DXI Capital (DXIEF) 6-K Current report (foreign)

CONSOLIDATED FINANCIAL STATEMENTS (AUDITED)

December 31, 2018 and 2017

 

 

 

DXI ENERGY INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in Canadian Dollars)

		December 31,		December 31,
(thousands of Canadian dollars)	Notes	2018		2017
		$		$
ASSETS
Current
Cash and cash equivalents		26		1,010
Accounts receivable		185		388
Prepaids and deposits		58		29
Current Assets		269		1,427
Non-current
Deposits		215		212
Exploration and evaluation assets		-		8
Property and equipment	5	2,681		17,162
Total Assets		3,165		18,809
LIABILITIES
Current
Accounts payable and accrued liabilities		2,057		1,291
Loans from related parties	7	1,542		1,458
Convertible debt	8	32		-
Flow-through shares liability	9	-		93
Financial contract liability	11	-		6,752
Current Liabilities		3,631		9,594
Non-current
Loans from related parties	7	3,553		3,150
Convertible debt	8	356		-
Decommissioning liability	10	3,808		3,971
Total Liabilities		11,348		16,715
SHAREHOLDERS' EQUITY (DEFICIT)
Share capital	12	101,715		101,715
Contributed surplus		13,934		13,752
Deficit		(127,477	)	(115,845	)
Accumulated other comprehensive income		3,645		2,472
Total Shareholders' Equity (Deficit)		(8,183	)	2,094
Total Liabilities and Shareholders' Equity (Deficit)		3,165		18,809
Going concern - Note 2(b)
Subsequent events - Note 21

Approved on behalf of the Board:

"signed"	"signed"
Sean Sullivan - Director	Robert Hodgkinson - Director

The accompanying notes are an integral part of these consolidated financial statements. 1

DXI ENERGY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Expressed in Canadian Dollars)

		Year ended December 31
(thousands of Canadian dollars, except per share amounts)	Notes	2018		2017
		$		$
REVENUES
Gross revenues		1,951		2,816
Royalties		(207	)	(336	)
Total Revenues, net of royalties	18	1,744		2,480
EXPENSES
Operating and transportation		1,811		2,085
Amortization, depletion and impairment losses	6	15,728		2,628
General and administrative		1,082		1,673
Financing expenses		1,025		1,039
Stock based compensation		77		8
Foreign exchange loss (gain)		605		(486	)
Change in fair value of derivative liability		-		(153	)
Loss on debt extinguishment		-		918
Gain on settlement of financial contract liability	11	(6,857	)	-
Total Expenses		13,471		7,712
Loss before income taxes and other items		(11,727	)	(5,232	)
Other income		95		23
Loss for the year		(11,632	)	(5,209	)
Other Comprehensive Income (Loss)
Items that may be subsequently reclassified to profit or loss:
Foreign currency translation adjustment		1,173		(973	)
Comprehensive loss		(10,459	)	(6,182	)
Loss per common share - basic and diluted	14	(0.11	)	(0.08	)

DXI ENERGY INC.
CONSOLIDATED STATEMENTS OFCHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(Expressed in Canadian Dollars)

	Number	Share		Contributed
(thousands of Canadian dollars, except number of shares)	of Shares	Capital		Surplus	Deficit		AOCI(L)*		Total
		$		$	$		$		$
Balance as at January 1, 2018	103,606,088	101,715		13,752	(115,845	)	2,472		2,094
Contributed surplus related to value of conversion            feature on convertible debt	-	-		105	-		-		105
Stock-based compensation	-	-		77	-		-		77
Loss	-	-		-	(11,632	)	-		(11,632	)
Foreign currency translation adjustment	-	-		-	-		1,173		1,173
Balance as at December 31, 2018	103,606,088	101,715		13,934	(127,477	)	3,645		(8,183	)
Balance as at January 1, 2017	44,808,286	98,111		10,626	(110,636	)	3,445		1,546
Shares issued via private placements, net of issuance costs	58,797,802	3,718		-	-		-		3,718
Flow-through share liability	-	(114	)	-	-		-		(114	)
Contributed surplus related to value of conversion            feature on loans from related parties	-	-		3,118	-		-		3,118
Stock-based compensation	-	-		8	-		-		8
Loss	-	-		-	(5,209	)	-		(5,209	)
Foreign currency translation adjustment	-	-		-	-		(973	)	(973	)
Balance as at December 31, 2017	103,606,088	101,715		13,752	(115,845	)	2,472		2,094

* Accumulated other comprehensive income (loss)

DXI ENERGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)

