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

FORM 20-F

(Mark One)

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

OR

[ X ] Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2015.2016.

OR

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

OR

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

Commission file number 000-24027

NXT Energy Solutions Inc.

(Exact Name of Registrant as Specified in its Charter)

Alberta, Canada
(Jurisdiction of incorporation or organization)

Suite 302, 3320 - 17^th Avenue SW
Calgary, Alberta, Canada, T3E 0B4
(Address of principal executive offices)

Greg LeavensBev Stewart

Phone: 403-206-0805403-206-0807

Facsimile: 403-264-6442

Suite 302, 3320 - 17^th Avenue SW
Calgary, Alberta, Canada, T3E 0B4
(Name, Telephone, E-mail and/or Facsimile number and address of Company Contact Person)

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

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

Common Shares

(Title of Class)

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

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

53,306,10953,856,509 common shares outstanding as of December 31, 2015 (53,308,0092016 (53,856,509 common shares outstanding as of April 26, 2016)6^th, 2017).

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

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

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

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

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

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

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

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

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

TABLE OF CONTENTS

PART I

FORWARD-LOOKING STATEMENTS

Except for any historical information contained herein, the matters discussed in this Annual Report on Form 20-F contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “will” and similar terms and phrases, including references to assumptions. These forward-looking statements involve risks and uncertainties, including current trend information, projections for deliveries and other trend projections, that may cause our actual future activities and results of operations to be materially different from those suggested or described in this Annual Report on Form 20-F.

These risks include:

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

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

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

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected financial data.

The following historical financial information should be read in conjunction with the section entitled “Operating and Financial Review and Prospects” (see Item 5 herein) and our audited consolidated financial statements and related notes, which are included elsewhere in this document. The consolidated statements of income (loss) data for the years ended December 31, 2016, 2015 2014 and 20132014 and selected consolidated balance sheet data as of December 31, 20152016 and 20142015 are derived from, and qualified by reference to, our audited consolidated financial statements that are included elsewhere in this Form 20-F. The selected consolidated balance sheet data as of December 31, 2014, 2013 2012 and 20112012, and the consolidated statements of income (loss) data for the years ended December 31, 20122013 and 20112012 is derived from our previously filed audited consolidated financial statements (which are not included in this Form 20-F).

INCOME (LOSS) & COMPREHENSIVE INCOME (LOSS)

⁽¹⁾ in periods with a loss, the Diluted total excludes the 8,000,000 convertible preferred shares which were outstanding until converted on
on August 31, 2015, as their effect is anti-dilutive.

Balance Sheet Data

(expressed in Canadian Dollars)

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

The following table sets forth certain exchange rates between our financial reporting currency, the Canadian dollar, and the United States dollar (“US $”) based on the noon rate of exchange for the US $, expressed in Canadian dollars, as reported by the Bank of Canada (i.e. multiply by these rates to convert Cdn$ to US $).

B. Capitalization and indebtedness.

Not applicable.

C. Reasons for the offer and use of proceeds.

Not applicable.

D. Risk factors.

Investing in our common shares involves a high degree of risk. In addition to the other information included in this document, you should carefully consider the risks described below before purchasing our common shares. If any of the following risks actually occur, our business, financial condition and results of operations could materially suffer. As a result, the trading price of our common shares could decline and you might lose all or part of your investment.

Our ability to continue operating is not certain.

We are in the early stages of realizing the goal of industry acceptance of our SFD® technology, during which we may have a significant economic dependency on a limited number of clients. As such, there is uncertainty about the timing and magnitude of future revenues. We recognize that there is limited ability to support operations indefinitely without generating sufficient new revenue sources or securing additional financing if such should become required.

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

We incur a risk of market changes in oil and natural gas prices. Prospective revenues from the sale of our services can be impacted by oil and natural gas price changes. The impact of price changes on our ability to enter into SFD® survey contracts cannot be readily determined; however, in general, if commodity prices decline significantly, our opportunity to obtain and execute SFD® survey contracts may also likely decline.

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

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

The estimates and assumptions are reviewed periodically and are based upon the best information available to management; however, we cannot provide assurance that future events will not prove that these estimates and assumptions are inaccurate. Any revisions to our estimates and assumptions may have a material impact on our future reported net income or loss and assets and liabilities.

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

We incur a risk of market changes in oil and natural gas prices. Prospective revenues from the sale of our services can be impacted by oil and natural gas price changes. The impact of price changes on our ability to enter into SFD® survey contracts cannot be readily determined; however, in general, if commodity prices decline significantly, our opportunity to obtain and execute SFD® survey contracts will also likely decline.

Our financial position is affected by foreign currency fluctuations.

We currently conduct cash transactions and have holdings in Canadian dollars, US $ and periodically have holdings of local currency in countries such as Bolivia and Colombia.Bolivia. We generally contract to earn revenues in U.S. dollars and potentially may earn revenues in Canadian dollars and other foreign currencies. Our 2015 survey contract in Bolivia (see also Item 4.B – Description of principal markets) was based on the local Bolivianos currency, which has an ongoing fixed rate to the US $. currencies

Our reporting currency is in Canadian dollars. We currently do not engage in currency hedging activities, and are reviewing opportunities to do so. Our cash positions and potential foreign currency revenue streams in currencies other than Canadian dollars exposes us to exchange rate fluctuations between the Canadian dollar and foreign currencies (see also Item 11).

Our financial position will be affected by exchange rate fluctuations. We may earn revenue and incur expenses denominated in foreign currencies, yet report our financial results in Canadian dollars. Furthermore, we intend to enter into contracts to provide services in foreign countries and may periodically conduct business in other currencies such as the Euro. Changes in currency exchange rates could have an adverse effect on the company's business, financial condition and results of operations.

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

We periodically invest available cash in short term investments that generate interest income that will be affected by any change in interest rates. Seerates (See Item 11.11).

We rely upon the availability of aircraft to conduct our survey operations.

In 2009, we entered into an aircraft charter agreement with Air Partners Corp. (“Air Partners”), a Calgary, Alberta-based international aircraft charter operator, to supply aircraft services (on an hourly rate basis, plus designated operating costs) for our survey projects. Through 2015, this agreement was renewed on an ongoing annual basis, with a guaranteed minimum annual total of 100 charter hours to be purchased by NXT from Air Partners. In December 2015, NXT acquired (from its third party owner), a 1997 Cessna Citation Ultra 560 jet aircraft, the primary aircraft which had previously been charterhiredcharter hired to NXT by its operator, Air Partners. The purchase price was US $2 million, and Air Partners will continue to maintain and operate (including providing pilots, aircraft maintenance engineers, insurance, hangars, etc.) the aircraft now owned by NXT, in accordance with Transport Canada and other regulatory standards. When the aircraft is not needed for use by NXT, Air Partners will seek to earn net charterhirecharter hire revenues from the aircraft on behalf and for the account of NXT.

Air Partners also has access to an alternate, similar model aircraft (certified for the use of our survey equipment) which could be charterhired for use by NXT if needed.

In the event that NXT’s aircraft is not available (due to damage, a need for extensive repairs, or other unforeseen events) to conduct survey projects, there is a risk that suitable alternative aircraft may not be available on a timely basis from other charter operators when needed. This inability to conduct survey operations could have a material adverse effect on the company's business, financial condition and results of operations. This risk is mitigated somewhat as Air Partners also has access to an alternate, similar model aircraft (certified for the use of our survey equipment) which could be charter hired for use by NXT if required and if available.

In March 2017, NXT entered into a binding sale and leaseback agreement with a Calgary based international aircraft services organization. The terms of the agreement involve NXT selling its’ Cessna Citation aircraft that was purchased in 2015 for US$2,000,000 for the sum of US$2,300,000. NXT will lease the aircraft back for a minimum period of 60 months and retain all existing operating rights and obligations.

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

Certain duties that are most appropriately segregated between different employees are, due to our current limited staff, assigned to one individual.

Standard internal control methodology involves the separation of incompatible functions by assigning these functions to separate individuals, and in larger organizations, to separate departments. We often cannot allocate these functions to separate individuals because our administrative staff is limited.

Although we have adopted alternative control methods designed to compensate for the reduced ability to separate incompatible functions, these alternative controls are not effective and there is more than a remote likelihood that our internal control over financial reporting will not prevent or detect material misstatements if they should exist in our financial statements. This lack of separation of duties exposes us to potential misappropriation of funds, embezzlement and other forms of fraud andcould have a material adverse effect on our business, financial condition and results of operations (see also Item 15).

We may periodically engage in transactions with related parties.

We may periodically enter into related party transactions with our officers and directors (see also Item 7.B). The most significant transaction was a “Technology Transfer Agreement” (the “TTA”) that was executed on December 31, 2006 between NXT and Mr. George Liszicasz, our Chief Executive Officer (“CEO”), president and director, wherein we issued 10,000,000 convertible preferred shares to him in exchange for the rights to the SFD® technology for use in hydrocarbon exploration. In 2013, a total of 2,000,000 of these preferred shares were converted (on a one-to-one basis) into common shares, and the remaining 8,000,000 preferred shares were converted in August 2015.

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

Although we manage this potential conflict of interest risk through maintenance of a strong independent board of directors (the “Board”), all related party transactions have the potential for conflicts of interest that may compromise the ability of Board members to exercise their fiduciary responsibility to NXT shareholders.

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

Mr. George Liszicasz, our CEO, is our largest shareholder, and as of April 26, 2016March 31, 2017 owns approximately 28% of our outstanding common shares and therefore has a substantial influence in all shareholder matters.

In January 2014, Mr. Liszicasz granted to various individuals “Rights” to acquire from him a total of 1,000,000 of the 8,000,000 common shares which were subsequently issued to him effective August 31, 2015 upon the conversion of the 8,000,000 preferred shares which he held. These Rights are exercisable at a price of $1.77 per common share, and havehad an expiry date of December 31, 2016. See also the Notes to NXT’s Consolidated Financial Statements or Item 4. part B. “Information on the Company – Technology Transfer Agreement”, for additional information relating to these Rights. These “Rights” expired, unexercised on December 31^st, 2016 and were not renewed.

Controls do exist to mitigate any potential risks associated with this conflict of interest. Mr. Liszicasz adheres to a code of conduct which includes a fiduciary responsibility to the company and its shareholders and this conduct is governed by the independent Board of directors who collectively represent a majority of the Board. Furthermore all material related party transactions are disclosed publicly.

