153
    
    $
    23,331,210
    
    
    800,000
    
    $
    730,000
    
    
    -
    
    $
    -
    
    $
    (14,365,925
    )
    $
    9,472,485**2002:**Grant
      and vesting of options to investor relations consultant
    
    
    -
    
    
    -
    
    
    34,216
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    34,216Loss
      from continuing operations
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,953,907
    )
    
    (1,953,907
    )Loss
      from discontinued operations
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,722,213
    )
    
    (3,722,213
    )Other
      comprehensive loss
    
    
    39,211
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    39,211Balance-December
      31, 2002
    
    $
    (183,589
    )
    
    16,971,153
    
    $
    23,365,426
    
    
    800,000
    
    $
    730,000
    
    
    -
    
    $
    -
    
    $
    (20,042,045
    )
    $
    3,869,792**2003:**Grant
      and vesting of options to investor relations consultant
    
    
    -
    
    
    -
    
    
    46,773
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    46,773Issued
      for cash at $0.40 per share on September 19, 2003 net of issuance costs
    
    
    
    
    
    1,999,000
    
    
    744,050
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    744,050Redemption
      of preferred shares
    
    
    -
    
    
    -
    
    
    -
    
    
    (800,000
    )
    
    (730,000
    )
    
    -
    
    
    -
    
    
    -
    
    
    (730,000
    )Compensation
      expense related to issuance of options to employees and directors
    
    
    -
    
    
    -
    
    
    89,100
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    89,100Options
      exercised forcash at prices between $0.21 and $2.00 per
    share
    
    
    -
    
    
    234,999
    
    
    95,200
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    95,200Flow-Through
      shares issued for cash at $2.00 per share
    
    
    -
    
    
    101,700
    
    
    186,517
    
    
    -
    
    
    -
    
    
    7,496
    
    
    -
    
    
    -
    
    
    186,517Loss
      from continuing operations
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,973,639
    )
    
    (2,973,639
    )Income
      from discontinued operations
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    159,765
    
    
    159,765Other
      comprehensive income
    
    
    461,515
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    461,515Balance
      — December 31, 2003
    
    $
    277,926
    
    
    19,306,852
    
    $
    24,527,066
    
    
    -
    
    $
    -
    
    
    7,496
    
    $
    -
    
    $
    (22,855,919
    )
    $
    1,949,073**2004:**Options
      exercised for cash at prices between $0.29 amd $2.00 per
    share
    
    
    -
    
    
    218,621
    
    
    218,527
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    218,527Issued
      for cash at $2.00 per share on February 12, 2004 net of issuance costs
    
    
    -
    
    
    573,269
    
    
    1,063,277
    
    
    -
    
    
    -
    
    
    604,331
    
    
    -
    
    
    -
    
    
    1,063,277Issued
      for services at $1.80 per share on April 18, 2004
    
    
    -
    
    
    30,000
    
    
    54,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    54,000Issued
      for services at $2.00 per share on July 22, 2004
    
    
    -
    
    
    200,000
    
    
    400,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    400,000Issued
      for cash at $2.00 per share on July 22, 2004 net of issuance costs
    
    
    -
    
    
    55,000
    
    
    109,853
    
    
    -
    
    
    -
    
    
    60,680
    
    
    -
    
    
    -
    
    
    109,853Issued
      for cash at $2.00 per share on Sept 10, 2004 net of issuance costs
    
    
    -
    
    
    78,000
    
    
    145,765
    
    
    -
    
    
    -
    
    
    44,960
    
    
    -
    
    
    -
    
    
    145,765Issued
      for cash at $1.75 pershare
      on December 2, 2004 net of issuance costs
    
    
    -
    
    
    571,429
    
    
    999,823
    
    
    -
    
    
    -
    
    
    610,000
    
    
    -
    
    
    -
    
    
    999,823Issued
      for cash at $2.00 per share on December 31, 2004 net of issuance costs
    
    
    -
    
    
    22,000
    
    
    47,326
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    47,326Loss
      from continuing operations
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,215,915
    )
    
    (3,215,915
    )Loss
      from discontinued operations
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    33,494
    
    
    33,494Other
      comprehensive loss
    
    
    (12,107
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (12,107
    )Balance
      — December 31, 2004
    
    **$**
    **265,819**
    
    
    **21,055,171**
    
    **$**
    **27,565,636**
    
    
    **-**
    
    **$**
    **-**
    
    
    **1,327,467**
    
    **$**
    **-**
    
    
    **(26,038,158**
    **)**
    **$**
    **1,793,297**The
      accompanying notes to consolidated financial statements arean
      integral part of these consolidated statements of shareholders' equity
      (deficit)
   
 -43-
 **ENERGY
      EXPLORATION TECHNOLOGIES INC.****Consolidated
      Statements Of Cash flow****(Expressed
      in U.S. dollars)****Twelve
      months ended****December
      31,****2004**
    
    **2003**
    
    **2002****Operating
      activities**Net
      loss from continuing operations
    
    **$**
    **(3,215,915**
    **)**
    $
    (2,973,639
    )
    $
    (1,953,907
    )Amortization
      and depreciation of other propertyand
      equipment
    
    
    **57,930**
    
    
    56,666
    
    
    239,766Depletion
      and impairment of oil and natural gas properties
    
    
    **192,921**
    
    
    1,004,973
    
    
    210,871Consulting
      costs settled by issuance of common stockand
      options
    
    
    **454,000**
    
    
    46,773
    
    
    34,216Gain
      on sale of oil and natural gas properties
    
    
    **(30,294**
    **)**
    
    (12,003
    )
    
    (42,046
    )Changes
      in non-cash working capitalAccounts
      receivable
    
    
    **(262,885**
    **)**
    
    252,041
    
    
    (124,436
    )Interest
      accrued on loan to former employee
    
    
    **(6,106**
    **)**
    
    (9,740
    )
    
    (2,115
    )Due
      from officers and employees
    
    
    **(5,803**
    **)**
    
    5,004
    
    
    (4,912
    )Prepaid
      expenses
    
    
    **68,143**
    
    
    (33,307
    )
    
    70,471Trade
      payables
    
    
    **(33,536**
    **)**
    
    61,805
    
    
    (436,721
    )Other
      accrued liabilities
    
    
    **12,027**
    
    
    3,712
    
    
    (58,896
    )Compensation
      settled with options
    
    
    **-**
    
    
    89,100
    
    
    -Interest
      costs settled by issuance of common stock
    
    
    **-**
    
    
    -
    
    
    -Net
      cash used by operating activities
    
    
    **(2,769,518**
    **)**
    
    (1,508,615
    )
    
    (2,067,709
    )**Financing
      activities**Note
      payable
    
    
    **233,253**
    
    
    -
    
    
    -Funds
      raised through the sale of common shares, net of issuance
      costs
    
    
    **2,366,042**
    
    
    930,567
    
    
    -Funds
      raised through the sale of preferred stock and warrants, net of
      costs
    
    
    **-**
    
    
    -
    
    
    -Funds
      raised through the exercise of options
    
    
    **218,527**
    
    
    95,200
    
    
    **-**Funds
      raised through the exercise of warrants
    
    
    **-**
    
    
    -
    
    
    **-**Subscriptions
      payable
    
    
    **(33,956**
    **)**
    
    472,501
    
    
    **-**Net
      cash generated by financing activities
    
    
    **2,783,866**
    
    
    1,498,268
    
    
    -**Investing
      activities**Funds
      invested in other property and equipment
    
    
    **(44,358**
    **)**
    
    (41,330
    )
    
    -Proceeds
      on sale of other property and equipment
    
    
    **-**
    
    
    27,716
    
    
    3,900Funds
      invested in oil and natural gas properties
    
    
    **(160,875**
    **)**
    
    (808,879
    )
    
    (463,107
    )Funds
      borrowed by an employee
    
    
    **-**
    
    
    -
    
    
    -Proceeds
      on sale of oil and natural gas properties
    
    
    **31,653**
    
    
    86,125
    
    
    199,326Funds
      invested in short term investments
    
    
    **(550,000**
    **)**
    
    -
    
    
    -Changes
      in non-cash working capital;Accrued
      oil and natural gas property costs and trade payables
    
    
    -
    
    
    -
    
    
    (110,829
    )Net
      cash used by investing activities
    
    
    **(723,580**
    **)**
    
    (736,368
    )
    
    (370,710
    )**Net
      cash generated (used) by discontinued operations**
    
    
    **(15,431**
    **)**
    
    724,331
    
    
    (10,330
    )**Effect
      of net other comprehensive income (loss)**
    
    
    **(12,107**
    **)**
    
    461,515
    
    
    39,211**Net
      cash inflow (outflow)**
    
    
    **(736,770**
    **)**
    
    439,131
    
    
    (2,409,538
    )**Cash
      and Cash Equivalents, beginning of period**
    
    
    **1,024,201**
    
    
    585,070
    
    
    2,994,608**Cash
      and Cash Equivalents, end of period**
    
    **$**
    **287,431**
    
    $
    1,024,201
    
    $
    585,070Non
      cash discontinued operationsAircraft
      parts sold for credit with airplaneleasing
      company
    
    **$**
    **48,925**
    
    $
    -
    
    $
    -Cash
      paid for taxes
    
    **$**
    **-**
    
    $
    -
    
    $
    -Cash
      paid for interest
    
    **$**
    **-**
    
    $
    -
    
    $
    -The
      accompanying notes to consolidated financial statements are an integralpart of these consolidated statements of cash
      flows
  
 -44-
 
 **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. The reverse takeover by Pinnacle Oil Inc. of the
original company on October 20, 1995 triggered the “continuing entity” for
financial accounting purposes under the US GAAP.
 
 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, 2004, we incurred a loss of $3,182,421 and had
$26,038,158 accumulated deficit at December 31, 2004. Our working capital at
December 31, 2004 was $688,128. We anticipate that we will continue to incur
further losses from operations and have negative cash flows until such time as
we receive revenues from SFD exploration services and from production or sale of
properties with respect to currently held prospects or through prospects we
identify and exploit for our own account. 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.
These consolidated financial statements do not include any adjustments to
amounts and classifications of assets and liabilities that may be necessary
should we be unable to continue as going concern.
  To
secure the ongoing viability of the company we are currently negotiating a
private placement through an Offering Memorandum. The objective of the private
placement is to raise sufficient funds to commercialize the SFD technology
through obtaining contracts to provide the SFD survey as a service to third
parties. We are actively seeking such contracts.
  -45-
 
  
  We
have divested our U.S. properties in 2003, raised capital through private
placements in 2004 and we are in the midst of additional fund raising in 2005.
As a result of these measures, we believe we will be able to pursue and exploit
our goals and opportunities throughout 2005.
 
 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.
 
 **2.
Significant Accounting Policies**
 
 ***Basis
of Presentation***
 
 We
have prepared these consolidated financial statements for our years ended
December 31, 2004, 2003 and 2002 and as at December 31, 2004
and 2003 in accordance with accounting principles generally accepted in the
United States of America.
 
 ***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. Estimates
include allowances for doubtful accounts, valuation of the note receivable,
estimated useful life of assets, provisions for contingent, measurement of stock
based compensation, valuation of future tax assets and reflect management's best
estimate. Estimates and assumptions are reviewed periodically and the effects of
revisions are reflected in the period that they are determined necessary. Actual
results may differ from those estimates.
 
 ***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".
 
 ***Short
Term Investments***
 
 Included
in investments are temporary investments in term deposits with original
maturities greater than 90 days and less than one year. Investments are recorded
at the lower of original cost and market value.
 
 ***Debt
Issuance Costs***
 
 We
amortize debt issuance costs on a straight-line basis over the life of the
related debt.
 
 -46-
 ***Fair
Value of Financial Instruments***
 
 Our
financial instruments consist of cash equivalents, due from officer, notes
receivable, accounts receivable, trade payables, accrued liabilities, notes
payable and subscriptions payable. The carrying value of these financial
instruments approximates their fair values due to their short-term to maturity
and similarity to current market rates and represent their maximum credit risk.
It is the opinion of our management that we are not exposed to significant
interest, currency or credit risks arising from these financial
instruments.
 
