INDEPENDENT AUDITOR’S REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of NXT Energy Solutions Inc.
We have audited the accompanying consolidated financial statements of NXT Energy Solutions Inc. (“the Company”), which comprise the consolidated balance sheets as at December 31, 2013 and 2012 and the consolidated statements of income (loss) and comprehensive income (loss), shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2013, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with US generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of NXT Energy Solutions Inc. as at December 31, 2013 and 2012, and its consolidated results of operations and its consolidated cash flows for each of the years in the three-year period ended December 31, 2013 in accordance with US generally accepted accounting principles.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 1 in the consolidated financial statements, which indicates that NXT Energy Solutions Inc. has accumulated losses and has uncertainty about the timing and magnitude of future revenue. These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty that casts substantial doubt about the Company’s ability to continue as a going concern.
/s/ KPMG LLP
Chartered Accountants
April 24, 2014
Calgary, Canada
As at December 31 | ||||||||
2013 | 2012 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 3,319,627 | $ | 5,052,594 | ||||
Short-term investments | 2,449,450 | 55,000 | ||||||
Restricted cash [note 3] | 53,921 | 433,369 | ||||||
Accounts receivable | 295,879 | 472,308 | ||||||
Work-in-progress | 299,842 | 976,463 | ||||||
Prepaid expenses and other | 158,456 | 140,649 | ||||||
6,577,175 | 7,130,383 | |||||||
Long term assets | ||||||||
Property and equipment [note 4] | 262,818 | 327,839 | ||||||
$ | 6,839,993 | $ | 7,458,222 | |||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities [note 5] | $ | 939,355 | $ | 1,623,724 | ||||
Deferred revenue | 2,781,101 | 317,103 | ||||||
Fair value of US$ Warrants [note 12] | 1,238,000 | 241,000 | ||||||
4,958,456 | 2,181,827 | |||||||
Long term liabilities | ||||||||
Asset retirement obligation [note 6] | 64,560 | 61,813 | ||||||
5,023,016 | 2,243,640 | |||||||
Future operations [note 1] | ||||||||
Commitments and contingencies [note 15] | ||||||||
Subsequent events [notes 8, 11 (iii), and 15] | ||||||||
Shareholders' equity | ||||||||
Common shares [note 7]: - authorized unlimited | ||||||||
Issued: 42,418,326 (2012 - 39,554,959) common shares | 61,340,321 | 56,623,686 | ||||||
Preferred shares [note 8]: - authorized unlimited | ||||||||
Issued: 8,000,000 (2012 - 10,000,000) Preferred shares | 232,600 | 3,489,000 | ||||||
Contributed capital | 5,889,914 | 5,406,193 | ||||||
Deficit | (66,356,793 | ) | (61,015,232 | ) | ||||
Accumulated other comprehensive income | 710,935 | 710,935 | ||||||
1,816,977 | 5,214,582 | |||||||
$ | 6,839,993 | $ | 7,458,222 |
Signed "George Liszicasz" | Signed "John Agee" | |
Director | Director |
Year ended December 31 | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Revenue | ||||||||||||
Survey revenue [note 16] | $ | 2,684,095 | $ | 10,937,575 | $ | 144,650 | ||||||
Expense | ||||||||||||
Survey costs | 1,632,159 | 3,633,645 | 46,713 | |||||||||
General and administrative | 4,112,787 | 4,508,506 | 3,218,143 | |||||||||
Stock based compensation expense [note 10] | 492,000 | 265,000 | 344,800 | |||||||||
Amortization of property and equipment | 85,484 | 125,015 | 160,478 | |||||||||
6,322,430 | 8,532,166 | 3,770,134 | ||||||||||
Other expense (income) | ||||||||||||
Interest expense (income), net | (25,455 | ) | 2,744 | (16,353 | ) | |||||||
Foreign exchange loss (gain) | (150,350 | ) | 14,686 | (28,209 | ) | |||||||
Oil and natural gas operations | 14,400 | 15,273 | 3,679 | |||||||||
Other expense | 93,585 | 51,700 | - | |||||||||
Increase (decrease) in fair value of US$ Warrants [note 12] | 1,371,500 | (168,143 | ) | - | ||||||||