However, should these conflict of interest controls not be effective, decisions could be made by the company that may advantage Mr. Liszicasz and negatively impact other shareholders.

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

Our rights to ownership and use of SFD® technology depended on Mr. Liszicasz having the lawful right to sell to NXT the exclusive rights to exploit the SFD® technology for the exploration of hydrocarbons as agreed to in the TTA.

A risk exists that an unknown party may claim some legal entitlement to our intellectual property, our rights to commercialize this intellectual property or our right to create SFD® devices and processes. However, we believe that such a claim would be without merit.

The SFD® technology is an essential component of our business plan. If a third party challenged our lawful entitlement to this technology, the legal defense of our right to the technology may be expensive and could cause a loss of our right to the SFD® technology, or a protracted legal process to assert our right to the technology would have a material adverse effect on the company's business, financial condition and results of operations.

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

We rely on specialized data acquisition equipment, including a limited number of SFD® sensor devices, to conduct our aerial SFD®survey operations. We would be at risk if these survey sensors were to become damaged, destroyed, worn out, stolen or in any way became unavailable for use in operations prior to us creating and testing additional sensors. Should the sensors become unavailable for any reason, our ability to conduct surveys could be delayed for several months as we built new sensors. During this period we may become unable to satisfy contractual obligations, which may jeopardize future revenue opportunities and may potentially result in a client drawing on a contract performance bond posted by the company or otherwise making claims against the company for breach of contract. In addition, an inability to satisfy contractual obligations may have an adverse effect on our developing reputation within the oil and gas community.

NXT seeks to mitigate this risk by researching new designs and constructing additional SFD® sensor devices.

As the company is in the early commercialization phase, SFD® surveys have not been tested over all potential geological conditions. Some geological conditions may subsequently be proven to be unsuited for SFD® surveys thereby creating unforeseen limitations to the application of SFD® surveys.

Any limitation to the application of SFD® surveys has the potential of restricting future revenue opportunities and if not properly disclosed to industry clients, such limitations may impact the reputation of the company with these clients.

Unless we pursue ongoing technological improvement and development, we may be unable to respond to changes in customer requirements or new competitive technologies.

We must continue to refine and develop our SFD® survey system to make it scalable for growth and to respond to potential future competitive pressures. These improvements require substantial time and resources. Furthermore, even if resources are available, there can be no assurance that the company will be commercially or technically successful in enhancing the technology. Our inability to keep pace with new technologies and evolving industry standards and demands could have a material adverse effect on our business, financial condition and results of operations.

We rely on a limited number of key personnel who collectively possess the knowledge and skills to conduct SFD®surveys and interpret SFD® data as required to meet contract obligations. Additional or replacement personnel cannot be found and trained quickly. The loss of any of these key persons or increased demand for our services from clients could impair our ability to meet contract obligations, thereby adversely impacting our reputation and our ability to earn future revenue from clients.

The company's future success depends to a significant extent on the continued service of its key technical and management personnel and on our ability to continue to attract and retain qualified employees. The loss of the services of our employees or a failure to attract, retain and motivate qualified personnel could have a material adverse effect on our business, financial condition and results of operations. We do not have “key man” insurance on any of our personnel.

The company puts in place employment agreements with all of its executive officers, including George Liszicasz, its President and CEO.

We have a dependence on Mr. Liszicasz and two other staff members to be involved in theSFD® data interpretation process and to continue to enhance our technology. We are working to minimize dependency on key personnel. Mr. Liszicasz has trained and continues to train a team of signal interpreters to minimize our reliance on him to perform these functions. Currently, a total of sixseven persons, three of which are highly experienced, (with onetwo additional personpersons currently in process of training) are trained to interpret SFD® signals.

Although we have engaged employees with suitable credentials to work with Mr. Liszicasz to enhance our interpretation process and further develop the SFD® technology, if we are unable to reduce dependence on Mr. Liszicasz and he becomes incapable of performing or unwilling to perform these functions, then there may be an adverse effect on our ability to interpret the data from SFD® surveys or to enhance our technology.

Within the province of Alberta, the skilled personnel that we require may periodically be in short supply and there is specialized training required that can take several months in order for a new employee to become effective. If we cannot hire these key personnel, we have inadequate time to train them or should we lose current personnel, then our ability to accept contracts or meet contract commitments may be adversely affected, thereby restricting our ability to earn revenue.

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

The Company has historically had a limited public market for our common shares on the TSX Venture Exchange (the “TSX-V”), and the United States (“U.S.”) OTC Markets Group’s Venture Stage Marketplace (the “OTCQB”) and there is a risk that a broader or more active public trading market for our common shares will not develop or be sustained, or that current trading levels will not be sustained. Effective March 22, 2016, the Company’s application to graduate from the TSX-V to the broader Toronto Stock Exchange (“TSX”), Canada’s premier stock exchange listing, was approved.

The market price for the common shares on the exchanges where our stock is listed has been, and we anticipate will continue to be, extremely volatile and subject to significant price and volume fluctuations in response to a variety of external and internal factors. This is especially true with respect to emerging companies such as ours. Examples of external factors, which can generally be described as factors that are unrelated to the operating performance or financial condition of any particular company, include changes in interest rates and worldwide economic and market conditions, as well as changes in industry conditions, such as changes in oil and natural gas prices, oil and natural gas inventory levels, regulatory and environment rules, and announcements of technology innovations or new products by other companies. Examples of internal factors, which can generally be described as factors that are directly related to our consolidated financial condition or results of operations, would include release of reports by securities analysts and announcements we may make from time to time relative to our operating performance, clients exploration results, financing, advances in technology or other business developments.

Because we have a limited operating history and a limited history of profitability to date, the market price for the common shares is more volatile than that of a seasoned issuer. Changes in the market price of the common shares, for example, may have no connection with our operating results or the quality of services provided to clients. No predictions or projections can be made as to what the prevailing market price for the common shares will be at any time, or as to what effect, if any, that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price. Given the relatively low historic trading volumes, small trades of NXT’s common shares can adversely and potentially dramatically affect the market prices for those shares.

Accordingly, investors in our common stock should anticipate both volatile stock price and poor liquidity unless these conditions change.

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

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

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

We have never paid any cash dividends on our common shares and we do not anticipate that we will pay any dividends in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion of our business. Any future determination to pay cash dividends will be at the discretion of our Board of directors and will be dependent upon our consolidated financial condition, results of operations, capital requirements and other factors as our Board of directors may deem relevant at that time.

Our right to issue additional capital stock at any time could have an adverse effect on your proportionate ownership and voting rights.

We are authorized under our Articles of Incorporation to issue an unlimited number of common shares and an unlimited number of preferred shares. We may issue these shares under such circumstances and in such manner and at such times, prices, amounts and purposes as our Board of Directors may, in its discretion, determine to be necessary and appropriate, subject to compliance with all applicable exchange regulations and corporate and securities laws. Proportionate ownership and voting rights of common shareholders could be adversely affected by the issuance of additional common shares which may result in common share value dilution.

We may not be able to protect our trade secrets and intellectual property from competitors who would use this knowledge to eliminate or reduce our technological advantage.

Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property (“IP”). We have commencedimplemented an IP strategy process and intend to obtain patents related to the SFD® technology, while also utilizing “trade secrets” protection of the proprietary nature of our technology as applicable. In early 2017 we were granted a patent by Russia and continue to pursue the grant of numerous other international patents.

The formal patent protection application process, which commenced in 2012, will require disclosure of at least some aspects of our SFD®SFD® technology to third parties and ultimately public disclosure. This disclosure could significantly increase the risk of unlawful use of our technology by third parties. Furthermore, we have no assurance that, even if we seek patent protection, a patent could be registered to protect our IP in all or any jurisdictions within North America or other countries throughout the world. If registered, there can be no assurance that it would be sufficiently broad to protect our technology or that any potential patent would not be challenged, invalidated or circumvented or that any right granted thereunder would provide meaningful protection or a competitive advantage to us. Finally, protection afforded by patents is limited by the financial resources available to legally defend IP rights. We currently do not possess the required financial resources to fund a lengthy defense of our rights if challenged by a much larger competitor or an oil and gas company.

We do enjoy common and contract law protection of our technology and trade secrets. Employees and contractors are governed by confidentiality agreements as well as a fiduciary responsibility to protect our technology, supporting documentation and other proprietary information.

Our strongest protection of the SFD® technology comes from restricting access to knowledge concerning the technology. Only a very limited number of NXT personnel have access to or knowledge of the underlying SFD® technology and no one employee and only one officer has access or knowledge of all aspects of the SFD® system. Currently, no third party has any significant knowledge of the technology. As further protection, SFD® equipment does not leave the direct control of NXT employees, thereby preventing unauthorized replication of the equipment.

The company reassesses the appropriateness of its IP protection strategy on an ongoing basis and seeks advice from IP advisors as necessary.

It is possible that a third party will copy or otherwise obtain and use the company's technology without authorization, develop a similar technology independently or design around the company's secrets. Accordingly there can be no assurance that the steps taken by the company to prevent misappropriation or infringement of our IP will be successful.

An inability to protect our IP would make it possible for competitors to offer similar products and services that could have a material adverse effect on our business, financial condition and results of operations.

We experience operational hazards in our flight operations that may subject us to potential claims in the event that an incident or accident occurs.

The flight operations of SFD® surveys are subject to the hazards associated with general flight operations. An aircraft accident may cause personal injury and loss of life, as well as severe damage to and destruction of property or the SFD® sensors and related equipment.

Independent third parties provide all the services required to maintain and operate the aircraft; they bear the primary risks of flight operations. These services are provided by an organization accredited by Transport Canada to operate aircraft in accordance with Transport Canada approved and audited operating procedures. The aircraft operator employs the required pilots, aircraft maintenance engineers and support personnel and ensures that they operate within their Transport Canada operating certificate. Our employees do not perform any airworthiness or flight safety operations.

We require the flight contractor to maintain appropriate insurance coverage for the risks associated with aircraft operations, and we obtain insurance coverage to provide us with additional risk protection. In addition, we maintain general business insurance coverage, and believe that this insurance and the policy limits are appropriate for the operational risks that we incur.

Despite our policy to not operate the aircraft directly and our insurance coverage, we cannot avoid or alternatively be insured for all risks of flight operations. In the event of an incident or accident we may be sued by injured parties in excess of our policy limits or for damages that are not covered by our insurance policy. The magnitude of a lawsuit of this nature is not determinable. Furthermore, to the extent that our SFD® equipment is damaged, we may be unable to conduct SFD® surveys for several months following an accident.

