We have prepared these consolidated financial statements for our three-month and six-month interim periods as at and ended June 30, 2003 and 2002 in accordance with accounting principles generally accepted in the United States for interim financial reporting. While these financial statements for these interim periods reflect all normal recurring adjustments which, in the opinion of our management, are necessary for fair presentation of the results of the interim period, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. Refer to our consolidated financial statements included in our annual report on Form 10-K for our fiscal year ended December 31, 2002.

We have consolidated the accounts of our wholly-owned subsidiaries with those of NXT in the course of preparing these consolidated financial statements. All significant inter-company balances and transactions amongst NXT and its subsidiaries have been eliminated as a consequence of the consolidation process, and are therefore not reflected in these consolidated financial statements.

The preparation of these consolidated financial statements in accordance with generally accepted accounting principles in the United States requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results may differ from those estimates.

For purposes of preparing the consolidated balance sheets and statements of cash flows contained in these consolidated financial statements, we consider all investments with original maturities of ninety days or less to constitute "cash and cash equivalents".

We amortize debt issuance costs on a straight-line basis over the life of the related debt.

Our financial instruments consist of cash and cash equivalents, accounts receivable, note receivable, trade payables, wages and employee benefits payable, and accrued liabilities. The book values of these financial instruments approximates their fair values due to their short-term to maturity and similarity to current market rates. It is the opinion of our management that we are not exposed to significant interest, currency or credit risks arising from these financial instruments.

Both aircraft were sold in 2002. We carry our flight equipment held for sale at the lower of the carrying amount or the fair value less cost to sell. These assets are not depreciated as long as they are held for sale.

We follow the full cost method of accounting for oil and natural gas properties and equipment whereby we capitalize all costs relating to our acquisition of, exploration for and development of oil and natural gas reserves. These capitalized costs include:

In January 2003, we adopted a formal plan to divest our U.S. oil and gas properties. On May 9, 2003 we closed a sale transaction with our U.S. joint venture partner to sell the properties for total consideration of $1,450,000 with proceeds of $720,000 in cash and the redemption of all the outstanding preferred shares. The effective date of the transaction was March 1, 2003. For reporting purposes, the results of operations and the financial position of the properties have been presented as discontinued operations. Accordingly, prior period financial statements have been reclassified to reflect this change.

Income (loss) on discontinued operations includes a gain on sale of the properties of $175,685 and net income from the properties for the two month period up to the effective date of March 1, 2003 of $22,915.

In September 1998, we loaned the sum of CDN $54,756 (US $35,760 as of that date) to one of our officers in connection with his relocation to Calgary, Alberta. Pursuant to the terms of an underlying promissory note, the officer was required to repay the loan on a monthly basis, with a balloon payment due on October 3, 2003. The officer left our company in 2002 and will repay the outstanding balance, plus accrued interest at 5.5% compounded semi-annually, on October 3, 2003.
 

In December 2001, management decided to place on the market our two aircraft and related flight equipment in order to decrease our operating costs. The Piaggio Avanti P180 aircraft was sold in the second quarter of 2002 and the remaining aircraft was sold in the fourth quarter of 2002.

Summarized below are our capitalized costs for the aircraft and flight equipment held for sale:

Summarized below are the oil and natural gas property costs we capitalized for the six months ended June 30, 2003 and 2002 and as of June 30, 2003 and December 31, 2002:

The impairment of oil and natural gas properties also includes the write-down of the cost of drilling and completing wells which are either non-commercial or which we are unable to complete for technical reasons. While, as noted below, our management believes in the prospective commercial viability and non-impairment of the overall prospects of which each of these wells are a part and is continuing active exploration and development activities with respect to each of these prospects, we have nevertheless written-off these individual well costs as an impairment cost since this determination was made prior to the establishment of proved reserves. At June 30, 2003 there were no indications of impairment of our Canadian full cost center.