1,303,680 | (83,740 | ) | (40,883 | ) | ||||||||
Income (loss) before income taxes | (4,942,015 | ) | 2,489,149 | (3,584,601 | ) | |||||||
Income tax expense [note 13] | 399,546 | 426,421 | - | |||||||||
Income (loss) and comprehensive income (loss) | $ | (5,341,561 | ) | $ | 2,062,728 | $ | (3,584,601 | ) | ||||
Income (loss) per share [note 9] | ||||||||||||
Basic | $ | (0.13 | ) | $ | 0.05 | $ | (0.10 | ) | ||||
Diluted | $ | (0.13 | ) | $ | 0.04 | $ | (0.10 | ) |
Year ended December 31 | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Cash provided by (used in): | ||||||||||||
Operating activities | ||||||||||||
Comprehensive income (loss) for the year | $ | (5,341,561 | ) | $ | 2,062,728 | $ | (3,584,601 | ) | ||||
Items not affecting cash: | ||||||||||||
Stock-based compensation expense | 492,000 | 265,000 | 344,800 | |||||||||
Amortization of property and equipment | 85,484 | 125,015 | 160,478 | |||||||||
Increase (decrease) in fair value of US$ Warrants | 1,371,500 | (168,143 | ) | - | ||||||||
Accretion of asset retirement obligation | 3,960 | 3,860 | 3,509 | |||||||||
Asset retirement obligations paid | (1,213 | ) | - | - | ||||||||
1,951,731 | 225,732 | 508,787 | ||||||||||
(3,389,830 | ) | 2,288,460 | (3,075,814 | ) | ||||||||
Change in non-cash working capital balances [note 14] | 2,614,872 | (1,495,468 | ) | 1,319,299 | ||||||||
Net cash generated by (used in) operating activities | (774,958 | ) | 792,992 | (1,756,515 | ) | |||||||
Financing activities | ||||||||||||
Issue of common shares and warrants, net of issue costs | - | 2,886,024 | 1,487,827 | |||||||||
Proceeds from exercise of warrants | 1,064,222 | 278,760 | 420,000 | |||||||||
Proceeds from exercise of stock options | 13,234 | 47,250 | 18,900 | |||||||||
Repayment of capital lease obligation | - | (8,591 | ) | (10,246 | ) | |||||||
Net cash generated by financing activities | 1,077,456 | 3,203,443 | 1,916,481 | |||||||||
Investing activities | ||||||||||||
Purchase of property and equipment | (20,463 | ) | (48,553 | ) | (38,975 | ) | ||||||
Decrease (increase) in restricted cash | 379,448 | (359,234 | ) | 27,721 | ||||||||
Decrease (increase) in short-term investments | (2,394,450 | ) | (45,000 | ) | 895,651 | |||||||
Net cash generated by (used in) investing activities | (2,035,465 | ) | (452,787 | ) | 884,397 | |||||||
Net cash inflow (outflow) | (1,732,967 | ) | 3,543,648 | 1,044,363 | ||||||||
Cash and cash equivalents, beginning of the year | 5,052,594 | 1,508,946 | 464,583 | |||||||||
Cash and cash equivalents, end of the year | $ | 3,319,627 | $ | 5,052,594 | $ | 1,508,946 | ||||||
Supplemental information | ||||||||||||
Cash interest paid (received), net | (25,455 | ) | 2,744 | (16,353 | ) | |||||||
Cash taxes paid | $ | 399,546 | $ | 426,421 | $ | - |
Year ended December 31 | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Common Shares | ||||||||||||
Balance at beginning of the year | $ | 56,623,686 | $ | 53,756,687 | $ | 52,031,435 | ||||||
Issued on conversion of preferred shares [notes 7 and 8] | 3,256,400 | - | - | |||||||||
Issued upon exercise of warrants [note 11] | 1,064,222 | 278,760 | 420,000 | |||||||||
Issued upon exercise of stock options | 13,234 | 47,250 | 18,900 | |||||||||
Issued through private placement financings, net of issue costs [note 7] | - | 2,886,024 | 1,487,827 | |||||||||
Value attributed to US$ Warrants issued in private placement financings [note 7 and 12] | - | (409,143 | ) | - | ||||||||
Value attributed to warrants issued in private placement financing [note 7] | - | - | (329,386 | ) | ||||||||
Transfer from contributed capital upon exercise of stock options and warrants | 8,279 | 64,108 | 127,911 | |||||||||
Transfer from fair value of US$ Warrants upon exercise of Warrants [note 12] | 374,500 | - | - | |||||||||