 **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:
 
 Ÿ
    land
      acquisition costs;Ÿ
    geological
      and geophysical costs;Ÿ
    costs
      of drilling both productive and non-productive wells;Ÿ
    cost
      of production equipment and related facilities; andŸ
    various
      costs associated with evaluating petroleum and natural gas properties for
      potential acquisition.
 
 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.
 
 -47-
 
 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:
 
 Computer
      and SFD system equipment
    30%Computer
      and SFD system software
    100%Equipment
    20%Furniture
      and fixtures
    20%Flight
      equipment
    10%Leasehold
      improvements
    20%Tools
    20%Vehicle
    30%
 
 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. Refer to note
5.
 
 ***Revenue
Recognition***
 
 Revenue
associated with sales of crude oil and natural gas is recorded when title passes
to the customer and collection of the resulting receivable is deemed
probable.
 
 ***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:
 
 Ÿ
    conduct
      field evaluations to evaluate the SFD survey system;Ÿ
    develop,
      organize, staff and train our survey and interpretation operational
      functions;Ÿ
    aircraft
      operating costs, travel expenses and allocable salaries of our personnel
      while on survey assignment; andŸ
    allocable
      salaries of our personnel while interpreting SFD
data.
 
 ***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:
 
 Ÿ
    all
      asset and liability accounts are translated into U.S. dollars at the
      rate of exchange in effect as of the end of the applicable fiscal
      period;
 -48-
 Ÿ
    all
      shareholders' equity accounts are translated into U.S. dollars using
      historical exchange rates; andŸ
    all
      revenue and expense accounts are translated into U.S. dollars at the
      average rate of exchange for the applicable fiscal
  period.
 
 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 enacted.
Valuation allowances are provided when necessary to reduce future tax assets to
an amount that is more likely than not to be realized.
 
 ***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* 2 *5* "),
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.
 
 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
$241,722, $306,509 and $738,176 and for the years ended
December 31, 2004, December 31, 2003, and December 31, 2002,
respectively. These amounts are determined using an option-pricing model with
the following assumptions:
 
 
  
 2004
    
    2003
    
    2002Weighted-Average
      Fair Value of Options Granted in Each Year ($/option)
    
    
    1.18
    
    
    1.45
    
    
    1.69Expected
      Dividends paid per common share ($/share)
    
    
    Nil
    
    
    Nil
    
    
    NilExpected
      life (years)
    
    
    3
    
    
    4.5
    
    
    4.5Expected
      volatility in the price of NXT’s common shares (%)
    
    
    235
    
    
    207
    
    
    225Risk
      free interest rate (%)
    
    
    4
    
    
    4
    
    
    4
  
 
 
 
 Summarized
below is pro forma financial information for the three years ended
December 31, 2004, 2003 and 2002, which presents the net loss for the
year and loss per common share for the year calculated in accordance with
SFAS No. 123:
 
 -49-
  
 **Twelve
      Months Ended****December
      31,****2004**
    
    2003
    
    2002Net
      loss as reported
    
    **$**
    **(3,182,421**
    **)**
    $
    (2,813,874
    )
    $
    (5,676,120
    )Add:
      Stock-based employee compensation expense, included in reported net
      loss
    
    
    **-**
    
    
    89,100
    
    
    -Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards
    
    
    **(241,722**
    **)**
    
    (306,509
    )
    
    (738,176
    )Pro
      forma net loss for the year
    
    **$**
    **(3,424,143**
    **)**
    $
    (3,031,283
    )
    $
    (6,414,296
    )Pro
      forma basic and diluted loss per common share
    
    $
    (0.17
    )
    $
    (0.17
    )
    $
    (0.37
    )
  
 
 
 ***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 notes 11 and 12.
 
 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 SFAS
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.
 
 -50-
 
 
 
 
 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.
  ·
    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
  ·
    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 Non-monetary
      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.
  **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 1/2%. 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. The officer had an offsetting claim against NXT for
wrongful dismissal (he left the Company in 2002). He has not pursued the claim
and the statute limitation made his claim expire in October 2004. We can and
will pursue our claim now and are convinced that we will be successful since
there is no offsetting claim any more. The promissory note also specifies that
potential legal fees be to be borne by the former officer.
 
 -51-
 
 
 **4.
Oil and Natural Gas Properties**
 
 Summarized
below are the oil and natural gas property costs we capitalized for our years
ended December 31, 2004 and 2003, and as of
December 31, 2004, 2003 and 2002:
 
 
 
  
 **Capitalized
      for the Years Ended**
    
    **Capitalized
      As of****December
      31**
    
    **December
      31****2004**
    
    **2003**
    
    **2004**
    
    **2003**
    
    **2002**Acquisition
      costs
    
    **$**
    **161,465**
    
    $
    389,679
    
    **$**
    **1,819,811**
    
    $
    1,658,346
    
    $
    1,268,667Exploration
      costs
    
    
    **-**
    
    
    865,926
    
    
    **8,257,804**
    
    
    8,257,804
    
    
    7,391,878Development
      Costs
    
    
    **-**
    
    
    -
    
    
    **83,234**
    
    
    83,234
    
    
    83,234Oil
      and natural gas properties
    
    
    **161,465**
    
    
    1,255,605
    
    
    **10,160,849**
    
    
    9,999,384
    
    
    8,743,779Less
      impairment
    
    
    **(172,623**
    **)**
    
    (17,291
    )
    
    **(7,150,018**
    **)**
    
    (6,977,395
    )
    
    (5,612,387
    )Less
      dispositions
    
    
    **(1,359**
    **)**
    
    (1,365,008
    )
    
    **(1,671,529**
    **)**
    
    (1,670,170
    )
    
    (227,351
    )Less
      depletion
    
    
    **(20,298**
    **)**
    
    (1,442,819
    )
    
    **(177,711**
    **)**
    
    (157,413
    )
    
    (140,122
    )Net
      oil and natural gas properties
    
    **$**
    **(32,815**
    **)**
    $
    (1,569,513
    )
    **$**
    **1,161,591**
    
    $
    1,194,406
    
    $
    2,763,919
 The
property costs net of depletion, impairments and dispositions, by proved and
unproved classification, are as follows at
December 31, 2004, 2003, 2002:
 ****
    
    **Capitalized
      As of **December
      31******2004**
    
    **2003**
    
    **2002**Proved
      property costs
    
    **$******
    ******35,543**
    
    $
    -
    
    $
    781,446Unproved
      property costs
    
    
    **1,126,048**
    
    
    1,194,406
    
    
    1,982,473**$******
    ******1,161,591**
    
    $
    1,194,406
    
    $
    2,763,919
  
 
 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
$172,623 had occurred in 2004 ($945,000 in 2003 and $263,000 in 2002). Based
upon these considerations, we have recorded these impairments against our
properties to date as noted above.
 
 **5.
Other Property and Equipment**
 
 Summarized
below are our capitalized costs for other property and equipment as of
December 31, 2004 and 2003:
 
 -52-
  
 **December
      31**
    
    **December
      31****2004**
    
    **2003**Computer
      and SFD equipment
    
    **$**
    **359,809**
    
    $
    332,011Computer
      and SFD software
    
    
    **155,223**
    
    
    142,238Equipment
    
    
    **89,302**
    
    
    86,046Furniture
      and fixtures
    
    
    **222,602**
    
    
    187,588Leasehold
      improvements
    
    
    **257,224**
    
    
    238,475SFD
      survey system (including software)
    
    
    **136,425**
    
    
    127,845Tools
    
    
    **2,046**
    
    
    1,897Vehicle
    
    
    **18,828**
    
    
    18,828Flight
      Equipment
    
    
    **1,489**
    
    
    1,380Other
      property and equipment
    
    
    **1,242,948**
    
    
    1,136,308Less
      accumulated depreciation, amortization and impairment
    
    
    **(1,066,296**
    **)**
    
    (945,498
    )Net
      other property and equipment
    
    **$**
    **176,651**
    
    $
    190,810
   **6.
Other accrued Liabilities**
 
 As
of December 31, 2004 the Company has $90,479 other accrued liabilities. This
amount includes $69,283 accrued audit fees, $15,835 payable for tax return
preparation, $3,200 accrued legal fees, $1,229 payable for reserve report and
$932 crown royalty payable.
 
 **7.
Notes Payable**
 
 As
of December 31, 2004 the Company has a loan outstanding in the amount of
$233,253 US. This amount is comprised of $250,000 CDN borrowed from our CEO and
largest shareholder, Mr. George Liszicasz on November 3, 2004 and an additional
$31,000 US as a result of an amendment to the loan agreement dated November 16,
2004. On November 17, 2004, we entered into an additional loan agreement with
Mr. Liszicasz for a further $100,000 CDN. As at December 31, 2004 the $ 100,000
CDN has not been utilized. These agreements provide that the loans accrue
interest at the rate of 0.58% per month (7.0% per annum). The maturity date for
all three loans is April 15, 2006.
 
 **8.
Common Stock**
 
 The
loss per share is presented in accordance with the provision of SFAS No. 128,
Earnings Per Share (“EPS”). Basic EPS is calculated by dividing the income or
loss available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Basic and diluted EPS were the same
for 2004 and 2003 because the company had losses from operations and therefore,
the effect of all potential common stock was anti-dilutive.
 
 In
calculating diluted earnings per common share for the years ended December 31,
2004, 2003 and 2002, we excluded all options and warrants, 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 and warrants would have
been anti-dilutive. During these three years, outstanding stock options and
warrants were the only potentially dilutive instrument.
 
 On
February 12, 2004, we raised $1,143,633 in gross proceeds through a
private placement of 573,269 units. Each unit consisted of a common share
at $2.00 ($2.60 CDN) per share and a warrant with a strike price of $2.75
and a one year life. Net proceeds to our company were $1,063,277 after
deducting $80,356 in offering expenses and finders’ fees. In addition, we
had also received $438,545 in gross proceeds at December 31, 2004 for which
shares had not been issued at December 31, 2004 and this amount is shown as
subscriptions payable on the balance sheet.
 
 -53-
 On
April 18, 2004 we issued 30,000 common shares in full payment of an invoice for
$54,000 for services provided by a consultant to NXT to assist us with corporate
strategy and planning.
 
 On
July 22, 2004, we issued 200,000 common shares in full payment of an invoice for
$400,000 for services to establish a branch office in the United Arab Emirates
and market the company’s SFD Technology in the region.
 
 On
July 22, 2004, we raised $264,245 in gross proceeds through a private placement
of 133,000 units. Each unit consisted of a common share at $2.00 ($2.60 CDN) per
share and a warrant with a strike price of $2.75 and a one year life. Net
proceeds to our company were $255,618 after deducting $8,627 in offering
expenses and finder’s fees.
 
 On
December 22, 2004, we raised $1,000,001 in gross proceeds through a private
placement of 571,429 units. Each unit consisted of a common share at $1.75
($2.10 CDN) per share and a warrant with a strike price of $2.75 ($3.30 CDN) and
a one year life. Net proceeds to our company were $999,823 after deducting $178
in offering expenses.
  On
December 31, 2004 we raised $47,326 in gross proceeds through a private
placement of 22,000 units. Each unit consisted of a common share of $2.00 ($2.60
CDN) per share.
  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
finders' fees.
 
 **9.
Preferred Shares**
 
 Preferred
shares are not entitled to payment of any dividends, although they are entitled
under certain circumstances to participate in dividends on the same basis as if
converted into common shares. Preferred shares carry liquidation preferences
should our Company wind-up and dissolve.
 
 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
shares purchase options or warrants at prices less than $7.50 per share in
specified circumstances.
 
 All
outstanding preferred shares were returned to treasury effective May 9, 2003 as
part of the compensation 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, 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
initial term of the contract with Momentum Resources expires on December 31,
2005 and can be cancelled by NXT providing written notice to Momentum Resources
no later than 60 days prior to the expiration of the pending term. 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 2 0,000
barrels of hydrocarbons. Momentum Resources has not earned any warrants under
the SFD technology license as of December 31, 2004.
 