We are a Canadian company and our nationality may impair the enforceability of a judgment for any person resident outside Canada.

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

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

We conduct operations in foreign countries, which exposes us to several risks that may have a material adverse effect on the company.

Criminal Activity and Social Instability – we–we have operated in the past in foreign countries such as Colombia, which over the past two decades experienced significant social upheaval and criminal activity relating to drug trafficking, kidnapping and terrorist acts. While the situation has improved dramatically in recent years, there can be no guarantee that the situation will not deteriorate again, nor are these risks eliminated as yet. Furthermore, other potential international survey locations may have similar or other indeterminate criminal or social instability risks.

Systemic criminal activity in a country or isolated criminal acts may disrupt operations, impact our ability to earn revenue, dramatically add to our cost of operations or potentially prevent us from earning any survey revenue in a country.

In addition, foreign markets may be susceptible to a higher risk of corruption and bribery. All of NXT’s employees, contractors, and independent sales agents are required to adhere to the company’s code of conduct and business ethics, which prohibits illegal activities, including any acts of bribery or corruption.

Political Instability -Any changes in regulations or shifts in political attitudes are beyond the control of the company and may adversely affect our business. Exploration may be affected in varying degrees by government regulations which have the effect of restricting exploration and production activities. These changes may adversely impact the laws and policies governing price controls, export controls, foreign exchange controls, income taxes, expropriation of property, environmental legislation, site safety or other areas.

Currently, there are no restrictions (other than the payment of local with-holding taxes) on the repatriation back to Canada of our earnings in foreign countries in which we have operated, such as Colombia and Bolivia; however, there can be no assurance that significant restrictions on repatriation to Canada of earnings will not be imposed in the future.

Our operations may also be adversely affected by changes in laws and policies in Canada impacting foreign travel and immigration, foreign trade, taxation and investment.

Commercial Disputes – While operating in a foreign country, we are subjected to local commercial laws which often involve executing contracts in a foreign language. Although every effort is made to ensure we have access to an accurate English translation, misunderstanding and potential disputes between parties may arise.

In the event of a dispute arising in connection with our foreign operations for any reason, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. We may also be hindered or prevented from enforcing our rights with respect to a government instrumentality because of the doctrine of sovereign immunity.

Accordingly, these risk factors have the potential of adversely reducing the level of survey revenue from our clients, our ability to operate effectively or our ability to be paid for our services and may have a material adverse effect on our financial position.

Where possible, NXT utilizes risk mitigation products offered by entities such as Export Development Canada (“EDC”). EDC financial products include insurance coverage of contract accounts receivable, guarantee support for contract performance bonds, and wrongful call insurance for such bonds.

We rely upon the right to conduct airborne surveys in foreign countries. These foreign operations expose us to the risks that we will be prevented from conducting surveys when requested by clients.

The operation of our business, namely conducting aerial SFD® surveys and interpreting SFD® data, is not subject to material governmental or environmental regulation in Canada and the United States with the exception of flight rules issued by Transport Canada and the U.S. Federal Aviation Administration (“FAA”) governing the use of commercial aircraft, including rules relating to low altitude flights. The requirements in other countries vary greatly and may require permits and/or provide other restrictions to conducting flight operations in the country that may restrict our ability to perform SFD® surveys.

For example, in South American countries in which we have operated, such as Colombia and Bolivia, SFD® surveys must comply with additional requirements not encountered in Canada and the United States, including customs obligations and bonds related to the importation and exportation of the aircraft into the country, obtaining permits from the local aviation authority, and obtaining permits from the local Air Force. We have successfully operated in South America and other global regions in accordance with these typical requirements.

With our North America and International experience to date, we do not anticipate any government controls or regulations that will prevent timely completion of SFD® surveys. However, we may encounter government restrictions in other countries that may impact or restrict our ability to conduct surveys.

If we encounter government regulation and restrictions that impact or prevent us from conducting surveys in any country, then we will not be able to earn revenue in the country and we may be exposed to forfeiting any performance bonds which may have been issued.

We caution that the factors referred to above and those referred to as part of particular forward-looking statements may not be exhaustive and that new risk factors emerge from time to time in our rapidly changing business environment.

ITEM 4. INFORMATION ON THE COMPANY

A. History and development of the company.

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

NXT’s corporate history is summarized as follows:

Our registered office is located at Suite 302, 33203700, 400 – 173^thrd AvenueStreet SW, Calgary, Alberta, Canada and our telephone number is (403) 264-7020. In the United States our authorized agent is Parasec at: 318 North Carson Street, Suite 208, Carson City, NV and their telephone number is (888) 972-7273.

We are a reporting issuer in Alberta and British Columbia and are principally governed by the Alberta Securities Commission in accordance with theSecurities Act (Alberta) and the ABCA.Business Corporations Act (Alberta). We are a foreign private issuer under United States securities laws and are subject to the regulation of the SECUS Securities in accordance with theSecurities Exchange Act of 1934, as amended (the “Exchange Act”).

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

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

For further details of the TTA, see the “Summary information on dependence on patents, licenses and contracts” section below.

SFD®technology for the purposes of the TTA is defined as the theories of quantum physics and engineering which are utilized in the operation of stress field detectors used by NXT for the reception, collection and recording of subsurface geological stresses for hydrocarbon exploration. See also Item 4. partPart B “Summary information on dependence on patents, licenses and contracts” for more information on this TTA agreement.

Our business does not normally rely on significant capital expenditures. For the last three fiscal years, the company made net cash capital expenditures for property and equipment of $89,702 (2016), $3,380,717 (2015), and $41,808 (2014), and $20,463 (2013). These.These annual expenditures normally relate largely to upgrades to office computer equipment and SFD® survey equipment. In 2015, capital expenditures included the purchase of a survey aircraft (which had previously been charter-hired as needed from the owner / operator of the aircraft), as well as leasehold improvement costs incurred in a move to a new office location in Calgary.

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

B. Business overview.

Description of the nature of the company’s operations and principal activities

We utilize our proprietary, airborne SFD® survey system to provide a service for the oil and gas exploration industry. NXT provides a rapid and cost-effective method for our clients to evaluate large land areas for their exploration potential.

SFD® sensors remotely respond to gravity perturbations and changes in subsurface stress regimes that are meaningful for oil and gas exploration. These responses are captured as raw data that, when interpreted, can provide an indirect method to detect the presence of geological features such as structures, faults, fractures and reefs that are often associated with traps and reservoir accumulations. SFD® is highly effective in frontier and under-explored areas, in offshore or onshore environments, and over wide areas where surveys often exceed 5,000 square kilometers.any terrain. The SFD® survey system has been shown effective by clientsdemonstrated to quickly focus exploration resources, offering the benefit of reducing the risk, time and expense associated with frontier exploration.

Following completion of the aerial surveys, we deliver to our clients a detailed report and maps of the surveyed area that identifies, ranks and recommends areas with SFD® indications of reservoir potential.

In 2006, we commenced our current business model and began providing SFD® survey services to clients on a fee-for-service basis. In accordance with this model, we have not invested either directly or indirectly in exploration or development wells or engaged in other exploration or production activities. Our current business model minimizes our capital requirements, thereby conserving cash, and minimizes any perceived or real conflicts between the interests of NXT and its survey clients.

NXT’s primary business model is to earn revenues by conducting SFD® surveys for clients on a fee-for-service basis. Secondly, we may be able to negotiate to earn revenue from gross overriding royalty income and/or other incentive fees from clients should they generate production on areas recommended by SFD® surveys. Finally, in the future, we may earn a fee by providing other related geological and geophysical integration services to clients.

Our objective is to obtain broad industry acceptance and appreciation of the value of our SFD® survey system. The main obstacle in achieving this objective is the oil and gas industry’s skepticism related to the adoption of any early-stage technology. Accordingly, industry professionals are seldom prepared to devote resources or stake their professional reputation on an early stage technology. This reluctance is particularly acute when the fundamental science related to the technology is complex and not easily understood, as is the case with SFD®.

Our strategy to overcome skepticism in order to gain industry acceptance of SFD® includes maximizing client endorsement opportunities (such as through joint case studies) and targeting the most appropriate markets (i.e. where SFD® provides the maximum benefits). Our specific tactics include:

Description of the principal markets in which the company competes

Overview of markets

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

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

North America Market

We began marketing the SFD® survey system in 2006 largely in Canada and continued with this market focus until the end of 2008. Solely in Canada we earned survey revenue of $1.2 million, $5.6 million, and $2.9 million respectively in the prior fiscal years 2006, 2007 and 2008.

In 2011, we completed a US $150,000 contract to conduct a pilot SFD® survey in Montana, USA for a Calgary-based client.

In 2014, we completed two survey projects in Texas and Florida, USA, for a new client, with a total value of $3.9 million.

Latin America and Central America Markets

In 2008, exploration activity seriously diminished in Canada as a result of the world-wide credit crisis and falling natural gas commodity prices. In response, in late 2008 we looked to international markets for new revenue opportunities, especially where there were emerging, frontier-type exploration markets. Latin and Central America became a target market for us, with Colombia viewed as an attractive initial proving ground due to its many characteristics desirable for achieving market success for our SFD® survey system.

Colombia’s business-friendly approach and practical resource policies allowed it to attract a large number of exploration and production companies from around the world. In Colombia, there are obstacles to acquire geological and geophysical data as required to properly evaluate unexplored land. Obstacles include rain forests, environmental and community restrictions, security concerns and the high cost and time required to shoot seismic programs, particularly on-shore. SFD® can be a very effective tool to help overcome these obstacles.

Colombia was a primary international market focus in recent years, with NXT gaining valuable experience there. The company earned survey revenue in Colombia of $2.9 million in 2012, $0.4 million in 2010, and $3.7 million in 2009.

Building on our initial Colombia success, we have been pursuing many other South America countries as attractive potential markets. Many of the exploration companies active in Colombia are also active in other areas of South America, such as Peru, Bolivia, Argentina and Brazil. These countries often share a number of the same community, remote access and environmental issues that make SFD® an attractive solution.

In 2012, SFD® surveys were conducted in several new markets, including Argentina, Guatemala, Belize and most importantly Mexico. Our first contract with the Petroleos Mexicanos ((“PEMEX”), the National Oil Company of Mexico) was for US $4.7 million, which was subsequently expanded before its completion to a total of US $5.8 million.