Balance at end of the year | 61,340,321 | 56,623,686 | 53,756,687 | |||||||||
Preferred Shares | ||||||||||||
Balance at beginning of the year | 3,489,000 | 3,489,000 | 3,489,000 | |||||||||
Conversion of preferred shares to common shares [notes 7 and 8] | (3,256,400 | ) | - | - | ||||||||
Balance at end of the year | 232,600 | 3,489,000 | 3,489,000 | |||||||||
Contributed Capital | ||||||||||||
Balance at beginning of the year | 5,406,193 | 5,205,301 | 4,659,026 | |||||||||
Recognition of stock based compensation expense | 492,000 | 265,000 | 344,800 | |||||||||
Contributed capital transferred to common shares pursuant to exercise of stock options and warrants | (8,279 | ) | (64,108 | ) | (127,911 | ) | ||||||
Value attributed to warrants issued in private placement financing [note 7] | - | - | 329,386 | |||||||||
Balance at end of the year | 5,889,914 | 5,406,193 | 5,205,301 | |||||||||
Deficit | ||||||||||||
Balance at beginning of the year | (61,015,232 | ) | (63,077,960 | ) | (59,493,359 | ) | ||||||
Net income (loss) and comprehensive income (loss) for the year | (5,341,561 | ) | 2,062,728 | (3,584,601 | ) | |||||||
Balance at end of the year | (66,356,793 | ) | (61,015,232 | ) | (63,077,960 | ) | ||||||
Accumulated Other Comprehensive Income | ||||||||||||
Balance at beginning and end of the year | 710,935 | 710,935 | 710,935 | |||||||||
Total Shareholders' Equity at end of the period | $ | 1,816,977 | $ | 5,214,582 | $ | 83,963 |
Notes to the Consolidated Financial Statements | Page 1 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
Notes to the Consolidated Financial Statements | Page 2 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
Notes to the Consolidated Financial Statements | Page 3 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
Computer hardware (including survey equipment) | 30% declining balance |
Computer software | 100% declining balance |
Furniture and other equipment | 20% declining balance |
Leasehold improvements | over the remaining term of the lease |
Notes to the Consolidated Financial Statements | Page 4 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
Notes to the Consolidated Financial Statements | Page 5 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
2013 | 2012 | |||||||
Survey equipment | $ | 626,286 | $ | 623,081 | ||||
Furniture and other equipment | 528,420 | 528,420 | ||||||
Computers and software | 1,097,560 | 1,080,302 | ||||||
Leasehold improvements | 382,157 | 382,157 | ||||||
2,634,423 | 2,613,960 | |||||||
Accumulated amortization and impairment | (2,371,605 | ) | (2,286,121 | ) | ||||
262,818 | 327,839 |
2013 | 2012 | |||||||
Accrued liabilities related to: | ||||||||
Consultants and professional fees | $ | 105,000 | $ | 114,640 | ||||
Survey expenses | - | 29,686 | ||||||
Board of Directors' fees | - | 60,000 | ||||||
Wages and bonuses payable | 9,331 | 351,780 | ||||||
Vacation pay | 106,500 | 51,078 | ||||||
220,831 | 607,184 | |||||||
Trade payables, payroll withholdings and other | 718,524 | 1,016,540 | ||||||
939,355 | 1,623,724 |
2013 | 2012 | 2011 | ||||||||||
Asset retirement obligation, beginning of the year | $ | 61,813 | $ | 57,953 | $ | 54,444 | ||||||
Accretion expense | 3,960 | 3,860 | 3,509 | |||||||||
Costs incurred | (1,213 | ) | - | - | ||||||||
Asset retirement obligation, end of the year | 64,560 | 61,813 | 57,953 |
Notes to the Consolidated Financial Statements | Page 6 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
# of shares | $ value | |||||||
As at December 31, 2010 | 30,826,796 | $ | 52,031,435 | |||||
Transactions during the year ended December 31, 2011: | ||||||||
Issued through private placement | ||||||||
financing, net of issue costs (ii) | 3,200,600 | 1,487,827 | ||||||
Value attributed to warrants issued in | ||||||||
the private placement financing (ii) | - | (329,386 | ) | |||||
Issued on exercise of stock options | 30,000 | 18,900 | ||||||