 -54-
 
 **11.
Employee and Director Options**
  ***Description
of Plans***
 
 Through
December 31, 2004, we have granted options to selected employees,
directors, advisors and consultants of our company pursuant to the following
separate arrangements or plans (the " *Plans* "):
 
 Ÿ
    separate
      stand-alone directors' options which we granted to selected directors as
      compensation for serving on our board of directors; as these grants were
      not a part of an option plan there is no underlying maximum number of
      shares reserved and no general vesting and expiry conditions
      specified;Ÿ
    the 1997
      Pinnacle Oil International, Inc. Stock Plan (the"*1997
      Plan*"),
      pursuant to which 1,500,000 common shares are reserved for issuance
      to employees, directors and consultants in the form of stock options or
      outright stock grants; unless otherwise specified in the Option
      Certificate, all options vest on the date of grant and the maximum expiry
      date is 10 years from the date of the grant; subject to this maximum
      expiry date, the Administrator may determine different expiry and vesting
      conditions;Ÿ
    the 1999
      Pinnacle Oil International, Inc. Executive Option Plan (the"*1999
      Plan*"),
      pursuant to which 1,000,000 common shares are reserved for issuance
      to executive officers in the form of stock options; unless otherwise
      specified in the Option Certificate, all options vest on the date of grant
      and the maximum expiry date is 10 years from the date of the grant;
      subject to this maximum expiry date, the Administrator may determine
      different expiry and vesting conditions;Ÿ
    the 2000
      Pinnacle Oil International, Inc. Directors' Option Plan (the"*2000
      Plan*"),
      pursuant to which 400,000 common shares are reserved for issuance to
      selected directors in the form of stock options; unless otherwise
      specified in the Option Certificate, all options vest on the date of grant
      and the maximum expiry date is 10 years from the date of the grant;
      subject to this maximum expiry date, the Administrator may determine
      different expiry and vesting conditions;Ÿ
    the
      2003 Stock Plan under which 375,000 common shares are reserved for
      issuance to consultants; and the Plan Administrator has the authority to
      decide the vesting conditions and the expiration dates of options awarded
      under this plan;Ÿ
    the
      2004 Stock Option Plan under which 1.2 million common shares are reserved
      for issuance to eligible employees, directors, members of management and
      service providers;
      the
      maximum option period is 10 years from the grant and vesting conditions
      are determined by
      the
      Board of Directors and the Compensation
Committee.
 
 Vesting
terms and maximum terms of options are specified in individual plans. However,
the Administrator has the authority to change these terms. At present, options
generally vest one-third each on the first through third anniversaries of the
grant date and lapse, if unexercised, five years from the date of
vesting.
 
 ***Summary
of Option Grants***
 
 We
have summarized below all transactions involving option grants under the Plans
for our three fiscal years ended December 31, 2004:
 
 -55-
  
 **2004**
    
    2003
    
    2002**Common**
    
    **Weighted**
    
    Common
    
    Weighted
    
    Common
    
    Weighted**Shares**
    
    **Average**
    
    Shares
    
    Average
    
    Shares
    
    Average**Under**
    
    **Exercise**
    
    Under
    
    Exercise
    
    Under
    
    Exercise**Options**
    
    **Price**
    
    Options
    
    Price
    
    Options
    
    PriceOutstanding
      at beginning of year
    
    
    **2,008,942**
    
    **$**
    **1.45**
    
    
    1,501,842
    
    $
    2.02
    
    
    2,174,900
    
    $
    2.25Granted
    
    
    **648,000**
    
    
    **1.90**
    
    
    790,000
    
    
    0.35
    
    
    344,000
    
    
    0.36Exercised
    
    
    **(218,621**
    **)**
    
    **(1.18**
    **)**
    
    (234,999
    )
    
    (0.41
    )
    
    -
    
    
    -Forfeited
    
    
    **(33,334**
    **)**
    
    **(0.09**
    **)**
    
    (36,334
    )
    
    (1.40
    )
    
    (230,000
    )
    
    (0.48
    )Expired
    
    
    **(712,652**
    **)**
    
    **(1.93**
    **)**
    
    (11,567
    )
    
    (0.45
    )
    
    (787,058
    )
    
    (1.62
    )Outstanding
      at end of year
    
    
    **1,692,335**
    
    **$**
    **1.40**
    
    
    2,008,942
    
    $
    1.45
    
    
    1,501,842
    
    $
    2.02Exercisable
      at end of year
    
    
    **653,663**
    
    **$**
    **1.83**
    
    
    1,309,270
    
    $
    1.84
    
    
    1,063,842
    
    $
    2.02Available
      for grant at end of year
    
    
    **2,217,945**
    
    
    
    
    
    1,149,959
    
    
    
    
    
    438,000
  
 We
have summarized below all outstanding options under the Plans as of
December 31, 2004:
 
 -56-
  **As
      of December 31, 2004****Stock
      Option Plan**
    **Grant
      Date**
    **Exercise
      Price**
    **Outstanding**
    **Vested
      and Exercisable**Independent
      GrantsJanuary
      4, 2001
    $2.00
    15,000
    15,0001997
      Employee Stock Option PlanDecember
      27, 2000
    $4.13
    10,000
    8,000January
      4, 2001
    $2.00
    170,000
    164,000May
      15, 2001
    $2.50
    120,000
    120,000July
      5, 2001
    $2.00
    25,000
    15,000August
      13, 2002
    $0.38
    40,001
    6,666September
      20, 2002
    $0.29
    2,667
    -March
      27, 2003
    $0.14
    60,000
    20,000September
      8, 2003
    $0.43
    191,667
    45,000August
      12, 2004
    $2.15
    210,000
    -December
      23, 2004
    $1.47
    123,000
    -1999
      Executive Stock Option PlanAugust
      12, 2004
    $2.15
    80,000
    -December
      23, 2004
    $1.47
    100,000
    -2000
      Directors Stock Option PlanFebruary
      15, 2000
    $2.00
    15,000
    15,000April
      17, 2000
    $2.00
    30,000
    30,000August
      13, 2002
    $0.38
    120,000
    79,999September
      20, 2002
    $0.29
    10,000
    6,666September
      8, 2003
    $0.43
    160,000
    53,332August
      12, 2004
    $2.15
    40,000
    -2003
      PlanAugust
      12, 2004
    $2.15
    25,000
    -June
      24, 2003
    $0.38
    75,000
    75,0002004
      Stock Option PlanDecember
      23, 2004
    $2.15
    70,000
    -1,692,335
    653,663
   -57-
  **Contractual
      Life for Outstanding Options****2005**
    **2006**
    **2007**
    **2008**
    **2009**
    **2010**
    **2011**$0.14
    -
    -
    
    60,000
    -
    -
    -$0.29
    -
    -
    12,667
    -
    -
    -
    -$0.38
    -
    -
    235,001
    -
    -
    -
    -$0.43
    -
    -
    -
    351,667
    -
    -
    -$1.47
    -
    -
    -
    -
    293,000
    -
    -$2.00
    55,000
    61,000
    46,000
    46,000
    31,000
    11,000
    5,000$2.15
    -
    -
    -
    -
    355,000
    -
    -$2.50
    -
    50,000
    35,000
    35,000
    -
    -
    -$4.13
    -
    2,000
    2,000
    2,000
    2,000
    2,000
    -**55,000**
    **113,000**
    **330,668**
    **494,667**
    **681,000**
    **13,000**
    **5,000**
  
 Consultant
and executive options outstanding as of December 31, 2004 vest over
the next three years, from the date of grant based upon the continued provision
of services. The options vest one-third each on the first through third
anniversaries of the grant date.
 
 The
director options granted after January 1, 2000 that are outstanding as
of December 31, 2004 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 nil (2003 - $89,100 2002 - nil) compensation
expense relating to the grant of options 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.
 
 **12.**  **Investor
Relations Options**
  On
May 15, 2002, 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 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 123, for the
year ended December 31, 2003, we recorded compensation expense, as part of
administrative expense, determined in accordance with the Black Scholes options
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, 2004, the following net operating losses are available
to reduce our taxable income in future years:
 
 -58-
 **Country**
    
    **Amount**
    
    **Expiration
      Dates****United
      States**
    
    **$**
    **5,861,634**
    
    
    **2010—2024****Canada**
    
    **$**
    **7,035,447**
    
    
    **2005—2011**
 
 
 ***Deferred
Income Tax Assets and Liabilities***
 
 As
of December 31, 2004 our accounts contained the following deferred
income tax assets and liabilities:
 
 **United
      States**
    
    **Amount**
    
    **Statutory**
      **Tax
      Rate**
    
    **Tax**
      **Benefit**Tax
      benefit of loss carry forwards
    
    **$******
    ******5,861,634**
    
    
    34
    %
    
    **1,992,955**Tax
      asset related to depreciation
    
    
    **Nil**
    
    
    34
    %
    
    **0**Valuation
      reserve
    
    
    
    
    
    
    
    
    (1,992,955
    )****
    
    
    
    
    
    
    
    **$**
    **Nil**
  **Canada**
    
    **Amount**
    
    **Statutory**
      **Tax
      Rate**
    
    **Tax**
      **Benefit**Tax
      benefit of loss carry forwards
    
    
    **7,035,447**
    
    
    **39.25**
    **%**
    **$**
    **2,761,061**Tax
      asset related to depreciation
    
    
    **4,924,642**
    
    
    **39.25**
    **%**
    
    **1,932,676**Valuation
      reserve
    
    
    
    
    
    
    
    
    **(4,693,737**
    **)****$**
    **Nil**
 
 As
of December 31, 2003, our accounts contained the following deferred
income tax assets and liabilities:
 
 **United
      States**
    
    **Amount**
    
    **Statutory**
      **Tax
      Rate**
    
    **Tax**
      **Benefit**Tax
      benefit of loss carry forwards
    
    **$**
    **(
      48,718**
    **)**
    
    **34**
    **%**
    **$**
    **(16,564**
    **)**Tax
      asset related to depreciation
    
    **$**
    **9,273,221**
    
    
    **34**
    **%**
    
    **3,152,895**Valuation
      reserve
    
    
    
    
    
    
    
    
    **(3,136,331**
    **)****$**
    **Nil**
  **Canada**
    
    **Amount**
    
    **Statutory**
      **Tax
      Rate**
    
    **Tax**
      **Benefit**Tax
      benefit of loss carry forwards
    
    **$**
    **4,361,265**
    
    
    **39.25**
    **%**
    **$**
    **1,711,578**Tax
      asset related to depreciation
    
    **$**
    **3,650,053**
    
    
    **39.25**
    **%**
    
    **1,432,463**Valuation
      reserve
    
    
    
    
    
    
    
    
    **(3,144,041**
    **)****$**
    **Nil**
 
 
 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, 2004 was
$319,746 as compared to $712,823 for the year ended
December 31, 2003.
 
 **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, 2004, 2003, and 2002:
  -59-
  **December 31**
    
    **2004**
    
    2003
    
    2002Collective
      legal fees expensed to law firms with partners who were also directors of
      NXT or NXT Energy Canada
    
    
    **Nil**
    
    
    Nil
    
    $
    72,440Collective
      wages, fees and benefits paid to executive officers of NXT, who were also
      directors of NXT
    
    **$**
    **116,373**
    
    $
    107,382
    
    $
    234,958Accounts
      receivable due from executive officers
    
    **$**
    **5,803**
    
    
    Nil
    
    $
    5,004
   
 Our
rights to use our SFD technology initially arose 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, 2004. 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, 2004. The agreement with
Momentum Resources is due for renewal on December 31, 2005 subject to 60 days’
notice. We intend not to renew the agreement because in management’s view
Momentum has not fulfilled its contractual obligations. In order to ensure that
NXT maintain control over the SFD sensors we entered into an Interim Operating
Agreement and a Technical Services Agreement with Mr. Liszicasz in November
2004. Mr. Liszicasz developed the prototype sensor for the SFD technology, which
was later transferred to Momentum Resources Corporation, a Bahamian corporation
(“Momentum”), of which Mr. Liszicasz is a part owner. 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
since June 1, 1999 to-date, 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
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.
 
