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spk03: Good day ladies and gentlemen. My name is Michael and I will be your conference operator today. At this time I would like to welcome everyone to the NXT Energy Solutions Incorporated third quarter operating and financial results conference call. All participants will be in listen only mode for the first part of the conference call with the ability to ask questions after the presentation by the company. I would now like to turn the meeting over to Mr. Eugene Wojcicin, Vice President of Finance and CFO of NXT Energy Solutions. Please go ahead, Mr. Wojcicin.
spk04: Thank you, Michael. Welcome and thank you everyone for joining us today for NXT Energy Solutions 2022 Third Quarter Financial and Operating Results Conference Call. My name is Eugene Wojcicin, NXT's Vice President of Finance and Chief Financial Officer. Joining me today On today's conference call is Dr. Siong Wei, Director of R&D, Mr. Enrique Hung, Director of Geosciences for the Americas, and Mr. Rashid Tipu, Director of Geosciences for Africa, Asia, and the Middle East. George Lasichakatz, our CEO, is away today dealing with maternal matters. The purpose of today's call is to briefly discuss the highlights of the release of NXT's 2022 third quarter financial and operating results. Following our update, we'll open up the line for questions. Please note, all statements made by the company and management during this call are subject to the reader's advisory regarding forward-looking information and non-GAAP measures set forth in our Q3 2022 press release and MD&A issued on November 9th. All dollar amounts discussed in today's conference call are in Canadian dollars unless otherwise stated. The complete financial and operating results and consolidated financial statements for the 2022 third quarter were published on November 9th and are available on NXT's website and CEDAR's website and soon will be available on EDGAR's website. First, I'll start with a review of our financial results. Cash was $0.57 million at September 30th and net working capital was a negative $1.06 million. Accounts receivable payments of approximately $390,000 received in September 2022. Operating activities used approximately $534,000 of cash during the quarter and $2.23 million year-to-date. There was no revenue for the quarter or year-to-date. For the quarter, NXT recorded a net loss of approximately $1.65 million or $0.03 per share. based on 65.4 million weighted average common shares outstanding. This compares to a net loss of $1.43 million in the third quarter of 2021, or 2 cents per share. Year-to-date, NXT recorded net loss of approximately $5.24 million, or 3 cents per share, based on 65.3 million weighted average common shares outstanding. This compares to a net loss of $1.55 million in year-to-date 2021, or 2 cents per share. Total operating expenses for the third quarter were $1.64 million, including SFD-related costs. This includes non-cash expenses of $0.47 million related to the amortization and stock-based compensation. Total operating expenses for year-to-date 2022 were $5.22 million, including SFD-related costs. This included... non-cash expenses of $1.51 million related to amortization and stock-based compensation. G&A expenses increased $198,000 or 26% in Q3-22 compared to Q3-21 for the following reasons. Salaries, benefits and consulting charges increased $98,000 or 31% as Q3-21 costs reduced by the Canada Emergency Wage Subsidy and partially offset by lower vacation expense. Board and professional fees of public company costs increased $38,000 or 22% due to increased professional and insurance fees. Permissive administrative overhead costs increased $58,000 or 39% as the Q3 21 costs were reduced by the Canada Emergency Rent Subsidy. Business development costs for Q3 2022 increased $108,000 from Q3 2021 due to meetings with potential customers during the third quarter. There was no business development travel in the third quarter of 2022 due to the pandemic travel restrictions. And stock-based compensation expenses were lower in Q3 2022 by $103,000 or 82% due to lower stock option expenses and the lower share prices. General administrative expenses increased $574,000 or 24% in year-to-date 2022 compared to 2021 for the following reasons. Salaries, benefits and consulting charges increased $219,000 or 20% as year-to-date 2021 costs were reduced by the Canada Emergency Wage Subsidy. Board and professional fees and public company costs increased $52,000 or 9% due to increased professional and insurance fees. Premises and administrative overhead costs increased $180,000, or 40%, as year-to-date 2021 costs were reduced by the Canada Emergency Rent Subsidy. Business development costs for 2022 increased $140,000 due to meetings with potential customers during the second and third quarters of this year. There was no business development travel in the prior year due to the pandemic travel restrictions. And stock-based compensation was lower in 2022 by $18,000 due to lower stock option expense and a lower share price. On October 31st, the company launched its rights offering to holders of its common shares of record at the close of business on November 7th. The offering will expire on November 30th. A fully subscribed offering will raise gross proceeds of approximately $4 million. Shareholders of record have received one right for each common share held, 2.95 rights entitled the holder to purchase one common share of the company at a price of 18 cents per common share