Issued on exercise of warrants | 700,000 | 420,000 | ||||||
Transfer from contributed surplus upon | ||||||||
exercise of stock options and warrants | - | 127,911 | ||||||
As at December 31, 2011 | 34,757,396 | 53,756,687 | ||||||
Transactions during the year ended December 31, 2012: | ||||||||
Issued through private placement | ||||||||
financings, net of issue costs (iii) | 4,258,005 | 2,886,024 | ||||||
Value attributed to Warrants issued in | ||||||||
private placement financings (iii) | - | (409,143 | ) | |||||
Issued on exercise of stock options | 75,000 | 47,250 | ||||||
Issued on exercise of warrants | 464,558 | 278,760 | ||||||
Transfer from contributed surplus upon exercise of: | ||||||||
Stock options | - | 18,375 | ||||||
Warrants | 45,733 | |||||||
As at December 31, 2012 | 39,554,959 | 56,623,686 | ||||||
Transactions during the year ended December 31, 2013: | ||||||||
Conversion of preferred shares (i) | 2,000,000 | 3,256,400 | ||||||
Issued on exercise of stock options | 16,667 | 13,234 | ||||||
Issued on exercise of Warrants | 846,700 | 1,064,222 | ||||||
Transfer from contributed surplus upon | ||||||||
exercise of stock options | - | 8,279 | ||||||
Transfer from fair value of derivative financial instruments | ||||||||
upon exercise of Warrants (note 12) | - | 374,500 | ||||||
As at December 31, 2013 | 42,418,326 | 61,340,321 | ||||||
Issued to date in 2014 pursuant to exercise of: | ||||||||
Warrants (note 11 (iii)) | 2,090,385 | 2,734,931 | ||||||
Stock options | 257,665 | 145,115 | ||||||
As at April 24, 2014 | 44,766,376 | 64,220,367 |
(i) | NXT also has outstanding a total of 8,000,000 preferred shares (see note 8) which are convertible on a 1 for 1 basis into an additional maximum of 8,000,000 common shares by December 31, 2015. An initial total of 2,000,000 of these preferred shares were converted into 2,000,000 common shares of the Company effective May 22, 2013. |
(ii) | In February, 2011 NXT closed a non-brokered private placement (the "2011 Placement") for aggregate proceeds of $1,600,300 ($1,487,827 net of costs incurred of $112,473) including $40,000 subscribed for by two Officers of the Company. NXT issued a total of 3,200,600 units at a price of $0.50 per unit, with each unit consisting of one NXT common share and one warrant, with each warrant entitling the holder to acquire an additional common share at a price of $0.60 per share on or before the expiry date of February 16, 2012 (see also note 11). |
Notes to the Consolidated Financial Statements | Page 7 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
In connection with closing of the 2011 Placement, NXT paid finder's fees which included $72,600 cash and 145,320 warrants, which had the same terms as the other warrants that were issued. |
The common shares issued were recorded at a value equal to the net proceeds received of $1,488,267 and reduced by $329,386 which was the estimated fair value attributed to the 3,345,920 warrants that were issued in the 2011 Placement. |
(iii) | In March and May 2012, NXT conducted private placement financings (the "2012 Financings") which consisted of units issued at a price of US $0.75 (the "Units"). Each Unit consisted of one NXT common share and one warrant (the "Warrants") to purchase an additional NXT common share at a price of US $1.20 for a term of two years from the date of issue. The expiry of the Warrants can be accelerated at the option of NXT (the “Acceleration”) in the event that it issues a press release advising that its common shares have traded on the US OTCBB Exchange at a price exceeding US $1.50 for 20 consecutive trading days. Any Warrants subject to such Acceleration shall expire 30 days after such notice. The Acceleration provision will not be invoked by NXT before expiry of the Warrants in 2014 (see also note 12(iii)). |
March,A 2012 | May 4, 2012 | 2012 total | ||||||||||