 **15.
Commitments and Contingencies**
 
 We
signed the extension of the sublease of the premises for our main office on
November 25, 2004. The monthly minimum lease payments are $13,092 CDN and the
sublease expires on January 31, 2006.
 
 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 Defense. 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 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 or loss and damages to the aircraft and cargo; and damages in respect to
search and rescue expenses, salvage, storage, transportation expenses and
pollution and contamination expenses.
  -60-
 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.
 
 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 ($4,160 US) 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.
  **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. The price for these properties was
set by arm’s length negotiations between the parties.
  In
June 2004 we sold airplane parts in exchange for 30 hours of rental time on an
airplane from Avia Aviation. The airplane parts had been written off in previous
years and had no recorded value at the time. We used the rental rate for the
airplane of $1,747 US per hour based on previous invoices from Avia Aviation for
the valuation of the transaction. We recognized a gain of $45,725 on the sale.
We also incurred $12,231 of administrative expenses in relation to discontinued
operation. The net gain from discontinued operations was $33,494.
  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, 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, 2004, 2003, and
2002 and is geographic information relating to:
 
 Ÿ
    revenues
      we have received during the year from continuing operations allocated
      amongst the geographic areas in which the revenue was
      generated;
  -61-
 Ÿ
    our
      net loss for the year from continuing operations allocated amongst the
      geographic areas in which the revenue and associated expenses were
      generated.Ÿ
    our
      net income (loss) for the year from discontinued operations allocated
      amongst the geographic areas in which the revenue and associated expenses
      were generated.
 
   **United
      States**
    
    **Canada**
    
    **Total****Twelve
      Months Ended****December
      31, 2004:**Revenues
      from oil and natural gas production
    
    $
    -
    
    **$**
    **48,031**
    
    **$**
    **48,031**Net
      loss from continuing operations
    
    $
    -
    
    **$**
    **(3,215,915**
    **)**
    **$**
    **(3,215,915**
    **)**Income
      from discontinued operations
    
    **$**
    **33,494**
    
    $
    -
    
    **$**
    **33,494**December
      31, 2003:Revenues
      from oil and natural gas production
    
    $
    -
    
    $
    -
    
    $
    -Net
      loss from continuing operations
    
    
    
    
    $
    (2,973,639
    )
    $
    (2,973,639
    )Income
      from discontinued operations
    
    $
    159,765
    
    $
    -
    
    $
    159,765December
      31, 2002:Revenues
      from oil and natural gas production
    
    $
    -
    
    $
    75,628
    
    $
    75,628Net
      loss from continuing operations
    
    $
    -
    
    $
    (1,953,907
    )
    $
    (1,953,907
    )Income
      from discontinued operations
    
    $
    (3,722,213
    )
    $
    -
    
    $
    (3,722,213
    )
 Summarized
below is geographic information relating to our assets as of December
31, 2004 and December 31, 2003, allocated amongst the
geographic areas in which the assets were physically located or principally
connected:
 **Assets
      As Of**
    
    **United
      States**
    
    **Canada**
    
    **Total****December
      31, 2004:**
    
    **$**
    **-**
    
    **$**
    **2,657,956**
    
    **$**
    **2,657,956**December
      31, 2003
    
    $
    -
    
    $
    2,636,124
    
    $
    2,636,124
   Of
our total revenue, $46,053 (96%) came from a single external customer (Centrica
Canada Ltd.) and was earned in the geographical segment of Canada.
 
 In
preparing the above tables, we have eliminated all inter-segment revenues,
expenses and assets and the accounting policies of each segment are the same as
those described in note 2.
 
 **18.
Subsequent Events**
 
 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 ($4,160 US) 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.
  -62-
 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.
  **19.
Comparative Figures**
 
 Certain
amounts in the consolidated financial statements have been reclassified in the
current period to conform with the current year’s presentation.
  -63-
  
  **SUPPLEMENTAL
INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES
(UNAUDITED)**
 
 In
accordance with SFAS No. 69," *Disclosures
About Oil and Gas Producing Activities* ",
this section provides supplemental information on our oil and natural gas
exploration and production activities. Tables I and II provide historical cost
information pertaining to costs incurred in acquisitions, exploration,
development and capitalized costs. Tables III through IV present information on
our estimated proved reserve quantities and standardized measure of estimated
discounted future net cash flows related to proved reserves.
 
 
 **Table
I**
 **Total
Costs Incurred In Oil and Natural Gas Acquisition, Exploration and Development
Activities**
   **Years
      Ended**
    
    **United
      States**
    
    **Canada**
    
    **Total****December
      31, 2004:****Acquisition
      costs**
    
    **$******
    ******-**
    
    **$******
    ******161,465**
    
    **$******
    ******161,465****Exploration
      costs**
    
    
    **-**
    
    
    **-**
    
    
    **-****Development
      costs**
    
    
    **-**
    
    
    **-**
    
    
    **-******
    
    **$**
    **-**
    
    **$******
    ******161,465**
    
    **$******
    ******161,465**December
      31, 2003:Acquisition
      costs
    
    $
    1,665
    
    $
    388,014
    
    $
    389,679Exploration
      costs
    
    
    67,982
    
    
    797,944
    
    
    865,926Development
      costs
    
    
    -
    
    
    -
    
    
    -$
    69,647
    
    $
    1,185,958
    
    $
    1,255,605December
      31, 2002:Acquisition
      costs
    
    $
    8,260
    
    $
    223,966
    
    $
    232,226Exploration
      costs
    
    
    1,169,339
    
    
    211,462
    
    
    1,380,801Development
      costs
    
    
    -
    
    
    27,681
    
    
    27,681$
    1,177,599
    
    $
    463,109
    
    $
    1,640,708
   
 
 
 
 **Table
II**
 **Capitalized
Costs Related To Oil and Natural Gas Producing Activities**
 
 -64-
   **United
      States**
    
    **Canada**
    
    **Total****As
      At December 31, 2004:**Proved
      property costs
    
    **$**
    **Nil**
    
    **$**
    **55,841**
    
    **$**
    **55,841**Less
      dispositions
    
    
    **-**
    
    
    **-**
    
    
    **-**Less
      impairment
    
    
    **-**
    
    
    **-**
    
    
    **-**Less
      depletion
    
    
    **-**
    
    
    **(20,298**
    **)**
    
    **(20,298**
    **)**Net
      proved property costs
    
    
    **-**
    
    **$**
    **35,543**
    
    **$**
    **35,543**Unproved
      property costs
    
    
    **-**
    
    
    **3,537,895**
    
    
    **3,537,895**Less
      impairment
    
    
    **-**
    
    
    **(2,411,847**
    **)**
    
    **(2,411,847**
    **)**Net
      unproved property costs
    
    
    **-**
    
    
    **1,126,048**
    
    
    **1,126,048****$**
    **-**
    
    **$**
    **1,161,591**
    
    **$**
    **1,161,591**As
      At December 31, 2003:Proved
      property costs
    
    $
    Nil
    
    $
    Nil
    
    $
    NilLess
      dispositions
    
    
    -
    
    
    -
    
    
    -Less
      impairment
    
    
    -
    
    
    -
    
    
    -Less
      depletion
    
    
    -
    
    
    -
    
    
    -Net
      proved property costs
    
    
    -
    
    
    **-**
    
    
    -Unproved
      property costs
    
    
    -
    
    
    3,404,471
    
    
    3,404,471Less
      impairment
    
    
    -
    
    
    (2,210,065
    )
    
    (2,210,065
    )Net
      unproved property costs
    
    
    -
    
    
    1,194,406
    
    
    1,194,406$
    -
    
    $
    1,194,406
    
    $
    1,194,406As
      At December 31, 2002:Proved
      property costs
    
    $
    1,977,950
    
    $
    524,197
    
    $
    2,502,147Less
      dispositions
    
    
    —
    
    
    (227,351
    )
    
    (227,351
    )Less
      impairment
    
    
    (1,262,360
    )
    
    (90,868
    )
    
    (1,353,228
    )Less
      depletion
    
    
    (121,290
    )
    
    (18,832
    )
    
    (140,122
    )Net
      proved property costs
    
    
    594,300
    
    
    187,146
    
    
    781,446Unproved
      property costs
    
    
    3,673,292
    
    
    2,568,340
    
    
    6,241,632Less
      impairment
    
    
    (2,994,094
    )
    
    (1,265,065
    )
    
    (4,259,159
    )Net
      unproved property costs
    
    
    679,198
    
    
    1,303,275
    
    
    1,982,473$
    1,273,498
    
    $
    1,490,421
    
    $
    2,763,919
 **Table
III**
 **Quantities
of Oil and Natural Gas Reserves**
 
 Proved
reserves are estimated quantities of crude oil, natural gas, and natural gas
liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those, which are expected to
be recovered through existing wells with existing equipment and operating
methods.
 
 The
U.S. Securities and Exchange Commission requires the reserve presentation to be
calculated using year-end prices and costs and assuming a continuation of
existing economic conditions. Proved reserves cannot be measured exactly, and
the estimation of reserves involves judgmental determinations. Reserve estimates
must be reviewed and adjusted periodically to reflect additional information
gained from reservoir performance, new geological and geophysical data and
economic changes. The estimates are based on current technology and economic
conditions, and we consider such estimates to be reasonable and consistent with
current knowledge of the characteristics and extent of production. The estimates
include only those amounts considered to be proved reserves and do not include
additional amounts which may result from new discoveries in the future, or from
application of secondary and tertiary recovery processes where facilities are
not in place or for which transportation and/or marketing contracts are not in
place.
 
 -65-
 Proved
developed reserves are reserves, which can be expected to be recovered through
existing wells with existing equipment and existing operating methods. This
classification includes: (1) proved developed producing reserves which are
reserves expected to be recovered through existing completion intervals now open
for production in existing wells; and (2) proved developed non-producing
reserves which are reserves that exist behind the casing of existing wells which
are expected to be produced in the predictable future, where the cost of making
such oil and natural gas available for production should be relatively small
compared to the cost of a new well.
 
 Proved
undeveloped reserves are proved reserves which are expected to be recovered from
new wells on undrilled acreage or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled acreage are
limited to those drilling units offsetting productive units, which are
reasonably certain of production when drilled. Estimates of recoverable reserves
for proved undeveloped reserves may be subject to substantial variation and
actual recoveries may vary materially from estimates.
 Proved
reserves for other undrilled units are claimed only where it can be demonstrated
with certainty that there is continuity of production from the existing
productive formation. No estimates for proved undeveloped reserves are
attributable to or included in this table for any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated unless proved effective by actual tests in the area and in the same
reservoir.
 
   **Year
      ended December 31, 2004:**
    
    **United
      States**
    
    **Canada**
    
    **Total**Proved
      Reserves – Natural Gas And Condensate (McfGE)Proved
      reserves, beginning of year
    
    
    **-**
    
    
    -
    
    
    -Additions,
      February 2004
    
    
    **-**
    
    
    31,046
    
    
    31,046Production
    
    
    **-**
    
    
    (11,046
    )
    
    (11,046
    )Property
      dispositions
    
    
    **-**
    
    
    -
    
    
    -Proved
      reserves, end of year
    
    
    **-**
    
    
    20,000
    
    
    20,000
    **Table
IV**
 **Standardized
Measure of Discounted Future Net Cash Flows Related To Proved**
 **Oil
and Natural Gas Reserve Quantities**
 
 The
standardized measure of discounted future net cash flows is presented in
accordance with the provisions of SFAS No. 69. In preparing this data,
assumptions and estimates have been used, and we caution against viewing this
information as a forecast of future economic conditions.
  Future
cash inflows were estimated by applying year-end prices to the estimated future
production of year-end proved reserves. Future cash inflows were reduced by
estimated future production and development costs to determine pre-tax cash
inflows. Future income taxes were estimated by applying the year-end statutory
tax rates to the future pre-tax cash inflows, less the tax basis of the
properties involved, and tax credits and allowances. The resultant future net
cash inflows are discounted using a ten percent discount rate.
 