by November 30th. The company will use the proceeds of the offering to commence anticipated SFD surveys and the related working capital needs. The company felt that a rights offering was the appropriate way to raise the required working capital for supporting our anticipated SFD surveys, and it gives our loyal shareholders a chance to acquire additional capital in the company at a favorable price. Shareholders will receive information shortly on how to exercise their rights. To summarize some of the key financial points, we ended the quarter with $0.57 million of cash on hand, a net working capital balance of a negative $1.06 million, Our main focus continues to be on execution of NXT's commercial pipeline and successful execution of the rights offering. I would now like to discuss our business update and forward plans. Despite the tight financial situation just described, we are witnessing an increased level of business development and engagement with our customers. This is directly attributable to a number of factors such as strong commodity prices, and increased exploration activity around the world. The war in Ukraine and economic consequences emerging from the pandemic have caused uncertainty, but has also increased opportunities for our business. We have responded by increasing the scale and frequency of technical and commercial meetings in targeted markets to secure new survey contracts. Operationally, the aircraft stands ready, having completed all of its scheduled maintenance requirements and is fully prepared for up to 300 flight hours. Additionally, logistic planning continues and we are in active discussions to range ground operations in the targeted survey locations. The recently announced rights offering will give the company sufficient working capital to execute on these opportunities. Collectively, these actions give us confidence in our near-term success. SFD is a proven technology that is patented in 46 countries worldwide. It gives our clients higher drill success rates, lower costs, and reduced time to discovery with lower environmental impact. It has an impressive 70% drill success rate, which is significant when compared to the 18% onshore and 7% offshore success rates achieved by traditional 2D and 3D seismic alone. Additionally, NXT has a library of over 133,000 line kilometers Together, this brings significant value to our customers. Progress has accelerated with our African SFD opportunities in the last few weeks. Corporate reorganizations are completed and the new managerial appointments have been made. The new management team is well aware of NXT and have appreciated the value our previous surveys have brought them. We believe we are in the final stages before contract execution. As mentioned last quarter, NXT carried out two consecutive business trips recently to Asia and the Middle East, following up on previously identified leads during the summer. Several additional meetings have now occurred with great success. These meetings include advanced technical discussions with our clients alongside their technical and financial partners in the UK and Canada. These discussions have brought the possibility of extended application of our exclusive technology into the region. In Asia, we have diligently addressed several government approvals of our technology to be adopted on both oil and gas and geothermal applications. All discussions continue with these Middle Eastern and Asian opportunities, and NXT is pleased to report that we are undertaking operational and readiness activities for one of these potential customers. On the Asian front, potential areas for regulatory level SFD surveys have been identified and discussions continue with the exploration departments to put pen to paper in short order. Locally, there is progress being made with geothermal opportunities in Alberta. We'll update you as warranted. We believe that our efforts in pursuing SFD GT survey opportunities will be fruitful both domestically in Canada and abroad in the Asian region. Previously reported, NXT successfully completed phase one of its SFD GT sensor development program and has submitted the phase two submission to the NRC IRAP and we're awaiting their response, which we expect shortly. In summary, despite our current financial situation, we remain confident in our ability to execute on our SFD survey opportunities. On behalf of our board of directors and the entire team at NXT, I want to thank all of our shareholders for their continued support. Now, I will ask our operator, Michael, to open the lines for us to take a few of your questions.
spk03: Certainly, sir. Ladies and gentlemen, we will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before dialing your selection. If you have a question, you can register by dialing star 1 on your device keypad, and you can cancel the question if you wish by dialing star 2. Participants are asked to restrict themselves to one question and one follow-up question. After this, they may re-register to ask another question. Please dial star 1 at this time if you have a question, and there will be a brief delay while participants register. Once again, please press star 1 at this time if you have a question. And the first question is from Rob McWhorter at Collective Asset Management. Please go ahead. Your line is now open.
spk06: Can you talk about the cash sequence? If you end up getting a new contract, do you receive 25% cash on signing? And talk about the rest of how long you typically end up waiting for the cash to arrive.