		Year ended December 31
(thousands of Canadian dollars)	Notes	2018		2017
		$		$
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Loss for the period		(11,632	)	(5,209	)
Adjustment for items not affecting cash:
Amortization, depletion and impairment losses		15,728		2,628
Stock based compensation		77		8
Non-cash financing expenses		575		530
Non-cash foreign exchange on financial contract liability	11	591		(474	)
Miscellaneous non-cash items		(93	)	(25	)
Gain on settlement of financial contract liability	11	(6,857	)	-
Change in fair value of derivative liability		-		(153	)
Loss on debt extinguishment		-		918
Cash flows used in operations		(1,611	)	(1,777	)
Changes in operating working capital	14	720		219
Total Cash Flows used in Operating Activities		(891	)	(1,558	)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Deposits		(3	)	34
E&E expenditures		-		(7	)
Additions to property and equipment	5	(781	)	(449	)
Reclamation expenditures		(15	)	(3	)
Changes in investing working capital	14	214		32
Total Cash Flows used in Investing Activities		(585	)	(393	)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Advance of loans from related parties		-		450
Convertible debt, net of financing costs		486		-
Shares issued for cash, net of share issue costs		-		2,332
Changes in financing working capital	14	6		38
Total Cash Flows from Financing Activities		492		2,820
CHANGE IN CASH AND CASH EQUIVALENTS		(984	)	869
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		1,010		141
CASH AND CASH EQUIVALENTS, END OF YEAR		26		1,010

Supplemental cash flow information - Note 14

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 1– CORPORATE INFORMATION

DXI Energy Inc. (the “Company”) is a public company trading on the Toronto Stock Exchange (“TSX”) under the symbol “DXI” in Canada and the OTCQB (“OTCQB”) under the symbol “DXIEF” in the United States. The Company is in the business of exploring and developing energy properties with a focus on oil and gas in North America. The address of its registered office is 520 – 999 Canada Place, Vancouver, British Columbia.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Dejour Energy (USA) Corp. (“Dejour USA”), incorporated in Nevada, Dejour Energy (Alberta) Ltd. (“DEAL”), incorporated in Alberta, and 0855524 B.C. Ltd., incorporated in British Columbia. All intercompany transactions are eliminated upon consolidation.

The consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the parent company. These consolidated financial statements were authorized and approved for issuance by the Board of Directors on March 18, 2019.

NOTE 2– BASIS OF PRESENTATION

(a)   Basis of presentation

The consolidated financial statements (the “financial statements”) are presented under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”). A summary of the Company’s significant accounting policies under IFRS is presented in note 3.

(b)   Going concern

The financial statements were prepared on a going concern basis. The going concern basis assumes that the Company 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. The Company incurred a loss of $11.6 million during the year ended December 31, 2018 and as of that date has a working capital deficiency of $3.4 million and an accumulated deficit of $127.5 million.

The Company’s ability to continue as a going concern is dependent upon attaining profitable operations and sourcing additional equity and debt capital from financiers, other than the present non-arm’s length lenders to the Company, to provide the Company with sufficient capital to meet capital expenditure commitments and continue exploration and development activities. The present non-arm’s length lenders to the Company have informed the Company they will not provide any significant additional capital to the Company. There is no assurance that future financing and exploration and development activities will be successful. These material uncertainties cast substantial doubt upon the Company’s ability to continue as a going concern. These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used that would be necessary if the going concern assumptions were not appropriate.

(c)   Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for certain financial liabilities that are measured at fair value, as explained in the accounting policies in note 3.

(d)   Use of estimates and judgments

The preparation of consolidated financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

5

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 2– BASIS OF PRESENTATION (continued)

(e)   Functional and presentation currency

Subsidiaries measure items using the currency of the primary economic environment in which the entity operates with entities having a functional currency different from the parent company, translated into Canadian dollars.

NOTE 3– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used in the preparation of the consolidated financial statements are as follows:

(a)  Basis of consolidation

The consolidated financial statements include the financial statements of the Company and subsidiaries controlled by the Company. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. All intra-group balances, transactions, income and expenses are eliminated in full on consolidation.

The financial statements of the subsidiaries are prepared using the same reporting period as the parent company, using consistent accounting policies.

Exploration, development, and production activities may be conducted jointly with others and accordingly, the Company accounts for the assets, liabilities, revenues and expenses related to its interest in the joint operations from the date that joint control commences until the date that it ceases.

(b)   Foreign currency

The financial statements of entities within the consolidated group that have a functional currency different from that of the

Company (“foreign operations”) are translated into Canadian dollars as follows: assets and liabilities – at the closing rate as at the balance sheet date, and income and expenses – at the average rate of the period (as this is considered a reasonable approximation to actual rates). All resulting changes are recognized in other comprehensive loss as cumulative translation differences.