Proceeds (in US dollars) | 2,216,005 | 977,500 | 3,193,505 | |||||||||
Proceeds (in Cdn $) | 2,210,690 | 972,442 | 3,183,132 | |||||||||
Less share issue costs incurred | (187,844 | ) | (109,264 | ) | (297,108 | ) | ||||||
Proceeds, net of issue costs | 2,022,846 | 863,178 | 2,886,024 | |||||||||
Number of common shares issued | 2,954,672 | 1,303,333 | 4,258,005 | |||||||||
Number of Warrants issued | 2,954,672 | 1,303,333 | 4,258,005 | |||||||||
Number of finder’s warrants issued | 162,416 | 82,400 | 244,816 | |||||||||
3,117,088 | 1,385,733 | 4,502,821 | ||||||||||
Fair value attributed to Warrants issued | 249,143 | 160,000 | 409,143 |
Notes to the Consolidated Financial Statements | Page 8 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
· | 2,000,000 of the Preferred Shares became convertible into common shares upon issue. In April 2013, the holder gave notice to NXT to formally convert these 2,000,000 Preferred Shares into 2,000,000 common shares, which occurred effective May 22, 2013 (see note 7(i)). |
· | the remaining 8,000,000 Preferred Shares are subject to conditions related to potential future conversion. They may become convertible into common shares in four separate increments of 2,000,000 Preferred Shares each, should NXT achieve specified cumulative revenue thresholds of US $50 million, US $100 million, US $250 million and US $500 million prior to December 31, 2015 (the “Maturity Date”). |
· | an additional bonus of 1,000,000 common shares are issuable in the event that cumulative revenues exceed US $500 million. |
· | cumulative revenue is defined as the sum of total revenue earned plus proceeds from the sale of assets accumulated since January 1, 2007, all denominated in US dollars, and calculated in accordance with generally accepted accounting principles. |
· | in the event that the final cumulative revenue threshold of US $500 million is not achieved by the December 31, 2015 Maturity Date, NXT has the option to either redeem any remaining unconverted Preferred Shares for a price of $0.001 per share and forfeit its rights to the SFD® technology, or elect to retain the ownership of the SFD® technology by converting all of the remaining Preferred Shares into common shares. |
· | In the event of a change of control or other transaction involving a re-arrangement of the business of NXT prior to the Maturity Date, the number of outstanding Preferred Shares which can be converted will be dependent on the transaction value payable (“TVP”) per outstanding NXT common share as follows: |
# of Preferred Shares | $ value | |||||||
convertible upon issue effective December 31, 2005 | 2,000,000 | $ | 3,256,400 | |||||
conditionally convertible on or before December 31, 2015 | 8,000,000 | 232,600 | ||||||
10,000,000 | 3,489,000 |
Notes to the Consolidated Financial Statements | Page 9 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
# of shares | $ value | |||||||
As at December 31, 2010, 2011 and 2012 | 10,000,000 | $ | 3,489,000 | |||||
Conversion of preferred shares in 2013 (i) | (2,000,000 | ) | (3,256,400 | ) | ||||
As at December 31, 2013 | 8,000,000 | 232,600 |
2013 | 2012 | 2011 | ||||||||||
Net income (loss) for the year | $ | (5,341,561 | ) | $ | 2,062,728 | $ | (3,584,601 | ) | ||||
Weighted average number of shares outstanding: | ||||||||||||
Common shares issued | 40,882,108 | 38,453,392 | 33,696,620 | |||||||||
Convertible preferred shares (i) | 778,082 | 2,000,000 | 2,000,000 | |||||||||
Basic | 41,660,190 | 40,453,392 | 35,696,620 | |||||||||
Additional shares related to assumed exercise | ||||||||||||
of stock options and warrants under the | ||||||||||||
treasury stock method (ii) | - | 337,070 | - | |||||||||
Contingently issuable preferred shares (ii) | - | 8,000,000 | - | |||||||||
Diluted | 41,660,190 | 48,790,462 | 35,696,620 | |||||||||
Income (loss) per share – Basic | (0.13 | ) | 0.05 | (0.10 | ) | |||||||