spk04: OK. Let's assume a contract is signed tomorrow. I apologize for that. If a contract is signed tomorrow, we would expect within the week, if not on signing, our MOB, DMOB costs, and then upon arrival in the location, we typically expect 10 to 20 to 25 percent of the fees on landing there, which effectively covers a good portion of our cost to operate. And then once we have completed the survey and before we submit the initial results after interpretation and integration, we expect another probably up to 20 or up to 80% of the total payment. So basically what I'm effectively saying is we control before we start the survey and before we release results, we expect significant milestone payments.
spk06: And you talked about phase two with an NRC IRAP. I would describe it as a funding submission. Can you provide a bit more color on that as far as dollar amount? And if you do get the funds, how long would it take to basically work on the new technology?
spk04: Our current application is well into the low six figures and the approval process for that amount of money will probably take at least a month. We've got actually a meeting set for Monday to get some initial feedback on this, on the proposal. But we would, once we get the approval, which conservatively, let's say it's two months from now, we could start claiming the funding for the work being done as soon as it's approved. So the last time we were approved in late June and we started getting money, or earning, incurring the expenses in July and were paid by the end of August for that first batch.
spk03: Thank you. Merci. Once again, ladies and gentlemen, please press star 1 at this time if you have a question. Thank you. The next question is from Rob McWhorter at Collective Asset Management.
spk06: The money that you received for the previous batch from IRAP, you talked about some money for June and July. Can you talk about the dollar amounts related to that and the total dollar amounts?
spk04: If I understand correctly, you're talking about the first phase one. We received the money. The money was received in 2021 between July and November of 2021, so it was a total of $50,000, and we submitted our application for reimbursement at the end of each month and received it within three weeks during the third and fourth quarter of 2021.
spk06: Okay, and then turning to the geothermal opportunity, you suggested there's opportunities in Alberta. Is there a difference in your selling price for a kilometer of survey, if you wish, of geothermal versus generic oil and gas.
spk04: I'll ask Rashid to respond to that.
spk02: For the geothermal, because this is a different kind of acquisition parameter as well for a geothermal, and also you're tapping a different resource potential than the hydrocarbon. So definitely the rate in terms of the turnkey fee, that will be lower than the hydrocarbon because to compete with other existing technology and also the efforts to do a survey. So that's why the cost will be definitely lower than hydrocarbon survey.
spk06: As a ballpark guess, would it be 50% less or any kind of guidance as to how much different geothermal versus ionogas?
spk02: To begin with, because this is our first pilot project, so to begin with, we will go maybe towards 50% of the cost. And then as we have more case studies, as we did with the hydrocarbon, and more proven success, then definitely the pricing can go up. Mobdi Mob is minimum. Yeah, so Mobdi Mob will be minimum because since it's in Alberta, so that's why it's So mob-to-mob is close to nothing. But the initial offer cost will be around 50% to begin with of hydrocarbon. Until we have more success and more project, and then definitely there's a value addition in the entire geothermal exploration and exploitation process, then we can increase over 20 feet.
spk03: Thank you. Once again, ladies and gentlemen, please press star 1 if you have a question at this time. Thank you. The next question is from Rob McWhorter again at Collective Asset Management. Please go ahead. Your line is now open.
spk06: Okay. Related back to oil and gas versus geothermal, is there a difference in the depth that you're going to of one resource versus the other, because in some cases it turns out that in many cases oil and gas is just effectively floating above the big body of water, so I assume that the depth that you're probing to is pretty similar as a gas, but please advise.
spk02: Yeah, as I said, the process for geothermal in Alberta, what the company is looking at, so they are going for existing borehole. So they will have existing borehole data, and they don't have to re-enter. They just simply have to re-enter the hole and tap the reservoir. So they don't have to drill a new well. So it's like they already have an existing borehole which is depleted. There is no hydrocarbon potential, but they have a right subsurface temperature, which can be good for a geothermal system. production in those wells. So, SFD technology will pinpoint the area of interest which has a higher potential in terms of, you know, the water and if they have a temperature gradient in that area. So, within that, they will pick the well which falls within the SFD recommendation and then they go from there. So, that's the value addition for a company instead of going over 300 well, so they can pick easily five or six well and go with the geothermal project.