When the Company disposes of its entire interests in a foreign operation, or loses control, joint control, or significant influence over a foreign operation, the foreign currency gains or losses accumulated in other comprehensive loss related to the foreign operation are recognized in profit or loss. If an entity disposes of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in other comprehensive income related to the subsidiary are reallocated between controlling and non-controlling interests.

Transactions in foreign currencies are translated into the functional currency at exchange rates at the date of the transactions. Foreign currency differences arising on translation are recognized in profit or loss. Foreign currency monetary assets and liabilities are translated at the functional currency exchange rate at the balance sheet date. Non- monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences recognized in the profit or loss statement of the Company’s entities’ separate financial statements on the translation of monetary items forming part of the Company’s net investment in the foreign operation are reclassified to foreign exchange reserve on consolidation.

6

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 3– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(c)   Cash and cash equivalents

Cash and cash equivalents consist of cash and highly liquid investments having maturity dates of three months or less from the date of acquisition that are readily convertible to cash.

(d)   Resource properties

Exploration and evaluation (“E&E”) costs

Pre-license costs are expensed in the period in which they are incurred.

E&E costs are initially capitalized as either tangible or intangible E&E assets according to the nature of the assets acquired. Intangible E&E assets may include costs of license acquisition, technical services and studies, seismic acquisition, exploration drilling and testing, and directly attributable overhead and administration expenses. The costs are accumulated in cost centers by well, field or exploration area pending determination of technical feasibility and commercial viability.

E&E assets are assessed for impairment if sufficient data exists to determine technical feasibility and commercial viability or facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For purposes of impairment testing, E&E assets are assessed at the individual asset level. If it is not possible to estimate the recoverable amount of the individual asset, exploration and evaluation assets are allocated to cash-generating units (“CGU’s”). Such CGU’s are not larger than an operating segment.

Exploration assets are not depleted and are carried forward until technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable or sufficient/continued progress is made in assessing the commercial viability of the E&E assets. The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proven reserves are determined to exist. A review of each exploration license or field is carried out, at least annually, to confirm whether the Company intends further appraisal activity or to otherwise extract value from the property. When this is no longer the case, the costs are written off. Upon determination of proven reserves, E&E assets attributable to those reserves are first tested for impairment and then reclassified from E&E assets to oil and natural gas properties.

The Company may occasionally enter into arrangements whereby the Company will transfer part of an oil and gas interest as consideration for an agreement by the transferee to meet certain E&E expenditures which would have otherwise been undertaken by the Company. The Company does not record any expenditures made by the transferee. Any cash consideration received from the agreement is credited against the costs previously capitalized to the oil and gas interest given up by the Company, with any excess cash accounted for as a gain on disposal.

Oil and gas properties and other property and equipment costs

Items of property and equipment, which include oil and gas development and production assets, are measured at cost less accumulated depletion and depreciation and accumulated impairment losses.

The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the decommissioning obligation and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. When significant parts of an item of property and equipment, including oil and natural gas interests, have different useful lives, they are accounted for as separate items (major components).

7

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 3– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(d)    Resource properties (continued)

Depletion and Depreciation

Oil and gas development and production assets are depreciated, by significant component, on a unit-of-production basis over proved and probable reserve volumes, taking into account estimated future development costs necessary to bring those reserves into production. Future development costs are estimated by taking into account the level of development required to produce the reserves. These estimates are reviewed by independent reserve engineers at least annually. Changes in reserve estimates are dealt with prospectively. Proved and probable reserves are estimated using independent reserve engineer reports and represent the estimated quantities of oil, natural gas and gas liquids.

Other property and equipment are depreciated based on a declining balance basis, which approximates the estimated useful lives of the asset, at the following rates:

Office furniture and equipment	20%
Computer equipment	45%
Vehicle	30%
Leasehold improvements	term of lease

Depreciation methods, useful lives and residual values are reviewed at each reporting date. Other property and equipment are allocated to each of the Company’s primary cash-generating units, based on estimated future net revenue, consistent with the recoverable values applied in the most recent impairment test.

Derecognition

The carrying amount of an item of property and equipment is derecognized on disposal, when no beneficial interest is retained, or when no future economic benefits are expected from its use or disposal. The gain or loss arising from derecognition is included in profit or loss when the item is derecognized and is measured as the difference between the net disposal proceeds, if any, and the carrying amount of the item. The date of disposal is the date when the Company is no longer subject to the risks of ownership and is no longer the beneficiary of the rewards of ownership. Where the asset is derecognized, the date of disposal coincides with the date the revenue from the sale of the asset is recognized.