 -66-
   **Year
      Ended December 31, 2004:**
    
    **United
      States**
    
    **Canada**
    
    **Total**Future
      cash inflows
    
    
    **Nil**
    
    **$**
    **126,000**
    
    **$**
    **126,000**Future
      production costs
    
    
    **-**
    
    
    **(22,300**
    **)**
    **$**
    **(22,300**
    **)**Future
      development costs
    
    
    **-**
    
    
    **(4,700**
    **)**
    **$**
    **(4,700**
    **)**Future
      net revenue before income taxes
    
    
    **-**
    
    
    **99,000**
    
    **$**
    **99,000**10%
      annual discount for estimated timing of cash flows
    
    
    **-**
    
    
    **(14,000**
    **)**
    **$**
    **(14,000**
    **)**Discounted
      future net cash flows before income taxes
    
    
    **-**
    
    
    **85,000**
    
    **$**
    **85,000**Future
      income taxes, discounted at 10% per annum
    
    
    **-**
    
    
    **-**
    
    **$**
    **-**Standardized
      measure of discounted future net cash flows
    
    
    **Nil**
    
    **$**
    **85,000**
    
    **$**
    **85,000**Year
      Ended December 31, 2003:
    
    
    United
      States
    
    
    Canada
    
    
    TotalFuture
      cash inflows
    
    
    Nil
    
    
    Nil
    
    
    NilFuture
      production costs
    
    
    -
    
    
    -
    
    
    -Future
      development costs
    
    
    -
    
    
    -
    
    
    -Future
      net revenue before income taxes
    
    
    -
    
    
    -
    
    
    -10%
      annual discount for estimated timing of cash flows
    
    
    -
    
    
    -
    
    
    -Discounted
      future net cash flows before income taxes
    
    
    -
    
    
    -
    
    
    -Future
      income taxes, discounted at 10% per annum
    
    
    -
    
    
    -
    
    
    -Standardized
      measure of discounted future net cash flows
    
    
    Nil
    
    
    Nil
    
    
    NilYear
      Ended December 31, 2002:
    
    
    United
      States
    
    
    Canada
    
    
    TotalFuture
      cash inflows
    
    $
    4,770,000
    
    $
    448,000
    
    $
    5,218,000Future
      production costs
    
    
    (1,135,000
    )
    
    (19,000
    )
    
    (1,154,000
    )Future
      development costs
    
    
    (113,000
    )
    
    (34,000
    )
    
    (147,000
    )Future
      net revenue before income taxes
    
    
    3,522,000
    
    
    395,000
    
    
    3,917,00010%
      annual discount for estimated timing of cash flows
    
    
    (1,443,000
    )
    
    (146,000
    )
    
    (1,589,000
    )Discounted
      future net cash flows before income taxes
    
    
    2,079,000
    
    
    249,000
    
    
    2,328,000Future
      income taxes, discounted at 10% per annum
    
    
    -
    
    
    -
    
    
    -Standardized
      measure of discounted future net cash flows
    
    $
    2,079,000
    
    $
    249,000
    
    $
    2,328,000
   
 -67-
 
 **QUARTERLY
FINANCIAL DATA (UNAUDITED)**
  Summarized
quarterly financial data is as follows:
 
   **Interim
      Quarter Ended**
    
    **Dec. 31, 2004**
    
    **Sept. 30
      ,2004**
    
    **June 30,
      2004**
    
    **March 31,
      2004**Revenue
    
    **$**
    **11,639**
    
    **$**
    **17,743**
    
    **$**
    **4,344**
    
    **$**
    **44,599**Net
      loss from continuing operations
    
    **$**
    **(760,201**
    **)**
    **$**
    **(415,619**
    **)**
    **$**
    **(1,011,381**
    **)**
    **$**
    **(1,028,714**
    **)**Net
      loss from discontinued operations
    
    **$**
    **(2,331**
    **)**
    **$**
    **5,052**
    
    **$**
    **41,805**
    
    **$**
    **(11,032**
    **)**Comprehensive
      loss
    
    **$**
    **(721,007**
    **)**
    **$**
    **(346,154**
    **)**
    **$**
    **(1,022,979**
    **)**
    **$**
    **(1,104,388**
    **)**Net
      loss
    
    **$**
    **(762,532**
    **)**
    **$**
    **(410,567**
    **)**
    **$**
    **(969,576**
    **)**
    **$**
    **(1,039,746**
    **)**Basic
      and diluted loss per share
    
    **$**
    **(0.04**
    **)**
    **$**
    **(0.02**
    **)**
    **$**
    **(0.05**
    **)**
    **$**
    **(0.06**
    **)**
  Interim
      Quarter Ended
    
    Dec. 31, 2003
    
    Sept. 30
      ,2003
    
    June 30,
      2003
    
    March 31,
      2003Revenue
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Net
      loss from continuing operations
    
    $
    (1,736,398
    )
    $
    (481,719
    )
    $
    (359,995
    )
    $
    (395,527
    )Net
      loss from discontinued operations
    
    $
    (6,557
    )
    $
    (26,660
    )
    $
    (5,618
    )
    $
    198,600Net
      loss
    
    $
    (1,742,955
    )
    $
    (508,379
    )
    $
    (365,613
    )
    $
    (196,927
    )Comprehensive
      loss
    
    $
    (1,591,558
    )
    $
    (521,507
    )
    $
    (185,900
    )
    $
    (53,394
    )Basic
      and diluted loss per share
    
    $
    (0.09
    )
    $
    (0.03
    )
    $
    (0.01
    )
    $
    -
   
 
 **Item
9. Changes In And Disagreements With Accountants On Accounting AND FINANCIAL
Disclosure**
  On
July 9, 2002, our board of directors accepted the resignation of Arthur Andersen
LLP Canada, otherwise referred to as Andersen, as our independent auditors. The
resignation was tendered, as Anderson was no longer able to fulfill its
responsibilities to NXT due to Andersen ceasing operations. Andersen audited our
consolidated financial statements for our two years ended December 31,
2001.
  The
report of Andersen accompanying the audited financial statements for our two
years ended December 31, 2001 was not qualified or modified as to audit scope or
accounting principles and did not contain an adverse opinion or disclaimer of
opinion.
  On
July 9, 2002 our board of directors appointed Deloitte & Touche LLP as our
new independent auditors.
  
  
   -68-
  
 **Item
9** **A** **.
Controls and Procedures**
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the U.S.
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
 
 Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure. As of December 31, 2004, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon the foregoing, our Chief Executive Officer
/Chief Financial Officer concluded that our disclosure controls and procedures
are effective in the timely alerting of management to material information
relating to us which is required to be included in our periodic SEC filings.
 
 There
were no changes in our internal controls or in other factors that could
materially affect these controls subsequent to the date of their evaluation and
since the last period reported, including any significant deficiencies or
material weaknesses of internal controls that would require corrective
action.
 
 
 **PART
III**
 
 **Item
10. Directors And Executive Officers**
 
 NXT’s
articles provide for a minimum of one director and a maximum of 15 directors
comprising our board of directors. At present, our board of directors consists
of seven members.
 
 Our
directors are appointed by our common stock shareholders at our annual meeting
of shareholders and hold the position either until the next annual shareholders
meeting or until a successor is appointed. Our directors recently appointed Mr.
Brian Kohlhammer to the board and his appointment will be submitted to the
shareholders for approval at the next annual shareholders meeting.
 
 The
following table sets forth information, as of February 23, 2005, regarding our
directors, executive officers and key employees:
 
 **Donald
      E. Foulkes**
      *Age
      56*
      *Director
      since May 2002*
    Mr.
      Foulkes has been a director and the President of AltaCanada Energy Corp.
      (TSX: ANG), an oil and gas exploration company, since September 2002. Mr.
      Foulkes was the Chairman of the Board of Bushmills Energy Corp. (TSE:BSH),
      an oil and gas exploration company, from September 2001 until January
      2003. Mr. Foulkes was with Causeway Energy Corporation (TSE:CUW), an oil
      and gas exploration and production company, from September 1995 to
      September 2001, where he held the position of President from 1995 until
      1998 when he became the Chief Executive Officer. From 1992 to 1995, Mr.
      Foulkes was the President of Highridge Exploration Ltd. (TSE:HRE) and from
      1988 to 1992, he was the President of Union Pacific Resources Inc., a
      private oil and gas company. Mr. Foulkes serves as a board member on our
      two Canadian subsidiaries, NXT Energy Canada, Inc. and NXT Aero Canada,
      Inc., as well; he also serves as a board member of 669677 Alberta Ltd., a
      private company.
      
      Mr.
      Foulkes is a professional geologist and received a Bachelor of Science
      degree in Geology from the University of Calgary in 1970.
      
      Mr.
      Foulkes sits on both our Audit Committee and our Compensation
      Committee.
  -69-
 **HIS
      HIGHNESS SHEIKH AL HASSAN BIN ALI BIN RASHID AL
      NUAIMI**
      *Age
      41*
      *Director
      since February 2004*
      **
    His
      Highness is a member of the Saudi Royal Family. He is Chairman of Sea
      Spray Aluminum Boats "Emirates" L.L.C. which operates four factories, two
      in the UAE and one factory each in Iran and India.**Dennis
      Hunter**
      *Age
      62*
      *Director
      since September 1998*
    Mr.
      Hunter is an entrepreneur who splits his time equally between private
      investment activities and real estate development and management.
      Since 1973, Mr. Hunter has been President and Chairman of the Board
      of Investment Development Management Corporation, which acquires,
      constructs, manages, develops and sells properties in California, Oregon
      and Nevada. Mr. Hunter has also been Chairman of the Board
      since 1992, and Vice Chairman of the Board from 1984, of
      Northern Empire Bancshares, a holding company of Sonoma National Bank, of
      which Mr. Hunter was a founder in 1982. Mr. Hunter has also been a
      director, since 1988, of Northbay Corporation, a private holding
      company in the solid waste industry with 35 companies in solid waste
      hauling, transfer stations, portable toilets, land fill operations and
      real property ownership. Mr. Hunter is also the trustee and an investment
      strategist for five charitable remainder trusts collectively holding
      over $30 million in net assets. Mr. Hunter sits on the board of
      directors of our two U.S. subsidiaries, NXT Aero USA, Inc. and NXT Energy
      USA, Inc.
      
      Mr.
      Hunter received his Bachelor of Arts degree in Economics from California
      State University Sacramento.
      
      Mr.
      Hunter has served on our Compensation Committee since
      February 2000.**George
      Liszicasz**
      *Age
      51*
      *Director
      and Chief Executive Officer since January 1996*
    Mr.
      Liszicasz is the inventor of the SFD technology and has been our Chairman
      and Chief Executive Officer since inception. Mr. Liszicasz was appointed
      our interim President and interim Chief Financial Officer in July 2002.
      Mr. Liszicasz's primary responsibilities, as the Chief Executive Officer,
      interim President and interim Chief Financial Officer, are to ensure the
      smooth running of the day-to-day operations and to further develop our SFD
      technology. Prior to founding NXT, Mr. Liszicasz was Vice President of
      Susa Petroleum Inc. from 1993 to 1994. From 1987 to 1995, Mr. Liszicasz
      was President of Owl Industries Ltd., a developer of electronic
      controlling devices, where he had both engineering and business
      responsibilities. Mr. Liszicasz serves as a board member of each of our
      four subsidiaries; NXT Energy Canada, Inc., NXT Energy USA, Inc., NXT Aero
      Canada, Inc. and NXT Aero USA, Inc.
      
      Mr.
      Liszicasz studied electronics and general sciences at the University of
      British Columbia and obtained a High Voltage Controls and Station
      Operations degree in Electronics from the Landler Jeno Technitken in
      Hungary in 1973.**Douglas
      Rowe**
      *Age
      62*
      *Director
      since May 2002*
    Mr.
      Rowe has been the President, Chief Executive Officer and a director of
      Birch Mountain Resources Ltd. (TSX:BMD; OTCBB:BHMNF), a Canadian junior
      mineral exploration company, since 1994. Prior to that he was Chairman and
      President of Brougham Geoquest, Ltd., a company engaged in mineral
      exploration, from 1986 to 1993, and Brougham Energy Corporation, a company
      engaged in oil and gas exploration and development, from 1984 to 1986. Mr.
      Rowe also sits on the board of directors of our two Canadian subsidiaries,
      NXT Aero Canada, Inc. and NXT Energy Canada, Inc.
      