Income (loss) per share – Diluted | (0.13 | ) | 0.04 | (0.10 | ) |
(i) | A total of 2,000,000 of the Preferred Shares (see note 8) are included in the above noted basic income (loss) per share calculations, as the criteria for them to convert to common shares had been met for each period in 2011 and 2012, and up to their formal conversion in 2013. The remaining 8,000,000 Preferred Shares are contingently issuable, and are included in the diluted number of shares outstanding if applicable. |
(ii) | In periods in which a loss results, all outstanding stock options, common share purchase Warrants and the 8,000,000 contingently issuable Preferred Shares are excluded from the diluted loss per share calculations as their effect is anti-dilutive. |
Notes to the Consolidated Financial Statements | Page 10 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
average remaining | ||||||||||||||
Exercise price | # of options | # of options | contractual | |||||||||||
per share | outstanding | exercisable | life (in years) | |||||||||||
$ | 0.45 | 105,600 | 105,600 | 1.7 | ||||||||||
$ | 0.53 | 150,000 | 150,000 | 0.2 | ||||||||||
$ | 0.63 | 395,000 | 395,000 | 0.8 | ||||||||||
$ | 0.75 | 375,000 | 124,999 | 3.5 | ||||||||||
$ | 0.76 | 320,000 | 30,000 | 4.1 | ||||||||||
$ | 0.86 | 707,500 | 218,331 | 3.6 | ||||||||||
$ | 1.16 | 435,000 | 345,000 | 2.6 | ||||||||||
$ | 1.20 | 300,000 | 300,000 | 3.6 | ||||||||||
$ | 1.30 | 20,000 | - | 4.6 | ||||||||||
$ | 1.58 | 15,000 | - | 4.9 | ||||||||||
$ | 1.83 | 65,000 | 65,000 | 5.0 | ||||||||||
$ | 0.88 | 2,888,100 | 1,733,930 | 2.9 |
2013 | 2012 | |||||||||||||||
weighted | weighted | |||||||||||||||
average | average | |||||||||||||||
# of stock options | exercise price | # of stock options | exercise price | |||||||||||||
Options outstanding, beginning of the year | 2,890,600 | $ | 0.86 | 2,473,100 | $ | 1.02 | ||||||||||
Granted | 542,500 | $ | 0.91 | 1,900,000 | $ | 0.89 | ||||||||||
Forfeited | (423,333 | ) | $ | 0.79 | (390,268 | ) | $ | 1.72 | ||||||||
Expired | (105,000 | ) | $ | 0.75 | (877,232 | ) | $ | 1.05 | ||||||||
Cancelled | - | - | (140,000 | ) | $ | 0.63 | ||||||||||
Exercised | (16,667 | ) | $ | 0.79 | (75,000 | ) | $ | 0.63 | ||||||||
Options outstanding, end of the year | 2,888,100 | $ | 0.88 | 2,890,600 | $ | 0.86 | ||||||||||
Options exercisable, end of the year | 1,733,930 | $ | 0.90 | 970,600 | $ | 0.78 |
· | a total of 65,000 stock options were granted in December 2013 to Directors of NXT, with an exercise price of $1.83, expiring December 2018, and with immediate vesting upon granting. |
· | a total of 300,000 stock options were granted in August, 2012 to an advisor to NXT, with an exercise price of $1.20, expiring August 2017, and with 20% of the options vesting after each 3 month period. |
Notes to the Consolidated Financial Statements | Page 11 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
· | in July 2012 a total of 830,000 stock options with an exercise price of $0.86 were granted to Directors and Officers of NXT. In addition, two Directors of NXT surrendered for cancellation a total of 140,000 vested stock options, which had an exercise price of $0.63 per share, and an expiry date of December 12, 2012. |
· | a total of 400,000 stock options were granted in December, 2011 to an advisor to NXT, at an average exercise price of $2.50, expiring June 1, 2013, and with 25% of the options vesting after each 3 month period. In 2012, a total of 200,000 of these options were forfeited and the remaining 200,000 expired. |
· | a total of 214,800 of the 504,800 stock options which were granted in July, 2011 to Directors, Officers and others at an exercise price of $1.16 per share had immediate vesting. |
· | in 2011 an Officer of the Company was granted 150,000 stock options at an exercise price of $0.53 per share, and with one third of the options vesting at the date of grant and one-third vesting at the end of each of the following two years. These options expired in February, 2014, three years after granted. |