On the disposition of an undivided interest in a property, where an economic benefit remains, the Company recognizes the farm out only on the receipt of consideration by reducing the carrying amount of the related property with any excess recognized in profit or loss of the period.

Major maintenance and repairs

The costs of day-to-day servicing are expensed as incurred. These primarily include the costs of labor, consumables and small parts. Material costs of replaced parts, turnarounds and major inspections are capitalized as it is probable that future economic benefits will be received. The carrying value of a replaced part is derecognized in accordance with the derecognition principles above.

Jointly controlled operations

The Company conducts its oil and gas development and production activities through jointly controlled operations and the accounts reflect only its interest in such activities. A joint arrangement exists where the parties take their share of the output and is accounted for by recognizing the Company’s share of assets and liabilities jointly owned and incurred, and the recognition of its share of revenue and expenses of the joint operation. At December 31, 2018, the Company’s material joint operation in Canada is Drake/Woodrush. The principal activity is oil and gas production and the ownership percentage is 99% (December 31, 2017 – 99%).

8

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 3– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(e)   Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the liability.

Decommissioning liability

A decommissioning liability is recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. A corresponding amount equivalent to the provision is also recognized as part of the cost of the related asset. The amount recognized is management’s estimated cost of decommissioning, discounted to its present value using a risk free rate. Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to the related asset unless the change arises from production. The unwinding of the discount on the decommissioning provision is included as a finance cost. Actual costs incurred upon settlement of the decommissioning liability are charged against the provision to the extent the provision was established.

(f)   Earnings (loss) per share

Basic earnings (loss) per share figures have been calculated using the weighted average number of common shares outstanding during the respective periods.

Diluted earnings (loss) per common share is calculated by dividing the profit or loss applicable to common shares by the sum of the weighted average number of common shares issued and outstanding and all additional common shares that would have been outstanding if potentially dilutive instruments were converted. The diluted earnings (loss) per share figure is equal to that of basic earnings (loss) per share since the effects of options and warrants have been excluded as they are anti-dilutive.

(g)   Share based payments

Where equity-settled share options are awarded to employees, the fair value of the options at the date of grant is charged to profit or loss over the vesting period. Performance vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognized over the vesting period is based on the number of options that will eventually vest. Where equity instruments are granted to employees, they are recorded at the instruments’ grant date fair value.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to profit or loss over the remaining vesting period.

Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in profit or loss, unless they are related to the issuance of shares. Amounts related to the issuance of shares are recorded as a reduction of share capital.

When the value of goods or services received in exchange for the share-based payment to non-employees cannot be reliably estimated, the fair value of the share-based payment is measured by use of a valuation model to measure the value of the equity instruments issued. The expected life used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

All equity-settled share based payments are reflected in contributed surplus, until exercised. Upon exercise, shares are issued from treasury and the amount reflected in contributed surplus is credited to share capital along with any consideration received.

9

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 3– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(g)    Share based payments (continued)

Where a grant of options is cancelled or settled during the vesting period, excluding forfeitures when vesting conditions are not satisfied, the Company immediately accounts for the cancellation as an acceleration of vesting and recognizes the amount that otherwise would have been recognized for services received over the remainder of the vesting period. Any payment made to the employee on the cancellation is accounted for as the repurchase of an equity interest except to the extent the payment exceeds the fair value of the equity instrument granted, measured at the repurchase date. Any such excess is recognized as an expense.

(h)   Revenue recognition

The Company adopted IFRS 15, Revenue from Contracts with Customers, as of January 1, 2018, under the modified retrospective method where the cumulative effect is recognized at the date of initial application. The adoption of IFRS 15 did not have a material effect on the financial statements. Comparative figures did not require restatement as a result of this adoption.

The Company derives revenue from product sales contracts with its marketers (one for each commodity type) for the delivery of oil, natural gas, and natural gas liquids (“Goods”). The contract with the marketers has an open-ended term that may last one month to several years and may operate on an evergreen basis. Payment is due on the contract near the end of the month following the month in which the product was delivered.

Applying the five-step model required by IFRS 15, Revenue from Contracts with Customers, revenue is recognized as follows for these contracts:

Step in Model	Product Sales
Identify the contract	The contractual arrangement executed with the customer, specifying the quantity and market price.
Identify distinct performanceobligations	Contract is for the delivery of the Goods on the specified date.
Estimate transaction price	Transaction price is based on current commodity market prices.
Allocate transaction price toperformance obligations	The transaction price is allocated to the Goods delivery.
Recognize revenue as performanceobligations are satisfied	Revenue to be recognized at a point in time once control passes to the customer (i.e. when the oil or gas is delivered or picked up by the customer).