      Mr.
      Rowe is a professional engineer with a Bachelors of Science degree in
      Electrical Engineering from Queen’s University which he obtained in 1967
      and has over 30 years of industry experience.
      
      Mr.
      Roweis
      chairman of our Compensation Committee.
  -70-
  **Scott
      R. Schrammar**
      *Age
      55*
      *Corporate
      Secretary since September 2002*
    Mr.
      Schrammar retired in 1992. From 1989 to 1992, Mr. Schrammar was an
      independent trader at the American Stock Exchange. From 1983 to 1988, he
      was Head Floor Broker for Moseley, Hallgarten, Estabrook and Weeden at the
      American Stock Exchange. Mr. Schrammar is the Corporate Secretary of all
      of our subsidiaries.
      
      Mr.
      Schrammar graduated Summa Cum Laude from the City University of New York
      with his Bachelor degree in Psychology in 1974 prior to continuing his
      studies at the Brooklyn Law School and receiving his Juris Doctor Degree
      in 1978.**Robert
      Van Caneghan**
      *Age
      57*
      *Director
      since May 2002*
    Mr.
      Van Caneghan retired in 1994. He has over 25 years of experience as a
      market maker and specialist broker. From 1984 to 1994, he was a principal
      of Miceli-Van Caneghan, a specialist firm located on the AMEX floor. Mr.
      Van Caneghan was also a member of the American Stock Exchange Board of
      Governance from 1988 to 1994. Mr. Van Caneghan currently is a board member
      of our two U.S. subsidiaries, NXT Energy USA, Inc. and NXT Aero USA, Inc.
      and of the Financial Resources Federal Credit Union.
      
      In
      1969, Mr. Van Caneghan graduated from Wagner College with a Bachelor of
      Science in Economics. He then obtained a Masters Degree in Finance from
      the New York University Stern School of Business in 1974. Mr. Van Caneghan
      attended Brooklyn Law School where he graduated with a Juris Doctor degree
      in 1978.
      
      Mr.
      Van Caneghan is a member of our Audit Committee.**Brian
      Kohlhammer**
      *Age
      41*
      *Director
      since December 2004*
    Mr.
      Kohlhammer is a Chartered Accountant with over eighteen years experience
      in financial management reporting including four years public accounting
      and fourteen years financial forecasting, analysis and
      reporting.
      
      Since
      December 2004, Mr. Kohlhammer has been serving as Vice President of
      Financial and Chief Financial Officer for Delphi Energy Corp., a public
      junior oil and gas company in Canada traded on the Toronto Stock Exchange
      and based in Calgary, Alberta. From 2001 to 2004, Mr. Kohlhammer served as
      Vice President of Financial and Chief Financial Officer for Virtus Energy
      Ltd., a public junior oil and gas exploration and production company
      traded on the TSX Venture Exchange and based in Calgary, Alberta. From
      2000 to 2001, Mr. Kohlhammer served as Vice President of Financial and
      Chief Financial Officer for Patchgear.com Inc., anInternet
      based B2B e commerce public company in the safety equipment
      sectorthat was located in Calgary, Alberta. Mr. Kohlhammer is a member of our
      Audit Committee.
 
 None
of our executive officers or directors have been involved in any bankruptcy
proceedings within the last five years, been convicted in or has pending any
criminal proceeding, been subject to any order, judgment or decree enjoining,
barring, suspending or otherwise limiting involvement in any type of business,
securities or banking activity or been found to have violated any federal, state
or provincial securities or commodities laws.
 
 -71-
 
 
 **Section
16(a) Beneficial Ownership Reporting Compliance**
 
 The
following represents each person who did not file on a timely basis reports
required by Section 16(a) of the Exchange Act during the most recent
year:
 
   **Name**
    **Reporting
      Person**
    **Form
      3/# of transactions**
    **Form
      4/# of transactions**
    **Form
      5/# of transactions**George
      Liszicasz
    President
      & Member of the Board of Directors
    N/A
    Late/3
    N/AJarmila
      Manasek
    Vice-President-Finance
    Late/1
    Late/1
    N/ABrian
      Kohlhammer
    Member
      of the Board of Directors
    Late/1
    N/A
    N/ABin
      Ali Bin Rashid Al Nuaimi His Highness Sheikh Al Hassan
    Member
      of the Board of Directors
    Late/1
    N/A
    N/AStephens
      Group Inc.
    10%
      Owner
    N/A
    N/A
    Late/1SFD
      Investment LLC
    10%
      Owner
    N/A
    N/A
    Late/1
   
 
 **Board
Committees**
 
 Our
board of directors has established two committees, a Compensation Committee and
an Audit Committee.
 
 Messrs.
Foulkes, Hunter and Rowe constitute our Compensation Committee. Our Compensation
Committee reviews and makes recommendations with respect to the compensation of
our executive officers, and also administers our various stock plans.
 
 The
Audit Committee's duties, as outlined in its charter, include recommending to
our board of directors the engagement of our independent registered chartered
accountants, reviewing and discussing the financial statements with management,
reviewing the results of the independent registered chartered accountants
examination of our periodic financial statements, and determining the
independence of those accountants. Messrs. Kohlhammer, Foulkes and Van Caneghan
are members of the Audit Committee. Mr. Kohlhammer is the financial expert on
the audit committee.
 
 Messrs.
Kohlhammer, Foulkes and Van Caneghan are considered "independent" within the
meaning of the rules of NASDAQ, the New York and American Stock Exchanges and
the U.S. Securities and Exchange Commission.
 
 **Compensation
Committee Interlocks and Insider Participation**
 
 The
Compensation Committee of the board of directors reviews and recommends to the
board of directors the compensation and benefits of all our executive officers
and establishes and reviews general policies relating to compensation and
benefits of our employees. None of our executive officers served as a director,
executive officer or member of a compensation committee of another entity of
which one of its executive officers served on our Compensation Committee. Except
as described in "Certain Relationships and Related Transactions", no
interlocking relationships exist between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the past.
 
 Compensation
for our Chief Executive Officer was determined by the Compensation Committee
after considering his efforts in assisting in the development of our business
strategy, the salaries of executives in similar positions and our general
financial condition. The use of stock options and other awards is intended to
strengthen the alignment of interests of executive officers and other key
employees with those of our stockholders.
 
 **Board
and Committee Meetings**
 
 Our
board of directors was comprised of seven directors as of December 31, 2004, and
eight meetings were held during 2004. Our board of directors also approved four
additional corporate matters during 2004 through unanimous written consents.
 
 The
Compensation Committee held two informal meetings as a part of regular board of
directors’ meetings during 2004.
 
 -72-
 The
Audit Committee held four meetings during 2004 and both Mr. Foulkes and Mr. Van
Caneghan members were in attendance at all meetings. Mr. Kohlhammer became the
member of the Audit Committee in December 2004.
  ****
 **Item
11. Executive Compensation**
 
 The
following table shows the compensation paid over the past three years with
respect to the following persons:
 
 ·
    Our
      Chief Executive Officer;·
    Our
      four other most highly compensated executive officers (if any), whose
      annual salary and bonus exceeded $100,000 in the aggregate;
      and
 
 
 
   **Long
      Term Compensation****Annual
      Compensation**
    
    
    
    **Awards**
    
    **Payouts****Named
      Executive Officer and Principal Position**
    
    **Year**
    
    **Salary (1)**
    
    **Bonus**
    
    **Other
      (2)**
    
    **Restricted
      Stock**
    
    **Securites
      Underlying Options and SARs**
    
    **Log
      Term Incentive Plan**
    
    **All
      Other Compensation**George
      Liszicasz (6)
    
    
    2004
    
    $
    116,373
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---*Chief
      Executive Officer*
    
    
    2003
    
    $
    99,415
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---2002
    
    $
    83,671
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---Daniel
      C. Topolinsky (3)
    
    
    2004
    
    $
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---*Former
      President and Chief Operating Officer*
    
    
    2003
    
    $
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---2002
    
    $
    62,187
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---James
      R. Ehrets (4)
    
    
    2004
    
    $
    ----
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---*Former
      Vice President Exploration (U.S.)*
    
    
    2003
    
    $
    ----
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---2002
    
    $
    194,802
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---John
      M. Woodbury****(5)
    
    
    2004
    
    $
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---*Former
      Chief Financial Officer & General Counsel*
    
    
    2003
    
    $
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---2002
    
    $
    90,209
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
   (1)
    NXT
      ordinarily pays salaries to our executive officers in Canadian dollars.
      The amounts shown as paid in this table have been converted into United
      States dollars based upon the average exchange rate for the year of
      payment used in preparing our consolidated financial
      statements.
 (2)
    Includes,
      among other things, perquisites and other personal benefits, securities or
      property which exceed in the aggregate the lesser of either $50,000
      or 10% of the total annual salary and bonus reported forthat
      year.
 (3)
    Mr.
      Topolinsky resigned as NXT's President and Chief Operating Officer and as
      a director of NXT effective April 19, 2002.
 (4)
    Effective
      March 1, 2002, Mr. Ehretsbecame
      NXT's Vice President Exploration (U.S.). Prior to that Mr. Ehrets was
      NXT's Executive Vice President of Operations. Mr. Ehrets’ contract expired
      on October 31, 2002 and was not renewed.
 (5)
    Mr.
      Woodbury’s contract expired on July 8, 2002 and was not renewed.
 (6)
    In
      January 2002, Mr. Liszicasz accepted a 50% reduction in his annual
      salary.
  
 **Summary
of Stock Options and Stock Appreciation Rights Granted To Executive
Officers**
 
 There
were 140,000 options granted to our executive officers at prices ranging from
$1.47 to $2.15 to purchase our common shares during 2004.
 
 -73-
 The
following table sets forth information regarding stock option grants to our
officers and directors as of March 1, 2005:
 
   **Individual
      Grants**
    
    **Potential
      Realized Value at Assumed Annual Rates of Stock Price Appreciation for
      Option Term****Name**
    
    **Number
      of Securities Underlying Options Granted (#)**
    
    **%
      of Total Options Granted (1)**
    
    **Exercise
      or Base Price ($/Sh)(2)**
    
    **Expiration
      Date (mm/dd/yy)**
    
    **5%
      ($)**
    
    **10%
      ($)**Donald
      Foulkes
    
    
    40,000
    
    
    2.36
    %
    
    0.38
    
    
    08/13/07
    
    
    4,199
    
    
    9,28040,000
    
    
    2.36
    %
    
    0.43
    
    
    09/08/2008
    
    
    4,752
    
    
    10,50040,000
    
    
    2.36
    %
    
    2.15
    
    
    08/12/2009
    
    
    23,760
    
    
    52,504Dennis
      Hunter
    
    
    45,000
    
    
    2.66
    %
    
    2.00
    
    
    02/15/06
      thru
    
    
    24,865
    
    
    54,94604/17/0820,000
    
    
    1.18
    %
    
    0.38
    
    
    08/13/07
    
    
    2,100
    
    
    4,64040,000
    
    
    2.36
    %
    
    0.43
    
    
    09/08/2008
    
    
    4,752
    
    
    10,50040,000
    
    
    2.36
    %
    
    2.15
    
    
    08/12/2009
    
    
    23,760
    
    
    52,504George
      Liszicasz
    
    
    15,000
    
    
    0.89
    %
    
    2.00
    
    
    05/05/03
      thru
    
    
    8,927
    
    
    19,92605/20/0430,000
    
    
    1.77
    %
    
    0.14
    
    
    03/27/08
    
    
    1,160
    
    
    2,56440,000
    
    
    2.36
    %
    
    0.43
    
    
    09/08/2008
    
    
    4,752
    
    
    10,50040,000
    
    
    2.36
    %
    
    2.15
    
    
    08/12/2009
    
    
    23,760
    
    
    52,504Douglas
      Rowe
    
    
    30,000
    
    
    1.77
    %
    
    0.38
    
    
    08/13/07
    
    
    3,150
    
    
    6,96010,000
    
    
    0.59
    %
    
    0.29
    
    
    09/20/07
    
    
    801
    
    
    1,77040,000
    
    
    2.36
    %
    
    0.43
    
    
    09/08/2008
    
    
    4,752
    
    
    10,50040,000
    
    
    2.36
    %
    
    2.15
    
    
    08/12/2009
    
    
    23,760
    
    
    52,504Robert
      Van Caneghan
    
    
    30,000
    
    
    1.77
    %
    
    0.38
    
    
    08/13/07
    
    
    3,150
    
    
    6,96040,000
    
    
    2.36
    %
    
    0.43
    
    
    09/08/2008
    
    
    4,752
    
    
    10,50040,000
    
    
    2.36
    %
    
    2.15
    
    
    08/12/2009
    
    
    23,760
    
    
    52,504Brian
      Kohlhammer
    
    
    40,000
    
    
    2.36
    %
    
    1.47
    
    
    12/23/2009
    
    
    16,245
    
    
    35,898Scott
      Schrammar
    
    
    30,000
    
    
    1.77
    %
    
    0.14
    
    
    03/27/08
    
    
    1,160
    
    
    2,56440,000
    
    
    2.36
    %
    
    0.43
    
    
    09/08/2008
    
    
    4,752
    
    
    10,50040,000
    
    
    2.36
    %
    
    2.15
    
    
    08/12/2009
    
    
    23,760
    
    
    52,504Jarmila
      Manasek
    
    
    100,000
    
    
    5.91
    %
    
    1.47
    
    
    12/23/2009
    
    
    40,613
    
    
    89,745
  (1)
    Based
      on options exercisable to acquire a total 1,805,135 shares to executive
      officers, directors and employees.(2)
    The
      exercise price per share was equal to the fair market value of the common
      stock on the date of grant as determined by the board of
      directors.
  