This was a significant milestone for NXT, as it was our single largest contract to date, and it was able to be delivered in roughly 4 months. Mexico continues to be a primary target market to pursue for new SFD®SFD® survey opportunities.

In 2014, we invested significant marketing efforts in seeking to expand into the emerging Bolivia market. We were able to leverage our past experience in Colombia and Mexico, and in 2015, we successfully secured our largest single survey project to date. The contract with Yacimientos Petrolíferos Fiscales Bolivianos (“YPFB”), the National Oil Company of Bolivia, was based on the local Bolivianos currency (which has an ongoing fixed rate to the US $), and had an equivalent value of US$13 million (net of local sales taxes included in the contract price).

Our SFD® data acquisition operations commenced in Bolivia in early June 2015, and the data acquisition phase was completed in August, with NXT’s related recommendations reports delivered to YPFB in late October.October 2015. During the data acquisition phase, YPFB chose to undertake an additional survey “expansion” project valued at approximately US $1.0 million. The decision for YPFB’s expansion was based on the rapid delivery of preliminary SFD® results, which had excellent correlations noted between anomalies identified by SFD® and the clients’ existing ones identified using seismic methods. A contract amendment was finalized in October, 2015 for this project, the final results for which were delivered by NXT in January 2016.

NXT also had ongoing discussions concerning potential SFD® survey project opportunities with several of YPFB’s affiliated, subsidiary companies which have exploration acreage in Bolivia. Two entities expressed interest in obtaining SFD® data for certain of their exploration lands in Bolivia: YPFB Chaco and YPFB Andina (which is a partnership with Repsol, a major Spanish oil company). A contract with YPFB Chaco to purchase initial SFD® data (which was acquired in summer 2015) in the amount of US $0.2 million was completed and delivered by NXT in Q4-15.

While conducting operations in Bolivia in summer 2015, NXT acquired additional proprietary SFD® data flight lines requested by YPFB Andina and minor additional SFD® data for YPFB Chaco. These parties indicated in 2015 that they intend to execute formal contracts to purchase this data, which has a sales value of approximately US $1.0$0.5 million (net), in 2016... While this process has advanced in 2016, there is, however, some risk that this process may not result in formal contracts to purchase the SFD® data from NXT.

South Asia Market

In late 2010, we started to negotiate a US $2.66 million contract to conduct a survey in Pakistan, and the contract was closed largely based upon case studies and client endorsements received from Colombian clients. Due to lengthy delays in securing approvals from all the relevant government bodies, the survey was not able to be commenced until late 2012, and was completed in Q1-2013. Our client subsequently presented the results of this project at an industry conference in Pakistan in November 2013, and this exposure has led to interest from new parties who are active in exploration in the region.

Description of seasonality of the company’s main business

There is no seasonality to our business. NXT does however, have a very cyclical business, as revenue activity is dependent upon the size and timing of a limited number of survey contracts each year.

Description of the sources and availability of raw materials

We do not foresee any constraints upon materials or equipment that will impede our ability to execute our business plan or affect our ability to conduct and/or expand our business. Our main direct project input costs are aircraft operating costs and data interpretation staff. None of these expenses have been subject to significant price volatility.

In order to conduct our survey operations we require the following:

• Survey aircraft – Historically, we have both owned aircraft and chartered aircraft from independent charter aircraft companies. From 2009 to December 2015, we utilized an aircraft charter agreement with Air Partners, a Calgary-based air-charter operator, to provide aircraft, crew and maintenance services for our survey operations worldwide (see also Item 4. part B – “Business Overview - Summary information on dependence on patents, licenses and contracts” below). In December 2015, we acquired from Air Partners a jet aircraft which was previously charterhiredcharter hired to NXT. We currently rely on Air Partners as the manager / operator of the aircraft which we use in SFD® SFD®survey operations.

• SFD® sensors - All of the survey sensors are manufactured in-house. Certain machining is required by third party machine shops, with final assembly performed by our technical staff. The sensors, once assembled, require flight testing prior to being considered acceptable for operational use. Not all sensors meet the performance criteria for operational use; however, we have demonstrated our ability to manufacture new functional SFD® sensors.
• SFD® assembly - The units in which the sensors are incorporated are custom designed, fabricated and assembled in-house or through subcontracted vendors. We utilize the services of Transport Canada approved Design Approval Representatives to prepare subsequent type certificates (“STC”) for the installation of our SFD® units in each aircraft that we utilize for surveys. The time to obtain an STC approval for the installation of our SFD® units into any proposed aircraft type may require several months.
• Computer hardware and software - (Data Acquisition System, SFD® Signal Conditioning Unit, and dataInterpretation software). The customized software used in ourDuring the course of 2016, a new data acquisition system is writtencompleted final testing. The software was developed by in-house personnel and modified by outside consulting programmers with whom we have long-standing relationships.will be utilized on future surveys. The hardware we use in our SFD® survey systems (other than the SFD® unit), and the balance of the computer software we use, are all readily available from retail or wholesale sources.

We are not dependent upon any other third party contract manufacturers or suppliers to satisfy our technology requirements.

Description of marketing channels

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

Summary information on dependence on patents, licenses and contracts

Patents

We have not yet received any patentsIn early 2017 we were granted the first international patent by the Russian authorities on our SFD® technology. However,technology and we understand that we may be able to obtain worldwide patents in the future. In May 2012, we commenced a “provisional” patent application process in the U.S. and formally filed a patent on May 22, 2013, which was subsequently published on November 28, 2013. We intend to continue expanding the process with additional formal patent applications in the future. We understand that our right to patent the SFD® technology is not compromised by our ongoing commercial use of the technology, as the components of the SFD® technology have never been disclosed to third parties (except under very limited and confidential terms) or released in any manner into the public domain. See also Item 3. part D “Key Information – Risk factors”.

Initiatives to protect our Intellectual Property ("IP" - patenting and new research & development (“R&D”) initiatives) continue, which should also serve to allow us to expand on our technology disclosures in order to build further industry awareness, understanding, and acceptance of SFD®. Squire Patton Boggs LLP, a U.S.-based leader in IP protection, is advising on our IP strategy, including the prior filing of an initial U.S. provisional patent application in May 2013. In November 2014, NXT filed a related patent amendment submission in the U.S. and commenced to undertake new patent applications in select strategic international markets.

Technology Transfer Agreement (TTA)

Upon execution of the TTA on December 31, 2006, Mr. Liszicasz transferedtransferred all his rights and entitlements to the SFD® technology for use in the field of hydrocarbon exploration to NXT in exchange for receiving 10,000,000 non-voting, convertible preferred shares.

2,000,000 of these preferred shares became immediately convertible on a one-to-one basis into common shares of the company at the discretion of the holder. Effective May 22, 2013, Mr. Liszicasz formally converted these 2,000,000 preferred shares into 2,000,000 common shares.

The remaining 8,000,000 preferred shares were convertible on a one-to-one basis into common shares if NXT achieved the following cumulative revenue thresholds prior to the expiration of the TTA on December 31, 2015 (the “Maturity Date”):

An additional 1,000,000 common shares were issuable to Mr. Liszicasz if cumulative gross revenues would have exceeded US $500 million.

NXT also had an option to choose to retain the SFD® technology by immediately converting all of the then outstanding preferred shares prior to the Maturity Date, and the independent members of the Board elected to do so effective August 31, 2015.

In the event that the conversion option had not been exercised by the Maturity Date, the preferred shares would have been redeemed for $0.001 per share and NXT's rights to the SFD® technology would have reverted to the holder of the preferred shares.

Following the conversion, Mr. Liszicasz has continued to retain the rights to utilize the SFD® technology in all other potential field-of-use applications.

Separately, in January 2014, NXT’s CEO (the “Grantor”) personally granted (to a total of 17 persons, including NXT employees, directors, officers, advisors and others) “Rights” to acquire a total of 1,000,000 of the common shares which were expected to become issued to him in 2015 upon future conversion of the preferred shares by their Maturity Date. Each of the Rights were subject to certain vesting provisions and entitled the holder to acquire from the Grantor one common share of NXT at a fixed exercise price of $1.77. The Rights originally had an expiry date of December 31, 2015, which, effective that date, was extended by the Grantor to December 31, 2016.

A total of 365,000 of these Rights were granted in 2014 to certain directors and officers of NXT, and a total of 430,000 Rights were granted to NXT’s employees and advisors. These Rights arewere supplemental to existing incentives which havehad been granted under NXT’s stock option plan.

The Rights expired, unexercised on December 31^st, 2016. They were not renewed.

Second Amended and Restated Technical Services Agreement (the “TSA”)

In conjunction with the TTA, the TSA was executed on December 31, 2006, covering the terms of Mr. Liszicasz employment with the company. The TSA also had a term ending December 31, 2015, and will be replaced in 20162017 by an industry standard Executive Employment Agreement for Mr. Liszicasz, which is in process of being finalized by the NXT Board.

Basis for statements made regardingcompetitive position

Our SFD® airborne survey service is based upon a proprietary technology, which is capable of remotely identifying, from a survey aircraft, subsurface anomalies associated with potential hydrocarbon traps with a resolution that we believe is technically superior to other airborne survey systems. To our knowledge there is no other company employing technology comparable to our SFD® survey system for oil and natural gas exploration.

Seismic is the standard technology used by the oil & gas industry to image subsurface structures. It is our view that the SFD® survey system is highly complementary to seismic analysis. Our system may reduce the need for seismic in wide-area reconnaissance but will not replace the role of seismic in verifying structure, closure and selecting drilling locations. The seismic industry is very competitive with many international and regional service providers.

The SFD® system can be used as a focusing tool for seismic. With an SFD® survey a large tract (i.e. over 5,000 square kilometers) of land can be evaluated quickly to identify locations with indications of reservoir potential. Seismic surveys, although effective in identifying these locations, are much more expensive, require significantly more time and impose a much greater negative impact on local communities and the environment. An SFD® survey deployed first can provide necessary information to target a seismic program over a limited area of locations selected by SFD®. This approach can result in a more effective seismic program and reduce the overall cost, time, community resistance and environmental impact required to locate and qualify a prospect.

The industry uses other technologies for wide area oil and natural gas reconnaissance exploration, such as aeromagnetic and gravity surveys. These systems can provide regional geological information, such as basement depth, sedimentary thickness and major faulting and structural development; however, these other airborne techniques are not as suitable for identifying areas with reservoir potential as the SFD® system.