2013 | 2012 | 2011 | ||||||||||
Stock based compensation expense for the period | $ | 492,000 | $ | 265,000 | $ | 344,800 | ||||||
Expected dividends paid per common share | Nil | Nil | Nil | |||||||||
Expected life in years | 5.0 | 4.0 | 2.8 | |||||||||
Expected volatility in the price of common shares | 74 | % | 79 | % | 111 | % | ||||||
Risk free interest rate | 1.00 | % | 1.00 | % | 1.50 | % | ||||||
Weighted average fair market value per share at grant date | $ | 0.55 | $ | 0.52 | $ | 0.57 | ||||||
Intrinsic (or "in-the-money") value per share of options exercised | $ | 0.76 | $ | 0.13 | $ | 0.22 |
Notes to the Consolidated Financial Statements | Page 12 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
exercise | ||||||||||||
exercise | # of | proceeds | ||||||||||
price | warrants | received | ||||||||||
Outstanding as at January 1, 2011 | - | - | $ | - | ||||||||
Issued on February 2011 private placement (see (i)) | $ | 0.60 | 3,345,920 | - | ||||||||
Exercised in 2011 | $ | 0.60 | (700,000 | ) | 420,000 | |||||||
Outstanding as at December 31, 2011 | $ | 0.60 | 2,645,920 | 420,000 | ||||||||
Exercised in 2012 | $ | 0.60 | (464,558 | ) | 278,760 | |||||||
Expired on February 16, 2012 | $ | 0.60 | (2,181,362 | ) | - | |||||||
- | 698,760 | |||||||||||
Issued in 2012 private placement financings (see (ii)) | $ | US 1.20 | 4,502,821 | - | ||||||||
Outstanding as at December 31, 2012 | $ | US 1.20 | 4,502,821 | - | ||||||||
Exercised in 2013 | (846,700 | ) | 1,064,222 | |||||||||
Outstanding as at December 31, 2013 (see (iii)) | $ | US 1.20 | 3,656,121 | 1,064,222 |
(i) | In February, 2011 NXT closed a private placement financing of Units which included a total of 3,345,920 warrants which had an exercise price of $0.60 and an expiry date of February 16, 2012. |
(ii) | The estimated fair value attributed to the 4,502,821 total US$ Warrants that were issued in the 2012 Financings (see note 7(iii)) was $409,143, determined using the weighted average assumptions listed in note 12(2). |
(iii) | Subsequent to December 31, 2013, an additional 2,090,385 of the US $1.20 Warrants have been exercised in 2014, resulting in exercise proceeds of US $2,508,462. The outstanding Warrants have expiry dates in 2014 as follows: |
# as at | # as at | |||||||||||||||||||||||
issued | exercised | December 31 | exercised | expired | April 23, | |||||||||||||||||||
Expiry date | in 2012 | in 2013 | 2013 | in 2014 | in 2014 | 2014 | ||||||||||||||||||
7-Mar-2014 | 2,096,175 | (809,367 | ) | 1,286,808 | (1,240,872 | ) | (45,936 | ) | - | |||||||||||||||
19-Mar-2014 | 412,333 | (4,000 | ) | 408,333 | (405,533 | ) | (2,800 | ) | - | |||||||||||||||
30-Mar-2014 | 608,580 | - | 608,580 | (401,580 | ) | (207,000 | ) | - | ||||||||||||||||
4-May-2014 | 1,385,733 | (33,333 | ) | 1,352,400 | (42,400 | ) | - | 1,310,000 | ||||||||||||||||
4,502,821 | (846,700 | ) | 3,656,121 | (2,090,385 | ) | (255,736 | ) | 1,310,000 |
Notes to the Consolidated Financial Statements | Page 13 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
2013 | 2012 | |||||||
US$ asset (liability) balances included in: | (in US$ | ) | (in US$ | ) | ||||
Cash and cash equivalents | $ | 3,037,758 | $ | 4,830,338 | ||||
Short-term investments | 10,712 | 10,690 | ||||||
Restricted cash | 50,697 | 435,591 | ||||||
Accounts receivable | 45,000 | 293,260 | ||||||
Accounts payable and accrued liabilities | (87,974 | ) | (378,591 | ) | ||||
Net US$ non-derivative financial instruments | 3,056,193 | 5,191,288 |
2013 | 2012 | |||||||
Fair value of US$ Warrants, beginning of the year | $ | 241,000 | $ | - | ||||
Value attributed to US$ common share purchase Warrants | ||||||||
issued in the 2012 Financings (see note 7(iii)) | - | 409,143 | ||||||