 The
potential realizable value is calculated based on the assumption that the common
shares appreciate at the annual rate shown, compounded annually, from the date
of grant until the expiry of the term of the option. These numbers are
calculated based on U.S. Securities and Exchange Commission requirements and do
not reflect our projection or estimate of future stock price growth. Potential
realizable values are computed by:
 
 -74-
 ·
    multiplying
      the number of shares of common stock subject to a given option by the
      exercise price;·
    assuming
      that the aggregate stock value derived from that calculation compounds at
      the annual 5% or 10% rate shown in the table for the entire term of the
      option; and·
    subtracting
      from that result the aggregate option exercise
price.
  **Summary
of Stock Options and Stock Appreciation Rights Exercised By Executive Officers
and Year End Balances**
 
 The
following table provides certain information with respect to each of our
executive officers in 2004 concerning any options to purchase our common shares
or stock appreciation rights they may have exercised in 2004, and the number and
value of their unexercised options as of
December 31, 2004:
 
 
 **at
      December 31, 2004****Named
      Executive Officer**
    **Shares**
      **Acquired
      On Exercise**
    **Value**
      **Realized**
    **Options
      at FY-End**
      (Exercisable/Unexercisable)
    **Value
      of In-the-Money Options at FY-End****(1)
      (2)**
      (Exercisable/Unexercisable)George
      Liszicasz
    ---
    ---
    38,333  / 86,667
    $35,800  /  $71,600Jarmila
      Manasek
    ---
    ---
    0
      / 100,000
    $0  /  $37,000
  (1)
    The
      dollar amount shown represents the difference between the fair market
      value of our common shares underlying the options as of the date of
      exercise and the option exercise price.(2)
    The
      dollar value provided represents the cumulative difference in the fair
      market value of our common shares underlying all in-the-money options as
      of December 31, 2004 and the exercise prices for those options.
      Options are considered "in-the-money" if the fair market value of the
      underlying common shares as of the last trading day in 2004 exceeds the
      exercise price of those options. The fair market value of our common
      shares for purposes of this calculation is $1.84, based upon the
      closing price for our common shares on December 31, 2004, the
      last trading day in 2004.
 
  **Director
Compensation**
 
 We
do not currently pay any cash compensation to directors for serving on our
board, but we do reimburse directors for out-of-pocket expenses for attending
board and committee meetings. Our independent directors receive stock options to
purchase our common shares as compensation for their service as directors. The
terms of stock option grants made to independent directors are determined by the
board of directors. We do not provide additional compensation for committee
participation or special assignments of the board of directors.
 
 **Indemnification
of Directors, Officers and Others**
 
 Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling the company, we have
been informed that in the opinion of the U.S. Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
 
 Our
By-laws provide that, to the fullest extent permitted by law, we may indemnify
our directors, officers and others who were or are a party to, or are threatened
to be made a party to, any threatened, pending or completed action, suit or
proceeding.
 
 We
do maintain directors and officers indemnity insurance.
  -75-
  
 **Employment
Agreement With Our Executive Officer**
 
 Mr.
Liszicasz is employed as our Chief Executive Officer under a five-year
employment agreement entered into on December 1, 2002, which contains the
following principal compensatory provisions:
 
 ·
    An
      initial base salary of CDN $21,000 per month, with an automatic increase
      of 5% on each anniversary date. However, Mr. Liszicasz reduced his monthly
      salary to CDN $10,500.·
    An
      annual bonus equal to 5% of our "net income after taxes" in the event we
      earn more than $5 million in net income after taxes in any
      year.·
    An
      annual performance bonus, as determined in the sole discretion of our
      board of directors.
 
 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.
 
 Mr.
Liszicasz’s employment agreement provides for early termination in the case of
any of the following events as defined in the employment agreement:
 
 ·
    death
      or disability;·
    a
      "change in control" of NXT;·
    termination
      of employment by NXT for "cause;" or·
    termination
      of employment by Mr. Liszicasz for "good
reason."
 
 Under
the employment agreement a "change in control" means any of the
following:
 
 ·
    an
      acquisition whereby immediately after such acquisition, a person holds
      beneficial ownership of more than 50% of the total combined voting power
      of our then outstanding voting securities;·
    if
      in any period of three consecutive years after the date of the employment
      agreement, the then incumbent members of our board of directors cease to
      constitute a majority of the board for reasons other than voluntary
      resignation, refusal by one or more members of our board of directors to
      stand for election, or removal of one or more board member for good cause;
      or·
    our
      board of directors or shareholders approve a merger, consolidation or
      reorganization of NXT; the complete liquidation or dissolution of NXT; or
      the agreement for the sale or other disposition of all or substantially
      all of NXT's assets.
 
 In
general, where a termination is for death, disability, "cause" or by Mr.
Liszicasz without "good reason", Mr. Liszicasz’s compensation allowances and
benefits will accrue only through the effective date of the termination.
However, where a termination is due to a "change in control", without "cause",
or Mr. Liszicasz for "good reason", the employment agreement provides that we
will pay compensation and certain allowances and benefits to Mr. Liszicasz
through the end of the then applicable term.
 
  **ITEM
12. Ownership Of NXT’s Securities by Beneficial Owners And
Management**
 
 The
following table sets forth certain selected information, computed as of February
28, 2005, about the amount and nature of our securities "beneficially owned" by
the following persons as of that date:
 
 
 ·
    each
      of our current directors and executive
officers;
  -76-
  ·
    each
      person who is a beneficial owner of more than 5% of any class of our
      outstanding securities with voting rights; and·
    the
      group comprised of our current directors and executive
      officers.
 
 The
information contained in the following tables was given to us by the
individuals, our transfer agent or entities named. We believe that each of these
individuals or entities has sole or shared investment and voting power with
respect to the securities indicated as beneficially owned by them, subject to
community property laws, where applicable, except where otherwise
noted.
 
 -77-
 
   **Stock****Name**
    
    **Amount**
    
    **%****(1)****Directors
      & Officers**George
      Liszicasz(2)
    
    
    5,154,823(3
    )
    
    24.31
    %383
      Arbour Lake Way NWCalgary,
      Alberta T3G 4A2Dennis
      R. Hunter
    
    
    432,932(4
    )
    
    2.04
    %Box
      9069Santa
      Rosa, CA 95405Donald
      E. Foulkes
    
    
    39,999(5
    )
    
    0.19
    %39
      Pinnacle Ridge Dr.Calgary,
      Alberta T3Z 3N7His
      Highness Sheikh Al Hassan Bin Ali Bin Rashid Al Nuaimi
    
    
    0
    
    
    0
    %Ajman,UAEDouglas
      Rowe
    
    
    39,999(6
    )
    
    0.19
    %246
      Artist View WayCalgary,
      Alberta T3N 3N1Robert
      Van Caneghan
    
    
    33,333(7
    )
    
    0.15
    %123
      Redcliff RoadStaten
      Island, NY 10305Brian
      Kohlhammer
    
    
    39,000
    
    
    0.18
    %6612
      Silverview Drive NWCalgary,
      AB T3B 3K8Scott
      Schrammar(2)
    
    
    33,333(8
    )
    
    0.15
    %9438
      U.S. 19 North, PMB 210Port
      Richey, FL 34668Jarmila
      Manasek(2)
    
    
    0
    
    
    0.00
    %76
      Midridge Close SECalgary,
      AB T2X 1G1Current
      directors, director-nominees
    
    
    5,773,419(9
    )and
      executive officers, as a group
  (1)
    Rule
      13d-3 under the Securities Exchange Act defines the term, "beneficial
      ownership". Under this rule, the term includes shares over which the
      indicated beneficial owner exercises voting and/or investment power. The
      rules also deem common shares subject(2)
    Executive
      officer.(3)
    Includes
      5,062,490 common shares directly held by Mr. Liszicasz, and options
      exercisable within 60 days of March 31, 2005 to acquire 48,333 common
      shares.(4)
    Includes
      361,266 common shares and options exercisable within 60 days of March 31,
      2005 to acquire 71,666 common shares.(5)
    Includes
      25,000 common shares and options exercisable within 60 days of March 31,
      2005 to acquire 39,999 common shares.(6)
    Includes
      25,000 common shares and options exercisable within 60 days of March 31,
      2005 to acquire 39,999 common shares.(7)
    Includes
      options exercisable within 60 days of March 31, 2005 to acquire 33,333
      common shares.(8)
    Includes
      options exercisable within 60 days of March 31, 2005 to acquire 33,333
      common shares.(9)
    Includes
      5,506,756 common shares and options exercisable within 60 days of March
      31, 2005 to acquire 263,663 common
shares.
   
 -78-
 
 **Item
13. Certain Relationships And Related 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, 2004, 2003, and 2002:
 **December 31**
    
    **2004**
    
    2003
    
    2002Collective
      legal fees expensed to law firms with partners who were also directors of
      NXT or NXT Energy Canada
    
    
    **Nil**
    
    
    Nil
    
    $
    72,440Collective
      wages, fees and benefits paid to executive officers of NXT, who were also
      directors of NXT
    
    **$**
    **116,373**
    
    $
    107,382
    
    $
    234,958Accounts
      receivable due from executive officers
    
    **$**
    **5,803**
    
    
    Nil
    
    $
    5,004
 Our
rights to use our SFD technology 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, 2004. 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, 2004. The agreement with
Momentum Resources is due for renewal on December 31, 2005 subject to 60 days’
notice. We intend not to renew the agreement.
 
 
 **Item
14. Principal accounting fees and services**
 
 **AUDIT
FEES**
 
 Fees
billed by Deloitte & Touche LLP were:
 
 •
fees billed in 2004 in the amount of $41,202 for the preparation of the F-1
Registration Statement.
 
 •
$ 64,745 ($22,300 in 2003) for the audit of the Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2004.
 
 •
$ 28,668 for the 2004 quarterly reviews ($5,300 for the 2003 quarterly reviews)
of the Consolidated Financial Statements included in Form 10-Q.
 
 **TAX
FEES**
 
 Fees
billed by Deloitte & Touche LLP, were $51,127 for 2004) for tax return
preparation assistance and tax-related consultation.
 
 **ALL
OTHER FEES**
 
 No
other fees were billed by Deloitte & Touche LLP during 2004 or
2003.
 
 -79-
 
 **AUDIT
COMMITTEE APPROVAL**
 
 Before
Deloitte & Touche LLP is engaged by NXT to render audit or non-audit
services, the engagement
 is
approved by NXT’s Audit Committee. All audit-related and tax services provided
by Deloitte & Touche LLP after May 6, 2003 were approved by our Audit
Committee.
 