Description of material effects of governmental & environmental regulation

SFD® Survey Flight Operations

The operation of our business, namely conducting aerial SFD® surveys and interpreting SFD® data, is not subject to material governmental or environmental regulation in Canada and the United States with the exception of flight rules issued by Transport Canada and the FAA governing the use of commercial aircraft, including rules relating to low altitude flights. The requirements in other countries vary greatly and may require permits and/or provide other restrictions to conducting flight operations in the country that may restrict our ability to perform SFD® surveys as freely as in Canada and the United States.

For example, in Colombia, SFD® surveys must comply with three requirements not encountered in Canada and the United States. These requirements are: customs obligations and bonds related to the importation and exportation of the aircraft into Colombia; obtaining permits from the local aviation authority; and obtaining permits from the Colombian Air Force. NXT has successfully operated in the past in Colombia in accordance with these requirements.

With our past experience in Canada, the United States, Bolivia, Mexico, Colombia and other countries, we do not anticipate any unusual government controls or regulations that might significantly prevent timely completion of SFD® surveys. However, we may encounter unforeseen government regulations or restrictions in other countries that may impair or restrict our ability to conduct surveys, which could limit our ability to earn revenue or potentially expose us to forfeiture of performance bonds

C. Organizational structure.

The following table provides a list of all subsidiaries and other companies controlled by NXT:

In February, 2010, NXT registered a formalwholly owned “Branch” entity with the tax administration and Chamber of Commerce authorities in Colombia.Colombia, (NXT Energy Solutions Inc. Sucursal Colombia). The formation of this branch became a Colombian legal requirement following the company commencing permanent activity in Colombia in 2010 while conducting commercial survey operations. The process to close this branch commenced in 2016 and it is expected that this exercise will be formally completed in early April 2017.

In addition, in March, 2015, NXT registered NXT Energy Solutions Inc. (Sucursal Bolivia) as a wholly owned “Branch” entity under the laws of the Plurinational State of Bolivia, in order to contract and conduct survey operations in Bolivia.

D. Property, plant and equipment.

Oil and Gas Properties

We have minor historical interests in a limited number of acreage holdings of undeveloped lands in western Canada. These assets are not a material asset and have been written off in our financial statements. Additionally, we may in the future become entitled to receive gross over-riding royalty (“GORR”) interests on production from portions of certain lands where we conducted past surveys for clients in Canada, such as in the Horn River shale gas basin in British Columbia, Canada. There is no certainty that wells on these lands will become placed on production, or that future royalty revenues will be earned from these entitlements prior to the expiry of the landownerslandowners’ related mineral leases. No asset value has been recorded in the financial statements for these GORRs.

Facilities / office premises

In August 2015, NXT moved to a new, larger office premises (11,298 square feet) at 3320 – 17^th Avenue SW in Calgary under a 10-year lease at an initial estimated minimum monthly lease payment of $42,368 (including building operating costs) commencing in October 2015. See also Item 5.F “Contractual Obligations”.

Aircraft

In order to perform our survey services, NXT requires to fly the survey area in a jet aircraft. In December 2015, NXT purchased a Cessna Citation aircraft for US$2,000,000 and in March 2017, entered into a binding sale and leaseback agreement with a Calgary based international aircraft services organization. The terms of the agreement involve NXT selling the aircraft for the sum of US$2,300,000. NXT will lease the aircraft back for a minimum period of 60 months and retain all existing operating rights and obligations. Net proceeds to NXT from the sale will be approximately CAD $2,700,000, after payment of all commissions and fees and are expected to be received in April 2017. The monthly repayment is approximately US $40,000

Equipment

Our SFD® technology is comprised of three main components, detailed below, which we collectively refer to as our SFD® survey system. This system is generally stored at our Calgary office facility unless deployed during survey operations when this equipment would travel with the aircraft or be stored in a locked facility at the survey location when not in use. In addition, there is extensive interpretation equipment located in Calgary. The main categories of equipment we use are:

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

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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

A. Operating results.

Overall Operational Performance

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

Financial Highlights for 2016

Financial Highlights for 2015

Financial Highlights for 2014

Financial Highlights for 2013

Net Income (Loss)

Expenses for the years ended December 31, 2016, 2015 2014 and 20132014

Survey costs – these costs depend on the number of survey projects conducted and completed in each fiscal year. We apply the completed contract basis of revenue recognition, with survey revenue and expenses recognized in the quarterly period in which our overall survey recommendations report is delivered to our client. Survey costs may also periodically include expenses related to some R&D and equipment test flights (as was the case in 20142016 and 2013)2014) as well as aircraft maintenance charges, which are not necessarily directly related to projects undertaken.

2015 survey costs related to the projects which commenced in May 2015 and were completed in Q4-15 for two new clients in Bolivia. These survey costs include a minor level of expenses incurred for a new local office which was opened in Bolivia in 2015 for administration and servicing of the projects.

2014 reflects completion of US $3.7 million of survey projects in the U.S., while 2013 reflected completion of a US $2.7 million contract which commenced in Pakistan in December 2012, and which was completed and delivered in Q1-13. 2013 also includes revenues of $24,850 related to a small survey which was flown in Belize in fall 2012, and completed in Q1-13. The Belize project in 2013 also included potential additional future revenues to NXT, which are contingent upon future events, and as such, will be recognized if and when received.

The survey contract conducted in Pakistan in Q1-13 had some categories of costs which were higher, and thus a lower profit margin, and a higher rate of foreign income tax withholdings, than the surveys which were completed in 2012. This project was originally negotiated in 2010 at a survey rate per km that was lower than the average which was in effect in 2011.

As noted previously, surveys were completed in a total of four countries in 2012, whereas 2011 reflected a single, small scale survey. Survey costs include aircraft charter, fuel, and related permits and logistics, plus local travel and accommodations incurred. Survey costs as a percentage of revenue is not directly comparable each year, as costs can be a function of non-controllable factors such as weather and permitting delays, and if the project was subject to sales commissions or local sales taxes. For example, survey costs in 2012 included sales commissions of US $696,977 for projects completed in 2012 (and $nil in 2011).

Also, there will be inherent cost differences between operating in Colombia or elsewhere in Latin America as compared with Canada and the United States. Costs incurred to mobilize and demobilize the survey aircraft and crews will vary widely depending on the distance travelled to the survey location. In addition, in some foreign countries we may incur many delays related to obtaining permits and approvals not required in Canada that can result in surveys taking several additional weeks to fly them. These delays result in additional aircraft, crew and accommodation costs.

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

Total G&A for 2016 was $5.6 million, which was $0.6 million higher than the 2015 total, and the overall net changes in G&A within the five individual expense categories noted above reflect several factors:

Total G&A for 2015 of $5.0 million was $0.9 million higher than the 2014 total, and the overall net changes in G&A within the five individual expense categories noted above reflect several factors:

While total G&A for 2014 of $4.1 million was comparable to 2013 period, the overall net changes in G&A expense within the five individual categories noted above reflect several factors:

G&A expense in 2013 decreased by $0.4 million from 2012, which was a combination of several factors:

Stock-Based Compensation Expense (“SBCE”) - this expense varies in any given quarter or year, as it is a function of several factors, such as the number of stock options issued in the period, and the period of amortization (based on the term of the contract and / or number of years for full vesting of the options, which is normally 3 years) of the resultant expense. Also, SBCE is a function of periodic changes in the inputs used in the Black-Scholes option valuation model, such as volatility in NXT's trailing share price.

There was a higher average number of stock options outstanding in 2015 (total of 3,462,835 as at the end of 2015 as compared to 2,541,435 as at the end of 2014).

Total SBCE also includes additional expense recognized related to the “Rights” which were personally issued by NXT’s CEO in January 2014 (see prior discussion in “Item 4.B – Technology Transfer Agreement” related to the convertible preferred shares), and for which the term to expiry was extended by one year to December 31, 2016 in 2015, as follows:

SBCE related to stock options for 2014 was lower than in 2013 partially due to2017 may increase as a numberresult of stock options which were issuedthe change in Q4-13 having immediate vesting, which resultingcompensation practice discussed in the full expense being recognized in the Q4-13 period, rather than being amortized over the standard three year vesting period.“B. Liquidity and capital resources” below.

Amortization expense – consists of the following amounts:

Most of our capital investment in property and equipment is in computer hardware, which is amortized on a 30% declining balance basis, such that amortization is high in the initial year of capital investment. Prior to 2015, annual capital spending has been minimal, resulting in declining levels of amortization expense.

Capital expenditure in 2016 was $89,702, and this related mainly to a new data acquisition system and other IT upgrades. Although significant capital expenditures were incurred in 2015 for the purchase of a survey aircraft (in December, 2015) and for leasehold improvements (completed in August 2015), amortization on such applied for only a portion of 2015.2015, whereas in 2016 a full year of amortization was charged.

Amortization expense for 20152016 also relates to intellectual property, which was acquired by NXT upon the August 31, 2015 conversion (the “Conversion”) of the final 8 million NXT preferred shares.

The Conversion gave rise to the application of “fair-value” accounting in Q3-15, whereby the 8 million common shares issued were assigned an estimated fair-value of $18.5 million. An intellectual property (“IP”) asset related to the technology acquired was recognized at approximately $25.3 million, which included a tax effect gross-up of $6.8 million (as the IP acquired has no corresponding deferred tax pool deduction for ongoing Canadian current income tax purposes).

The IP assets December 31, 20152016 net book value of $24.7$23.0 million will beis amortized on a straight line basis over a 15-year period (future amortization expense of $1,685,000 per year), and will also be subject to ongoing tests of potential impairment of the recorded net book value.

Other Expense (Income)

Interest income - Interest income, generated by short term investments, is offset by interest expense incurred on such items as capital lease obligations for leasehold improvements, and varies by year based on the level of cash available for investment.

Foreign exchange(gain) loss– gains and losses on foreign exchange are caused by changes in the relative exchange values of the US $,$ and Canadian dollar and to a minor extent, the Colombian peso ("COP").dollar. For example, when the Canadian dollar trades higher relative to the US $, cash held in US $ will decline in value and this decline will be reflected as a foreign exchange loss in the period. We normally hold cash and short-term investments in Canadian dollars to reduce the effect of market volatility; however, we occasionally are contractually obligated to hold certain restricted cash funds in US $ instruments to support performance bond commitments issued for projects in certain foreign countries.

Feasibility study and other expenses– this total includes costs incurred for the following:

In March 2016, NXT graduated from the TSX Venture Exchange to the main TSX Exchange. There were certain costs incurred associated with this move which totaled $147,099.