Transfer to common shares upon exercise of US$ Warrants in the year | (374,500 | ) | - | |||||
Increase (decrease) in fair value during the year | 1,371,500 | (168,143 | ) | |||||
Fair value of US$ Warrants, end of the year | 1,238,000 | 241,000 |
2013 | 2012 | |||||||
Expected dividends paid per common share | Nil | Nil | ||||||
Expected life in years | 0.3 | 1.0 | ||||||
Expected volatility in the price of common shares | 65 | % | 80 | % | ||||
Risk free interest rate | 1.00 | % | 1.20 | % | ||||
Weighted average fair market value per Warrant issued in the period | n/a | $ | US 0.08 |
Notes to the Consolidated Financial Statements | Page 14 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
2013 | 2012 | 2011 | ||||||||||
Net income (loss) before income taxes | $ | (4,942,015 | ) | $ | 2,489,149 | $ | (3,584,601 | ) | ||||
Canadian statutory income tax rate | 25.00 | % | 25.00 | % | 26.50 | % | ||||||
Income tax (recovery) at statutory income tax rate | (1,235,504 | ) | 622,287 | (949,919 | ) | |||||||
Effect of non- deductible expenses and other items: | ||||||||||||
Stock-based compensation and other expenses | 157,993 | 12,149 | 100,736 | |||||||||
Revaluation of US$ Warrants | 342,875 | - | - | |||||||||
Non-capital losses expiring in the year | - | - | 373,240 | |||||||||
Foreign exchange adjustment on USA losses | (131,771 | ) | 42,389 | (42,965 | ) | |||||||
Tax rate reduction | - | - | 48,066 | |||||||||
Other | (4,428 | ) | (2,148 | ) | (2,715 | ) | ||||||
(870,835 | ) | 674,677 | (473,557 | ) | ||||||||
Change in valuation allowance | 870,835 | (674,677 | ) | 473,557 | ||||||||
Income taxes paid in foreign jurisdictions | 399,546 | 426,421 | - | |||||||||
Current income tax expense | 399,546 | 426,421 | - |
The Company has significant unrecorded deferred income tax assets for which a full valuation allowance has been provided due to uncertainty regarding their potential future utilization, as follows:
2013 | 2012 | 2011 | ||||||||||
Net operating losses carried forward: | ||||||||||||
Canada (expiration dates 2014 to 2031) | $ | 4,005,683 | $ | 1,908,285 | $ | 2,014,577 | ||||||
USA (expiration dates 2020 to 2026) | 2,040,056 | 3,269,542 | 3,805,274 | |||||||||
Timing differences on property & equipment | ||||||||||||
and financing costs | 2,135,468 | 2,132,545 | 2,177,153 | |||||||||
8,181,207 | 7,310,372 | 7,997,004 | ||||||||||
(8,181,207 | ) | (7,310,372 | ) | (7,997,004 | ) | |||||||
- | - | - |
Notes to the Consolidated Financial Statements | Page 15 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
2013 | 2012 | 2011 | ||||||||||
Accounts receivable | $ | 176,429 | $ | (350,077 | ) | $ | (119,160 | ) | ||||
Work-in-progress | 676,621 | 135,747 | (1,112,210 | ) | ||||||||
Prepaid expenses | (17,807 | ) | (97,544 | ) | 2,836 | |||||||
Accounts payable and accrued liabilities | (684,369 | ) | 275,799 | 771,337 | ||||||||
Deferred revenue | 2,463,998 | (1,459,393 | ) | 1,776,496 | ||||||||
2,614,872 | (1,495,468 | ) | 1,319,299 | |||||||||
Portion attributable to: | ||||||||||||
Operating activities | 2,614,872 | (1,495,468 | ) | 1,319,299 | ||||||||
Financing activities | - | - | - | |||||||||
Investing activities | - | - | - | |||||||||
2,614,872 | (1,495,468 | ) | 1,319,299 |
Total minimum | ||||
For the year ending December 31 | lease payments | |||
2014 | $ | 342,850 | ||
2015 | 114,283 | |||
457,133 |
Notes to the Consolidated Financial Statements | Page 16 |
As at and for the year ended December 31, 2013 | |
(Expressed in Canadian dollars unless otherwise stated) |
2013 | 2012 | 2011 | ||||||||||
Asia (Pakistan) | $ | 2,659,292 | $ | - | $ | - | ||||||
Central America (Mexico, Belize, Guatemala) | 24,803 | 6,403,534 | - | |||||||||
South America (Colombia, Argentina) | - | 4,534,041 | - | |||||||||
North America (United States) | - | - | 144,650 | |||||||||
2,684,095 | 10,937,575 | 144,650 |