 **PART
IV**
 
  **Item
15. Exhibits, Financial Statement Schedules**
 
 (a)
Exhibits
 
 
 2.1(1)
    Reorganization
      Plan dated September 28, 1994 between Mega-Mart, Inc. and Auric
      Mining Corporation2.2(1)
    Reorganization
      Plan dated December 31, 1995 between Auric Mining Corporation
      and Fiero Mining Corporation2.3(1)
    Reorganization
      Plan dated January 20, 1996 between Auric Mining Corporation and
      Pinnacle Oil Inc.2.4(1)
    Articles
      of Incorporation of Auric Mining Corporation as filed with the Nevada
      Secretary of State on September 27, 19943.2(1)
    Amendment
      to Articles of Incorporation of Auric Mining Corporation as filed with the
      Nevada Secretary of State on February 23, 19963.3(1)
    Certificate
      of Amendment to Articles of Incorporation of Pinnacle Oil International,
      Inc. as filed with the Nevada Secretary of State on
      April 1, 19983.4(6)
    Certificate
      of Amendment to Articles of Incorporation of Pinnacle Oil International,
      Inc. as filed with the Nevada Secretary of State on
      June 13, 20003.5(1)
    Amended
      Bylaws for Energy Exploration Technologies3.6(1)
    Pinnacle
      Oil International, Inc. specimen common stock certificate3.7(1)
    Pinnacle
      Oil International, Inc. specimen series 'A' preferred stock
      certificate3.8(1)
    Energy
      Exploration Technologies specimen common stock certificate3.9(1)
    Form
      of Non-Qualified Stock Option Agreement for grants to
      directors3.10(1)
    1997
      Pinnacle Oil International, Inc. Stock Plan3.11(3)
    Form
      of Stock Option Certificate for grants to employees under the 1997
      Pinnacle Oil International, Inc. Stock Plan3.12(1)
    Warrant
      certificate for 200,000 Common Shares issued to SFD Investment
      LLC3.13(4)
    1999
      Pinnacle Oil International, Inc. Executive Stock Option Plan3.14(4)
    Form
      of Stock Option Certificate for grants to directors under the 2000
      Pinnacle Oil International, Inc. Executive Stock Option Plan3.15(7)
    2000
      Pinnacle Oil International, Inc. Directors' Stock Plan
  -80-
  3.16(7)
    Form
      of Stock Option Certificate for grants to directors under the 2000
      Pinnacle Oil International, Inc. Directors' Stock Plan3.17(1)
    Stockholder
      Agreement dated April 3, 1998 among Pinnacle Oil International,
      Inc., R. Dirk Stinson, George Liszicasz and SFD Investment
LLC3.18(9)
    Amended
      By-laws of Energy Exploration Technologies, - Amended September 20,
      200210.1(1)
    Partnership
      Agreement of Messrs. Liszicasz and Stinson dated
      September 1, 199510.2(1)
    Agreement
      between Pinnacle Oil Inc. and Mr. Liszicasz dated
      January 1, 199610.3(1)
    Transfer
      Agreement by Momentum Resources Corporation dated
      June 18, 199610.4(1)
    Restated
      Technology Agreement dated August 1, 199610.5(1)
    Amendment
      to Restated Technology Agreement with Momentum Resources Corporation dated
      April 3, 199810.7(1)
    Letter
      Agreement with Encal Energy Ltd. dated
      December 13, 199610.8(1)
    Exploration
      Joint Venture Agreement with Encal Energy Ltd. dated
      February 19, 199710.9(1)
    Exploration
      Joint Venture Agreement with Encal Energy Ltd. dated
      September 15, 199710.10(8)
    Letter
      Amending Joint Venture Agreement with Encal Energy Ltd. dated
      April 1, 200010.11(1)
    Letter
      Agreement with Renaissance Energy Ltd. dated
      April 16, 199710.12(1)
    SFD
      Survey Agreement with Renaissance Energy Ltd. dated
      November 1, 199710.13(1)
    SFD
      Survey Agreement with Renaissance Energy Ltd. dated
      February 1, 1998 (Prospect Lands #1)10.14(1)
    SFD
      Survey Agreement with Renaissance Energy Ltd. dated
      February 1, 1998 (Prospect Lands #2)10.15(1)
    Joint
      Exploration and Development Agreement with CamWest Limited Partnership
      dated April 3, 199810.16(1)
    Assignment
      of Joint Exploration and Development Agreement with CamWest Exploration
      LLC dated January 29, 199910.17(1)
    Canadian
      Data License Agreement with Pinnacle Oil Canada Inc. dated
      April 1, 199710.18(1)
    American
      Data License Agreement with Pinnacle Oil Inc. dated
      April 1, 199710.19(1)
    Cost
      Recovery Agreement with Pinnacle Oil Canada Inc. dated
      April 1, 199710.20(1)
    Assignment
      Agreement with Pinnacle Oil Canada Inc. dated
      September 15, 199710.21(1)
    Assignment
      Agreement with Pinnacle Oil Canada Inc. dated
      April 1, 199710.22(1)
    Assignment
      Agreement with Pinnacle Oil Canada Inc. dated
      November 1, 199710.23(1)
    Employment
      Agreement dated April 1, 1997 with Mr. Dirk Stinson10.24(1)
    Employment
      Agreement dated April 1, 1997 with Mr. George
      Liszicasz
  -81-
  10.25(1)
    Unsecured
      Convertible Promissory Note ($500,000) in favor of Mr.
      Liszicasz10.26(1)
    Unsecured
      Convertible Promissory Note ($500,000) in favor of Mr.
Stinson10.27(1)
    Promissory
      Notes of Pinnacle Oil Inc. in favor of Messrs. Liszicasz and Stinson dated
      October 21, 199510.28(1)
    Registration
      and Participation Rights Agreement dated April 3, 1998 between
      Pinnacle Oil International, Inc. and SFD Investment LLC10.29(1)
    Form
      of Indemnification Agreement between Pinnacle Oil International, Inc. and
      each Director and Executive Officer10.30(1)
    Lease
      Agreement between Phoenix Place Ltd. and Pinnacle Oil International, Inc.
      dated November 25, 199710.31(2)
    Employment
      Agreement dated July 9, 1998 with John M. Woodbury,
      Jr.10.32(5)
    Assignment
      Of Joint Exploration and Development Agreement between CamWest Limited
      Partnership and CamWest Exploration LLC dated
      January 29, 199910.33(5)
    Settlement
      Agreement dated April 27, 199910.34(5)
    Employment
      Agreement dated May 1, 1999 with Daniel C.
      Topolinsky10.35(5)
    Employment
      Agreement dated May 1, 1999 with James R. Ehrets10.36(8)
    Promissory
      Note by NXT Aero USA Inc. dated November 6, 2000 to Aviation
      Finance Group LLC10.37(8)
    Aircraft
      Loan Agreement by NXT Aero USA Inc. dated November 6, 2000 with
      Aviation Finance Group LLC10.38(8)
    Aircraft
      Security Agreement by NXT Aero USA Inc. dated November 6, 2000
      with Aviation Finance Group LLC10.39(8)
    Commercial
      Guaranty by Energy Exploration Technologies dated
      November 6, 2000 to Aviation Finance Group LLC10.40(8)
    Terminating
      Events Addendum dated November 6, 2000 with Aviation Finance
      Group LLC10.41(10)
    Employment
      Agreement dated December 1, 2002 with George Liszicasz14(11)
    Code
      of Ethics21(8)
    List
      of significant subsidiaries23
    Consent of Dr. Nimr Arab to file copy of his Report as
      Exhibit 99.5 to this Annual Report on Form 10-K31.1
    Rule 13a-14(a)/15d-14(a) Certification31.2
    Rule 13a-14(a)/15d-14(a) Certification32.1
    Section 1350 Certification32.2
    Section 1350 Certification
  -82-
  99.1(1)
    Report
      captioned "*Evaluation
      of Stress Field Detector Technology—Implications for Oil and Gas
      Exploration in Western Canada*"
      dated September 30, 1996 prepared by Rod Morris, P. geologist,
      A.P.E.G.G.A.99.2(1)
    Report
      regarding "*Stress
      Field Detector Technology*"
      dated May 22, 1998 prepared by Encal Energy Ltd.99.3(2)
    Report
      captioned "*SFD
      Data Summary*"
      dated August 26, 1998 prepared by CamWest, Inc.99.4(1)
    Report
      captioned "*Pinnacle
      Oil International Inc.—Stress Field Detector Documentation of Certain
      Exploration and Evaluation Activities*"
      dated February 27, 1998 prepared by Gilbert Laustsen Jung
      Associates Ltd.99.5
    Report
      of Dr. Nimr Arab dated September 2004, entitled: “*Evaluation
      Survey of the Stressfield Detector Technology Conducted in Syria During
      2004*”(1)
    Previously
      filed by our company as part of our Registration Statement on Form 10
      filed on June 29, 1998 (U.S. Securities and Exchange Commission
      File No. 0-24027)(2)
    Previously
      filed by our company as part of our Amendment No. 1 to Registration
      Statement on Form 10 filed on August 31, 1998(3)
    Previously
      filed by our company as part of our Annual Report on Form 10-K for
      our year ended December 31, 1998 as filed on
      March 31, 1999(4)
    Previously
      filed by our company as part of our Registration Statement on
      Form S-8 (U.S. Securities and Exchange Commission File
      No. 333-89251) as filed on March 31, 1999(5)
    Previously
      filed by our company as part of our Annual Report on Form 10-K for
      our year ended December 31, 1999 as filed on
      April 17, 2000(6)
    Previously
      filed by our company as part of Amendment No. 1 to our Annual Report
      on Form 10-K for our year ended December 31, 1999 as filed
      on July 28, 2000(7)
    Previously
      filed by our company as part of our Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2000 as filed on May 15, 2000.(8)
    Previously
      filed by our company as part of our Annual Report on Form 10-K for the
      year ended December 31, 2001 as filed on April 1, 2002.(9)
    Previously
      filed by our company as part of our Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2002 as filed on November 14,
2002(10)
    Previously
      filed by our company as part of our Annual Report on Form 10-K for the
      year ended December 31, 2002, as filed on March 31, 2003.(11)
    Previously
      filed by our company as part of our Annual Report on Form 10-K for the
      year ended December 31, 2003 as filed on April 14, 2004.
   -83-
   **Signatures**
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this annual report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized on April
15, 2005
 
 Calgary,
Alberta, Canada
 **ENERGY
      EXPLORATION TECHNOLOGIES INC.**
    **ENERGY
      EXPLORATION TECHNOLOGIES INC.****an
      Alberta corporation**
    **an
      Alberta corporation**By:/s/*George
      Liszicasz*
    By:/s/   Jarmila
      Manasek**George
      Liszicasz,
    Jarmila
      ManasekCEO,
      principal executive officer
    V.P.
      Finance, principal financial officer
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this annual
report on form 10-K has been signed below by the following persons on behalf of the registrant on
April 15, 2005, and in the capacities indicated.
 **Signature**
    **Title**
    **Date***/s/
      George Liszicasz*George
      Liszicasz
      
      
      
      
      */s/
      Donald Foulkes*
    Chief
      Executive Officer, principal executive officer, and Director
    April
      15, 2005Donald
      Foulkes
      
      
      
      /s/*His
      Highness Sheikh Al Hassan**Bin
      Ali Bin Rashid Al Nuaimi*
    Director
    April
      15, 2005His
      Highness Sheikh Al Hassan Bin Ali Bin Rashid Al Nuaimi
      
      
      */s/
      Dennis Hunter*
    Director
    April
      15, 2005Dennis
      Hunter
      
      
      */s/
      Douglas Rowe*
    Director
    April
      15, 2005Douglas
      Rowe
      
      
      */s/
      Robert Van Caneghan*
    Director
    April
      15, 2005Robert
      Van Caneghan
      
      
      */s/
      Brian Kohlhammer*
    Director
    April
      15, 2005Brian
      Kohlhammer
    Director
    April
      15, 2005
 
 -84-