In the Q4-14 period, NXT commenced a feasibility study undertaken with the aim of monetizing the value of specific portions of our proprietary SFD® data library, and started to incur significant geotechnical and consulting costs related to this project, which continued through mid-2015.

Other expenses includes primarily discretionary costs related to intellectual property / patent filings and R&D activity related to the SFD® technology. Also, minor net expenses are incurred related to pre-2009 minority interests in oil & gas activities.

NXT has certain asset abandonment and reclamation obligations (“ARO”) related to our historical minority working interests in various oil and gas wells in which NXT had participation prior to 2005. At December 31, 2015,2016, the ARO is estimated to be $51,240,$55,240, based on obligations which are estimated to be settled in the next three years. The net present value of the ARO is estimated based on inflation of 3.4% and discounted using a credit-adjusted risk-free interest rate of 10%.

Change in fair value of US$ Warrants – until May 2014, we previously had outstanding US$ Warrants (which had a US $1.20 exercise price and a term of two years to expiry in March and May, 2014) that were issued in a $3.2 million private placement equity financing in early 2012. As these US$ Warrants were denominated in a currency other than the company's Canadian $ functional currency, they were classified as "derivative instruments" under U.S. Generally Accepted Accounting Principles (“GAAP”), and were recorded on a fair value basis at each period end (a total of $1,238,000 as at December 31, 2013 and $241,000 at December 31, 2012). This balance was adjusted to its estimated fair value at each period end (until expiry of the US$ Warrants in early 2014), based on the number of US$ Warrants outstanding. These derivative instruments were classified as a liability balance but did not require any ongoing outlay of cash.

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

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

In 2015,2016, NXT expensed foreign incomewithholding tax with-holdings of $1,755,678 (2014$159,990 (2015 – $nil)$1,755,678) which werewas incurred on certain charges to a subsidiary company in connection with the Bolivia survey project. Total current income tax expense for 20152016 also includes income taxes payable in Bolivia for NXT’s local operating entity.

On the acquisition of the IP assets in 2015, an estimated deferred income tax liability of $6.8 million arose.  However, NXT has available a significant historic total of previously unrecorded deferred income tax assets (non-capital / operating losses and other tax pools available for Canadian income tax purposes of approximately $29 million at December 31, 2015), and therefore a deferred tax recovery / benefit of $6.8 million was recognized in 2015 which offset the balance sheet impact of this deferred tax liability.  A total net income tax recovery was recognized in 20152016 as follows:

At the end of 2015,2016, NXT has available for future Canadian income tax deduction purposes significant unrecorded deferred income tax assets, the benefit of which has only been partially recorded in the Company’s financial statements due to uncertainty regarding the amount and timing of their potential future utilization. These deferred income tax assets include non-capital losses carried-forward (expiring in 20302017 to 2035)2036) and other resource deductions totaling approximately $29$35.7 million.

Summary of Quarterly Results (Unaudited)

A summary of operating results for each of the trailing 8 quarters (including a comparison to each respective prior quarter) follows. The extent of the profit or loss each quarter is mainly due to the timing and the number of survey contracts that are underway, and variances in such non-cash items as SBCE, which can occasionally be a significant expense in any given quarter. In addition, in Q3-12, we commenced to recognize significant adjustments to the fair value of "derivative instruments", which include US$ Warrants to purchase NXT common shares.

Q4-16 to Q3-16 comparison– NXT had survey revenue of $nil ($nil in Q3-16), survey costs (related to overseas branch costs, equipment test flights and aircraft maintenance costs) of $9,998, ($200,443 in Q3-16), and SBCE of $287,500 ($218,000 in Q3-16).

Q3-16 to Q2-16 comparison– NXT had survey revenue of $nil ($nil in Q2-16), survey costs of $200,443 ($157,365 in Q2-16), SBCE of $218,000 ($135,000 in Q2-16), and total amortization expense of $521,945 ($520,493 in Q2-16).

Q2-16 to Q1-16 comparison– NXT had survey revenue of $nil ($1,447,269 in Q1-16), survey costs of $157,365 ($789,379 in Q1-16), SBCE of $135,000 ($150,000 in Q1-16), and total amortization expense of $520,493 ($514,258 in Q1-16).

Q1-16 to Q4-15 comparison– NXT had survey revenue of $1,447,269 ($17,422,151 in Q4-15), survey costs of $789,379 ($5,070,023 in Q4-15), SBCE of $150,000 ($490,000 in Q4-15), and total amortization expense of $514,258 ($523,760 in Q4-15).

Q4-15 to Q3-15 comparison – NXT had survey revenue of $17,422,151 ($nil in Q3-15), survey costs of $5,070,023 ($nil in Q3-15), SBCE of $490,000 ($169,000 in Q3-15), total amortization expense of $523,760 ($146,828 in Q3-15) and a total net income tax recovery of $5,415,933 (income tax expense of $485,788 Q3-15).

Q3-15 to Q2-15 comparison – NXT had survey revenue of $nil ($nil in Q2-15), survey costs of $nil ($228 in Q2-15), SBCE of $169,000 ($228,000 in Q2-15), and total amortization expense of $146,828 ($18,830 in Q2-15).

Q2-15 to Q1-15 comparison – NXT had survey revenue of $nil ($nil in Q1-15), survey costs of $228 ($25,440 in Q1-15), and SBCE of $228,000 ($194,000 in Q1-15).

Q1-15 to Q4-14 comparison – NXT had survey revenue of $nil ($nil in Q4-14), survey costs (related to equipment test flights and aircraft maintenance costs) of $25,440 ($33,221 in Q4-14), and SBCE of $194,000 ($186,000 in Q4-14).

Q4-14 to Q3-14 comparison – NXT had survey revenue of $nil ($nil in Q3-14), survey costs (related to equipment test flights and aircraft maintenance costs) of $33,221 ($54,472 in Q3-14), and SBCE of $186,000 ($191,000 in Q3-14).

Q3-14 to Q2-14 comparison – NXT had survey revenue of $nil ($nil in Q2-14), survey costs (related to equipment test flights) of $54,472 ($10,637 in Q2-14), and SBCE of $191,000 ($150,000 in Q2-14).

Q2-14 to Q1-14 comparison – NXT had survey revenue of $nil ($3,913,367 in Q1-14), survey costs of $10,637 ($333,188 in Q1-14), SBCE of $150,000 ($131,000 in Q1-14), and an increase in the fair value of US$ Warrants (derivative financial instruments) expense of $nil ($42,800 expense in Q1-14).

Q1-14 to Q4-13 comparison – NXT had survey revenue of $3,913,367 ($nil in Q4-13), survey costs of $333,188 ($81,285 in Q4-13), SBCE of $131,000 ($183,000 in Q4-13), and an increase in the fair value of US$ Warrants (derivative financial instruments) expense of $42,800 ($268,500 expense in Q4-13). Two survey projects (in Florida in Texas) commenced for a US based client in late December 2013, with the project completed and the related revenue and work-in-progress costs recognized in the Q1-14 period.

B. Liquidity and capital resources.

Our sourcesThese consolidated financial statements have been prepared on a going concern basis.  The going concern basis of presentation assumes that NXT will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.  In preparing these consolidated financial statements, the Company’s initial assessment of its liquidity includeposition raised substantial doubt about its ability to continue as a going concern.  This initial assessment was based on the extended duration between revenue contracts and the significant decline that this had on NXT’s working capital ($7.8 million at December 31, 2015 to $1.7 million at December 31, 2016).  Given the Company’s annual expenses were initially estimated to be significantly in excess of the remaining working capital and there is uncertainty with respect to the timing of future revenue, the Company believed these conditions were significant to the going concern assumption.

However, the Company has taken important steps subsequent to year end to address its ability to meet its obligations such that the concern over substantial doubt has been alleviated in the preparation of these financial statements.   The most significant step taken is the securing of a $2.7 million sale and leaseback arrangement of its airplane (see note 19).   In addition, the Board of Director’s (the “Board”) have approved and communicated to certain of the Company’s employees that a portion of their cash compensation and all of the Board and Advisory Board members cash compensation will be deferred until the Company achieves revenue thresholds that, in the opinion of the Board, allows the Company to commence incurring such costs again.  The Company expects that issuing some form of incremental share based compensation will be a part of the strategy to compensate those individuals who are impacted by these changes.

In reaching the conclusions that it is probable that there will be sufficient resources to meet its obligations over the 12 month period beyond the date that these financial statements have been issued, the Company has assumed a minimum revenue inflow of approximately $600,000.  While the Company continues to work towards the signing of several other contracts, the time to complete this process cannot be predicted with a high degree of certainty and therefore the benefit of any additional contracts has not been included in the projected cash flow analysis. 

Should the timing of new contracts continue to extend beyond management’s current expectation, the Company has also received a binding promissory note from operations andit’s Chief Executive Officer that would provide the use of equity financings as needed. At present, there are no bank debt facilities availableCompany with up to us. We expect that our current working capital is sufficientan additional $500,000.  These funds will only be drawn to the extent necessary to help the Company meet our present requirements.its obligations over this period. 

We do not presently have any legal or economic restrictions that would affect the ability of any subsidiaries to transfer funds to us. As of the last fiscal year end, and the present date, we do not have any material outstanding commitments for capital expenditures that require funding.

NXT's cash and cash equivalents plus short-term investments at the end of Q4-15Q4-16 was $9.1$1.9 million.

Prior to Q2-15, NXT’s financial statements reflected various disclosures related to the use of the “going concern” basis of presentation. Significant progress was made in 2015 in expanding the business, including securing, executing, and delivering the sizeable Bolivia survey contract, which resulted in a significant expansion of our liquidity and working capital.

NXT's longer term success remains dependent upon our ability to continue to attract new client projects and expand the revenue base to a level sufficient to far exceed G&A expenses, and generate excess net cash flow from operations. Equity financings have been used on a limited basis in recent years to supplement working capital as required.

Private placement financings totaling $3.2 million ($2.9 million net of finders fees and share issue costs incurred) were conducted in early 2012 to enhance NXT's financial strength and fund its expansion plans. This financing also included the US$ Warrants (which had a term of two years, expiring in March and May 2014), for which exercise proceeds of US $1.0 million were received in Q4-13 and US $2.5 million in 2014.

Risks related to having sufficient ongoing working capital to execute survey project contracts are mitigated through our normal practice of obtaining progress payments from clients throughout the course of the projects, which often span 3 to 4 months. In addition, where possible, risk of default on client billings is mitigated through the use of export insurance programs offered via Export Development Canada (“EDC”).