At the end of each quarter, our management performs an overall assessment of each of our unproved oil and natural gas properties to determine if any of these properties has been subject to any impairment in value (see note 2). Based upon these evaluations, our management has determined that each of our oil and natural gas properties continued to have prospective commercial viability as of these dates. While we are currently conducting exploration and development programs with respect to each of these unproved oil and natural gas properties, we anticipate that all of these properties will be evaluated and the associated costs transferred into the amortization base or be impaired over the next five years.
 

Summarized below are our capitalized costs for other property and equipment as of June 30, 2003 and December 31, 2002:

On May 1, 2002, we completed the sale of our Piaggio Avanti P180 aircraft to a third party and used the proceeds to settle the principal and interest due on this loan in full. See note 5. We also expensed the remaining unamortized debt issuance costs of $22,805 during 2002.
 

The series 'A' preferred shares are not entitled to payment of any dividends, although they are entitled under certain circumstances to participate in dividends on the same basis as if converted into common shares. Each series 'A' preferred share carries a $7.50 liquidation preference should our company wind-up and dissolve. Each series 'A' preferred share is convertible by the holder into common shares based upon a $7.50 per share conversion price, subject to adjustment should NXT sell common shares or common share purchase options or warrants at prices less than $7.50 per share in specified circumstances.

All of the outstanding preferred shares were redeemed effective May 9, 2003 as part of the consideration received for the sale of the U.S. properties.

On August 1, 1996, we granted a performance-based contractual right to acquire NXT warrants to the licensor of our SFD technology, Momentum Resources Corporation ("Momentum Resources"), in connection with the amendment of our exclusive SFD technology license with Momentum Resources to use the SFD technology for hydrocarbon exploration. The primary purpose of the amendment was to indefinitely extend the termination date of the license. Pursuant to this contractual right, Momentum Resources is entitled to a separate grant of warrants entitling it to purchase 16,000 common shares at the then current trading price for each month after December 31, 2000 in which production from SFD-identified prospects during that month exceeds 20,000 barrels of hydrocarbons. Momentum Resources has not earned any warrants under the SFD technology license as of June 30, 2003.
 

We have summarized below all outstanding options under our various stock option plans and arrangements as of June 30, 2003:

The employee options outstanding as of June 30, 2003 vest over three to five years from the grant date, depending upon the recipient, based upon the continued provision of services as an employee. The director options vest one-third each on the first through third anniversaries of the grant date, respectively, based upon the continued provision of services as a director. Both the employee and director options generally lapse, if unexercised, five years from the date of vesting. The independent grant of 300,000 options in June, 2003 to a consultant vested upon grant. 

The lease for the principal offices expired on January 31, 2003. A new sub-lease from another tenant has been negotiated with a term of eighteen months ending July 31, 2004. The space is approximately 6,600 square feet and the monthly cost is about $11,600 CDN.

On May 15, 2001, as additional compensation to our investor relations consultant pursuant to an investor and public relations services agreement, we granted that consultant options to purchase 155,000 common shares at $2.50 per share. The underlying agreement provided that 50,000 options would vest immediately, and an additional 35,000 options would vest upon each of the first, second and third anniversary dates of the agreement, respectively. These options lapse, to the extent vested and unexercised, five years after the date of vesting. Pursuant to SFAS No. 123, for our six month period ended June 30, 2003, we recorded compensation expense, as part of administrative expenses, determined in accordance with the Black-Scholes option pricing model in the amount of $17,048 ($17,160 for our six month period ended June 30, 2002) in connection with the grant and vesting of these options. The agreement was terminated on May 15, 2003. 

We currently operate in only one business segment, oil and natural gas exploration. We intend to develop oil and natural gas exploration prospects identified using our proprietary SFD airborne survey technology either directly or with joint venture partners. We do not currently sell or market our SFD data as a separate product to third parties.

Prior to the first quarter of 2002, the majority of our revenues were derived from interest earned on cash and cash equivalents.

Summarized below with respect to our three-month and six-month periods ended June 30, 2003 and 2002 is geographic information relating to: