NXT Energy Solutions Inc.

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.

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.

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.