spk00: The depth of the target will be the same as in oil and gas. The problem here is identify which of the wells, of the many, many wells that we have in Alberta, are the ones that can be used.
spk06: Okay, so since geothermal well diameters are much bigger than conventional oil and gas, which in some cases are four inches, is it one where the hole itself has to be redrilled, or are you just basically saying, okay, we're going to go downhole and then do directional drilling to zip over and find the hot water and then figure it out from there?
spk02: Yeah. So it's like the well, as we are trying to say, could be 300 wells, but you have to find the best candidate out of those 300 wells. So SFDGT will lead them to the best candidate well, and then definitely how to unitize all the five wells or six wells. That's definitely, we'll have some engineering work. We could be the direction drilling to connect to each other or maybe produce a standalone well to the surface, depending on the pressure, pressure differentials and all that.
spk06: Great. And one mechanical, or sorry, financial question. On the expectation of Yippee! 2023 is going to be the year of follow-on contracts in a big way, how much have you gotten in the way of tax loss carry-forwards to be able to shield any future sales-slash-income from the effect of the tax man?
spk04: Over $30 million, Canadian.
spk03: Thank you. Merci. The next question is from Thomas Wood at Woodlet. Please go ahead. Your line is now open.
spk05: Hey, guys. And hey, Eugene. Jim Augusta. George. So correct me on the math, but if the rights offering goes forward, I'm just like rough guess that gives you like a year or two of leeway at the current burn rates. Again, correct me. I'm just wondering if there's like a contingency plan, because I know that you guys are really confident about contracts moving forward. But, you know, it's like a long-time shareholder. We've been pretty confident for a long time. So if those don't move, is there like a date where you're like, uh-oh, you know, we're going to be running out of cash. We need to do something else to try and maximize little shareholder value.
spk04: Yeah. I guess the short answer is, as you said, we're very confident that we're going to execute on our commercial plan. But as always, it is our responsibility to reassess that situation on a monthly basis on whether we would have to do anything else. But I'd reiterate, we're quite confident we're on the plan, but also have to be realistic because we deal in interesting parts of the world and things don't always happen as planned.
spk05: I was on mute because I've got kiddos in the back. Okay. I guess the last question or the follow-up to that would just be it sounds like you are confident enough that at this point there is no worry about a contingency plan. You're just pretty sure these contracts are going to get done. That's the sentiment?
spk04: Yes. Yeah.
spk03: Thank you. The next question is from Rob Critter. at Collective Asset Management. Please go ahead. Your line is now open.
spk06: We're talking about receiving 390 grand in round figures with accounts receivable during the quarter. Can you tell me if there's any further accounts receivable balance that you'd expect to receive in the current quarter?
spk04: Currently, we are fully paid.
spk06: Excellent.
spk04: Just as a follow-up to that, this money was owed to us from our African customer, and it's just evidence that, again, of the power we have on collecting our funds and the value we bring. We can collect the money and we bring the value, so people are happy to pay it.
spk03: Thank you. Once again, ladies and gentlemen, please press star 1 on your device keypad if you have a question at this time. And the next question is from Rob McWhorter at Collective Asset Management. Please go ahead. Your line is now open.
spk06: Turning back to the Phase 2 portion of the NRC, assuming you get the funding, when would you expect the technology to be completed, and will it make as far as either the accuracy or the operating expenses of your kind of surveying technology.
spk04: I'll ask Dr. Shabway to answer that.
spk01: Okay. We will have to go through some tests. We create some plans to change the existing technology to make them more suitable for geothermal exploration. So currently we are waiting for the approval for the, you know, the proposal we submitted. And after that we need to go, you know, hopefully to get some fabrication done. And then we need to do some test flight. So there are a lot of things to do. We feel, you know, based on our previous test result, it shows some promising results. So we will start from there.
spk06: Thank you.
spk03: Thank you. Once again, please press star 1 if you have a question at this time. There are no questions at the moment, Mr. Woshishin.
spk04: Okay, thank you. So I want to thank everybody for attending today's call, and we'll keep you updated as we progress, and we will hopefully talk to you soon. Thank you.
spk03: Thank you. Ladies and gentlemen, your conference has now ended. All callers are asked to hang up their lines at this time, and thank you for joining today's call.
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