EDC can also be utilized by NXT for financial support in the form of guarantees of specific bank letters of credit required to be issued by NXT as performance guarantees on international projects, such as was utilized on our project for YPFB in Bolivia. This aids in reducing restrictions on working capital that is needed to initiate and undertake projects.

NXT has minimal secured debt and had total “net working capital” of $7.5$1.7 million as at Q4-15Q4-16 as follows:

The above noted $2.5$5.8 million increaseyear to date decrease in net working capital at Q4-15 is primarily due to the $4.1 million net income generated for 2015. The higher totals for individual components noted above foroutflow of cash and the total net working capital balance at December 31, 2015 compared to December 31, 2014 relates to:reduction in payables, work in progress and deferred revenue.

NXT applies the "completed contract" method of revenue recognition - revenues and related project costs are deferred until the period in which the survey contract is completed. At each period end, if applicable, deferred revenue (a current liability) represents progress billing amounts that are to be recognized in revenue in future periods. Similarly, WIP relates to deferred survey costs which will be expensed in future periods upon completion of the related contracts. As these amounts will not result in additional future cash inflows or outflows to the Company, they are excluded (in periods in which applicable) from NXT’s above noted table / analysis of net working capital.

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

NXT utilizes the above noted sub-total line “net working capital before the undernoted items” to assess a more relevant measure of financial liquidity (excluding items classified as liabilities such as deferred revenue balances) as at the period end date.

Sources and uses of cash

The following table, and the narrative below, summarizes NXT’s net cash flows, and the total cash plus short-term investments held at the end of the periods, for the last three fiscal years:

Operating Activities

Net cash flow from operating activities listed above is a function of net income (loss) for the year, an add back of the net non-cash revenue and expense items (such as SBCE, amortization expense, deferred tax expense / (recovery), and in 2013, the change in fair value of derivative instruments), and the net change in year-end working capital items (for example, a net decrease in working capital in the year gives rise to a source of cash), with these components each year as follows:

Financing Activities

2016 - The only financing activity was related to proceeds from exercise of NXT stock options. Q4-16 reflects a $34,159 cash use for repayments of the capital lease obligation and $498,970 proceeds from the exercise of NXT stock options.

2015 – the overall net cash from financing activities of $327,824 reflects:

2014 - no equity financings occurred in 2014 or 2013. In 2014, NXT received a total of $2,735,995 proceeds from exercise of US$ Warrants (which had an exercise price of US $1.20 per common share and which had been issued in a private placement equity financing in 2012) and $288,066 proceeds from exercise of a total of 482,665 stock options.

Investing Activities

20132016– no financings occurred in 2013. The overall net cash source in investing activities of $1,077,456$527,496 for 2016 reflects $1,064,222 proceeds from exercise of a portion of the US$ Warrants that had been issued in 2012, plus $13,234 proceeds from the exercise of stock options.these components:

Investing Activities

2015 – the overall net cash used in investing activities of $277,578 for 2015 reflects these components:

2014 - the overall net cash used in investing activities of $2,711,867 reflects three components:

2013 - the overall net cash used in investing activities of $2,035,465 reflects three components:

C. Research and development, patents and licenses, etc.

There was no separate R&D expense reported in the financial statements in the years 2016, 2015 2014 and 2013.2014. In these three years, expenditures related to R&D were included within general and administrative expense (related to a portion of staff salaries and overhead) and in other expense (for patent filings and related costs).

D. Trend information.

We have historically conducted a limited number of service contracts each year, the dollar value and timing of securing and ultimate delivery of which are subject to numerous external factors. As atApril 26, 20166th, 2017 we do not have a significant committed “backlog” or order book of contracts to be performed.

We are not aware of any current external trends (such as in commodity prices, etc.) which could affect our operations for the next fiscal year. As noted previously, the amount and timing of our annual revenues can vary widely year to year, as we derive our revenues from a limited number of service contracts each year, and each individual contract may have a large effect on the aggregate annual revenues and profits. For example, in 2012, we conducted our first contract with PEMEX, the National Oil Company of Mexico. This project was completed in 2012 and was our largest to that time, at US $5.8 million. In 2015, projects totaling US $13 million were completed in Bolivia for YPFB.

We continue to seek future business projects with large exploration clients such as PEMEX and YPFB, with the aim of having each new client become an ongoing repeat customer.

E. Off-balance sheet arrangements.

We do not have any off-balance sheet arrangements.

F. Tabular disclosure of contractual obligations.

The following table sets forth our outstanding contractual obligations as at December 31, 2015:2016:

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and senior management.

Our articles of incorporation provide for a minimum of one director and a maximum of 15 directors comprising our Board of directors. At present, our Board of directors consists of sevensix members.

Our directors are elected by our shareholders at our annual meeting of shareholders and hold the position either until the next annual shareholders’ meeting, the date of their resignation or until a successor is appointed.

The following sets forth information, including directorships in other reporting issuers, asof April 26, 2016,6th, 2017, for our directors, executive officers and key employees:

None of our executive officers or directors have been involved in any bankruptcy proceedings within the last five years, been convicted of or have 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.

Charles Selby was previously a member of the board of directors of Wellpoint Systems Inc. (“Wellpoint”, a reporting issuer on the TSX-V), which in January 2011 had a Receiver appointed by the Court of Queen’s Bench of the Province of Alberta on behalf of the holders of secured debts. Wellpoint was subsequently wound up following a restructuring and sale of its operating assets. Mickey Abougoush also had previously served as a director of Wellpoint, and resigned in July, 2010, prior to it entering Receivership in 2011.

Messrs. Abougoush, Selby, Tilson, Valentine, Vathyam and Wilcox are considered "independent" within the meaning of Canadian National Instrument 58-101.

B. Compensation

Executive Compensation

The following table sets out certain information regarding the annual and long-term compensation of the Chief Executive Officer, the Chief Financial Officer and the other two of the four most highly compensated executive officers serving as executive officers (of which there were only three) at December 31, 2015,2016, as well as any additional individuals for whom disclosure would have been provided pursuant to the above criteria except that the individual was not serving as an officer of the company at the end of 2015.2016. All officers of the company are based in the Calgary, Canada head office and are paid in Canadian dollars.

Summary compensation table for the year ended December 31, 2015:2016:

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

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

Director Compensation

NXT compensates directors for serving on our Board by paying a combination of an annual cash retainer as well granting stock options to purchase NXT common shares. New members who join the Board receive a separate grant of stock options (with entitlement to exercise vesting over a 3 year period) in the year of joining the Board.

In 20152016 and 2014,2015, the directors group each individually elected to receive a mix of cash and / or stock option grants as payment of Board fees earned for the year. The annual cash retainer was based on $30,000 ($35,000 in the case of each of the Chairman of the Board and the Audit Committee). Compensation payable (including pro-rated amounts for periods of partial service in the year) for 20152016 and 20142015 is summarized as follows:

In 2014, the directors group each individually elected to receive a mix of cash and / or stock option grants as payment of Board of director fees earned for 2014 (of which a maximum of 50% could be elected to be received in cash), which was in aggregate $80,000 cash and 110,000 stock options granted (one director elected to instead receive no cash, and a total of 35,000 stock options, as compared to the grant of 15,000 stock options plus payment in cash as was elected by the other five directors who were serving in 2014).

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

An additional amount of $30,000 was paid in the year to Mr. Charles Selby in respect of his joining the NXT Advisory Board.

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

C. Board practices.

Expiration Dates

No director or member of our administrative, supervisory or managementsupervisory bodies has an expiration date for their current term of office. Directors are elected by shareholders at the annual meeting of shareholders and hold the position either until the next annual shareholders’ meeting or until a successor is appointed. The period during which each individual has served as a director is set out in the table under Item 6.A – “Directors and senior management”. The Chief Financial Officer is on a term contract as at 31^st December 2016. The term contract expires on 31^st January 2016 and may or may not be renewed depending upon performance.

Service Contracts

No directors (other than an employment contract for the CEO, Mr. Liszicasz) have service contracts with the company or any of its subsidiaries that provide benefits upon termination of employment.

Board of Directors Mandate

The principal role of the Board is stewardship of the company through the creation of shareholder value, including the protection and enhancement of the value of its assets, as the fundamental objective. The stewardship responsibility means that the Board oversees the general operation of the business and management, which is responsible for the day-to-day conduct of the business. The Board must assess and ensure systems are in place to manage the risks of the company’s business with the objective of preserving the company’s assets. The Board, through the CEO, sets the attitude and disposition of the company towards compliance with applicable laws, environmental, safety and health policies, financial practices and reporting. In addition to its primary accountability to shareholders, the Board is also accountable to employees, government authorities, other stakeholders and the public. The Mandate of the Board of directors is posted on the company website and may viewed at www.nxtenergy.com or you may request a copy be mailed to you by writing to our offices at Suite 302, 3320 - 17th Avenue SW Calgary, Alberta, Canada, T3E 0B4.

Board Committees

Corporate Governance Committee

The company and the Board recognize the importance of corporate governance to the effective management of the company and to its shareholders. The company’s approach to significant issues of corporate governance is designed with a view to ensuring that the business and affairs of the company are effectively managed so as to enhance shareholder value. The Mandate of the Corporate Governance Committee is posted on the company website and may be viewed at www.nxtenergy.com or you may request a copy be mailed to you by writing to our offices at Suite 302, 3320 - 17th Avenue SW Calgary, Alberta, Canada, T3E 0B4.

The Board and management endorse the need to establish forward-looking governance policies and to continuously evaluate and modify them to ensure their effectiveness.

Composition of the Corporate Governance Committee

Messrs. Valentine (Chair), and Abougoush and Vathyam are members of the Corporate Governance Committee, and are all independent.

both independent within the meaning of Canadian National Instrument 58-101.

Responsibilities of the Corporate Governance Committee

The Corporate Governance Committee’s duties, as outlined in its charter, are to deal with the company’s approach to corporate governance and the promotion of compliance with industry and regulatory standards. The committee is responsible for overseeing and assessing the functioning of the Board and the committees of the Board and for the development, recommendation to the Board, implementation and assessment of effective corporate governance principles and guidelines. The Committee’s responsibilities also include identifying new candidates for director and recommending that the Board select qualified director candidates for election at the next annual meeting of shareholders.

Disclosure Committee

Composition of the Disclosure Committee

The Disclosure Committee currently consists of Messrs. Selby and Wilcox (who are independent) and Mr. LeavensMrs. Stewart (Chair).

Responsibilities of the Disclosure Committee

The Disclosure Committee’s duties are to ensure that the company provides timely, accurate and balanced disclosure of all material information about the company and to provide fair and equal access to such information. All news releases, including but not limited to releases of material information, are managed by the Disclosure Committee. If the information has been determined by the Disclosure Committee to be material, news releases will be prepared, reviewed and then disseminated through a news-wire service that provides simultaneous service to widespread news services and financial media. Additionally, the Disclosure Committee is responsible for ensuring public disclosure through filing these news releases on SEDAR, EDGAR, and our website.

AUDIT COMMITTEE

Composition of the Audit Committee

The Audit Committee consists of Messrs. Abougoush (Chair), Selby and Wilcox. All members of the Audit Committee are independent and each member is financially literate. The company’s Audit Committee Charter is posted on our website and may be viewed at www.nxtenergy.com or you may request a copy be mailed to you by writing to our offices at Suite 302, 3320 – 17^th Avenue SW, Calgary, Alberta, Canada, T3E 0B4.

M. S. (Mickey) Abougoush

Mr. Abougoush holds a B.Sc. Chemical Engineering degree from the University of Alberta and has completed the director’s education program sponsored by the Canadian Institute of Corporate Directors. He has previously served as audit committee chair of a publicly traded company.

Charles Selby

Mr. Selby is both a lawyer and Professional Engineer, with past legal experience specializing in securities and corporate finance matters.  He has served on the board or in senior management roles with a number of private firms as well as reporting issuers in the oil and natural gas industry. 

Mr. Selby has previously served on the audit committees of AltaCanada Energy Corp. and served as the audit committee chairman for Idaho Natural Resources Corp. (formerly Bridge Resources Corp.)

Bruce Wilcox

Mr. Wilcox holds a Master of International Management from the American Graduate School of International Management in Phoenix. His career as an investment company CEO, analyst and portfolio manager was spent primarily with Cumberland Associates, LLC, a New York equity fund, where he was a partner, and served as Chairman of the Managing Committee.

All members of the Audit Committee have the educational background and experience that provides them with the knowledge and ability to understand accounting policies and related financial reporting and disclosure issues, in order to fulfill their duties and responsibilities as an Audit Committee member.

Audit Committee Oversight - The company’s Board has adopted all recommendations by the Audit Committee with respect to the nomination and compensation of the external auditor.

Pre-Approval Policies and Procedures - The Audit Committee has adopted a formal policy requiring the pre-approval of all audit and non-audit related services to be provided by the company’s principal auditor prior to the commencement of the engagement, subject to the following:

COMPENSATION COMMITTEE

Composition of the Compensation Committee

Messrs. Selby (Chair), ValentineTilson and VathyamValentine are members of the Compensation Committee, and are all independent. The charter or mandate of the Compensation Committee is posted on the company website and may viewed at www.nxtenergy.com or you may request a copy be mailed to you by writing to our offices at Suite 302, 3320 – 17th Ave17^th Avenue SW, Calgary, Alberta, Canada, T3E 0B4.

Responsibilities of the Compensation Committee

The Compensation Committee's duties, as outlined in its charter, are to deal with the assessment of management and succession to key positions and compensation within the company. The Compensation Committee shall assist the Board in discharging the Board’s oversight responsibilities relating to the compensation and retention of key senior management employees, and in particular the CEO, with the skills and expertise needed to enable the company to achieve its goals and strategies at fair and competitive compensation and appropriate performance incentives. In discharging its responsibilities, the Compensation Committee will report and, where appropriate, make recommendations to the Board in respect of the matters identified in the charter.

STRATEGIC PLANNING COMMITTEE

Composition of the Strategic Planning Committee

Messrs. Tilson (Chair), Selby and Wilcox are members of the Strategic Planning Committee, and are all independent. The Committee was formed in 2015 to assist the company with addressing long range planning considerations, including plans for growth and management succession.

D. Employees

Fiscal year ended December 31, 20152016

As of the fiscal year ended December 31, 20152016 we had a total of 2123 employees and nil full-time independent contractors. NXT has no employees that are members of a labor union. The following summarizes the number of employees and independent contractors by main job function as at December 31, 20152016:

All of the above noted staff are based in Calgary, Canada except for 2 based in the Santa Cruz, Bolivia office which was opened in 2015. The 13 operations and technical development staff includes one research scientist holding a Ph.D. and 5 geoscientists. We periodically engage other technical and administrative contract personnel as required on a project basis.

Fiscal year ended December 31, 2015

As at December 31, 2014, we had a staff of 16, all based in Calgary, as follows:

All of the above noted staff are based in Calgary, Canada except for 2 based in the Santa Cruz, Bolivia office which was opened in 2015. The 12 operations and technical development staff includes one research scientist holding a Ph.D. and 4 geoscientists. We periodically engage other technical and administrative contract personnel as required on a project basis.

Fiscal year ended December 31, 2014

As at December 31, 2014, we had a staff of 16, all based in Calgary, as follows:

The 8 operations staff included one research scientist holding a Ph.D. and a geophysicist. We periodically engaged other technical and administrative contract personnel as required on a project basis.

Fiscal year ended December 31, 2013

As at December 31, 2013, we had a staff of 16, all based in Calgary, Canada except for one in Bogota, Colombia. Our staff consisted of a 3 member senior management team, 5 finance and administrative persons (including one in Colombia), and 8 operations staff which includes one research scientist holding a Ph.D. and one consulting geophysicist. We also periodically engaged other technical and administrative contract personnel as required on a project basis.

E. Share ownership.

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

Summary of Stock Options and Stock Appreciation Rights Granted To Executive Officers and Directors

All stock options have been granted pursuant to the Stock Option Plan (the “Plan”) of the company or predecessor plans with substantially the same terms. The Plan is approved and ratified by shareholders annually at the company’s annual general meeting (“AGM”). The Plan, as was re-approved and ratified at the company’s last AGM held on June 8, 2015.4, 2016. Pursuant to this Plan, all stock option grants must be approved by the Board of directors of the company. Stock options may be granted to the directors, officers and employees of NXT and to consultants retained by the company. The aggregate number of common shares reserved for issuance under this Plan, and any other plan of the Corporation, shall not, at the time of the stock option grant, exceed ten percent of the total number of issued and outstanding shares (calculated on a non-diluted basis) unless the company receives the permission of the stock exchange or exchanges on which the shares are then listed to exceed such threshold. No stock option shall be exercisable for a period exceeding five (5) years from the date the stock option is granted unless the company receives the permission of the stock exchange or exchanges on which the shares are then listed and as specifically provided by the Board and as permitted under the rules of any stock exchange or exchanges on which the shares are then listed, and in any event, no stock option shall be exercisable for a period exceeding ten (10) years from the date the option is granted.

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

The following stock options were granted to NXT’s executive officers and directors in the three prior fiscal years ended December 31, 2016, 2015, 2014, and 20132014 and to date to April 26, 2016:6^th, 2017:

In 20152016 and to date in 2016:2017:

In 2015:

In 2014:

In 2013:

The following table sets forth information regarding outstanding stock options which have been granted to our directors and officers as of April 26, 2016.6^th, 2017. All options are issued at an exercise price set at the closing trade price on the trading date prior to the grant. Each option entitles the option holder to acquire one common share of the company.

Issued and outstanding stock options held by directors and officers of the company

(as of April 26, 2016)6^th, 2017)

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

The following table sets forth information concerning the beneficial ownership of our common shares as of
April 26, 20166^th, 2017 by persons who beneficially own 5% or more of the outstanding common shares of NXT, each person who is a director of NXT, each executive officer named in this Form 20-F, each individual referenced in Item 6.E above and all directors and executive officers as a group. For the purposes of this Form 20-F, a person is considered to be a “beneficial owner” of common shares in the company if that person has, or shares with another person, the power to direct the vote or disposition of the common shares or to receive the economic benefit of ownership of the common shares.

A person is also deemed to be a beneficial owner of a common share if that person has the right to acquire the share within 60 days by option or other agreement (whether or not, in the case of a stock option, the current market price of the underlying common share is below the stock option exercise price). Therefore, the table below also reflects, for each such beneficial owner, the number of options exercisable into common shares within 60 days of April 26, 20166^th, 2017 that are owned by each beneficial owner, but, in determining the percentage ownership and general voting power of such person, does not assume the exercise of options or the conversion of securities owned by any other person.

We believe that the beneficial owners of common shares listed below, based on information they furnished, have sole voting and investment power over the number of shares listed opposite their names. The percentage of beneficial ownership is based on 53,308,00953,856,509 common shares issued and outstanding as of April 26, 2016.6^th, 2017. This total of 53,308,00953,856,509 excludes all outstanding options and warrants that are exercisable within 60 days of April 26, 20166th, 2017 (which is adjusted for each individuals’ % purposes as noted in footnote 5 below).

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

The following information is taken from the records of Computershare Trust Company of Canada, located in Calgary, Alberta, Canada, the company's transfer agent for its common shares. As of April 26, 20166^th, 2017 there were 140134 registered holders of record of the company's common shares, including 81878 in the United States who collectively held 20,947,94620,964,517 common shares, representing 39.3%38.93% of NXT’s 53,308,00953,856,509 total issued and outstanding common shares.

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

Summarized below are certain other transactions and business relationships between NXT and persons who are related parties, for the current fiscal year ended December 31, 20152016 through the current date, April 26, 2016:6^th, 2017:

Not applicable.

ITEM 8. FINANCIAL INFORMATION

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

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

No significant events or changes have occurred subsequent to the date of the December 31, 20142016 consolidated financial statements, except as otherwise disclosed therein.

Legal Proceedings

To the best of the company's knowledge, there are no legal or arbitration proceedings existing or pending which have had or may have, significant effects on the company's financial position or profitability and no such proceedings are pending or known to be contemplated by governmental authorities.

Dividend Policy

The company does not pay dividends.

As of April 26, 2016,6^th, 2017, 2017, there have not been any significant subsequent events which have occurred subsequent to the date of consolidated financial statements for the year ended December 31, 2015.2016. NXT’s interim, unaudited consolidated financial statements for the 3-month period ended March 31, 20162017 will be released in mid-May, 2016.2017.

ITEM 9. THE OFFER AND LISTING

A. Offer and listing details.

The following tables set forth the price history of the company’s common shares listed on the OTC in the United States and on the TSX-V and the TSX in Canada.¹