Costs related to processing the oil and delivering the oil to pipelines are netted from the payment received from the customer. These costs are recognized separately in the statement of comprehensive loss at the same time as revenue recognition. The costs associated with production-based royalty expenses and operating and transportation costs are recognized in the same period in which the related revenue is earned and recorded.

(i)   Financial instruments

As the Company adopted IFRS 9, Financial Instruments, as of January 1, 2018 cumulatively without restatement of comparative figures, different policies apply to the 2018 period presented than the comparative periods. IFRS 9 supersedes IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial assets and liabilities; and new guidance for measuring impairment on financial assets. The adoption of IFRS 9 did not have a material effect on the financial statements.

The Company’s financial instruments include cash and cash equivalent, accounts receivables, accounts payable and accrued liabilities, loans from related parties and convertible debt.

10

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 3– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(i)    Financial instruments (continued)

Financial assets
At December 31, 2018, financial assets were initially recorded at fair value and are designated into one of the following three categories: amortized cost, fair value through profit or loss (“FVTPL”), or fair value through other comprehensive loss (“FVOCI”).

These assets arise principally from the provision of goods and services to customers. These assets are initially recognized at fair value plus directly attributable transaction costs. Subsequently, they are recorded at amortized cost using the effective interest rate method, less any impairment losses.

A financial asset is classified as FVOCI if the asset is held with the objective to both collect contractual cash flows and sell the financial asset. All other financial assets are measured at FVTPL. As at December 31, 2018, the Company held no financial instrument in both FVTPL category and FVOCI category.

IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss (ECL) model. This applies to financial assets measured at amortized cost. Under IFRS 9, credit losses are recognized in general, earlier than under IAS 39.

The Company's financial assets measured at amortized cost are cash and cash equivalents and accounts receivable. The Company has four customers and the ECL related to the customers is nil.

At December 31, 2017, financial assets (cash and cash equivalents and accounts receivable) were initially recorded at fair value and were subsequently measured as amortized cost.

Financial liabilities

The Company classifies its financial instruments into one of two categories, depending on the purpose for which the liability was acquired.

• Fair value through profit or loss: this category does not comprise any liabilities at December 31, 2018. These liabilities are classified and measured at fair value through profit and loss.

• Other financial liabilities: this category includes accounts payables and accrued liabilities, loans from related parties and convertible debt, which are initially recognized at fair value and subsequently carried at amortized cost using the effective interest method.

The Company has derivative financial instruments in the form of warrants issued in US dollars, or with certain adjustment provisions, and contracts entered into to manage its exposure to volatility in commodity prices. Commodity contracts are not used for trading or other speculative purposes. Such derivative financial instruments are initially recognized at fair value at the date at which the derivatives are issued and are subsequently re-measured at fair value. These derivatives do not qualify for hedge accounting and changes in fair value are recognized immediately in profit and loss.

For outstanding warrants at each reporting period, the change in the fair value of the liability between reporting periods is recorded in the consolidated statement of comprehensive income (loss). As warrants are exercised, immediately before exercise, the liability on these exercised warrants is re-measured and the valuation change is recorded in the consolidated statement of comprehensive income (loss). Upon exercise, the re-measured warrant liability on these exercised warrants is eliminated and there is an offsetting entry to share capital.

Impairment of financial assets
At each reporting date, the Company assesses the expected credit losses (“ECL”) associated with its financial assets to determine whether any financial asset is impaired.

11

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 3– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(j)    Impairment

For accounts receivable, the Company applies the simplified approach required by IFRS 9, which requires the ECL allowances to be recognized at the initial recognition of the receivables. The ECL for financial assets are based on the assumptions about risk of default and expected credit losses. The Company uses judgment in making these assumptions and selecting inputs to the impairment calculation, based on the Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

Non-financial assets

For the purpose of impairment testing, assets are grouped together in CGUs, which are the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. The carrying value of long-term assets is reviewed at each period for indicators that the carrying value of an asset or a CGU may not be recoverable. The Company uses geographical proximity, geological similarities, analysis of shared infrastructure, commodity type, assessment of exposure to market risks and materiality to define its CGUs. If indicators of impairment exist, the recoverable amount of the asset or CGU is estimated. If the carrying value of the asset or CGU exceeds the recoverable amount, the asset or CGU is written down with an impairment recognized in profit or loss.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Fair value is determined to be the amount for which the asset could be sold in an arm’s length transaction. For resource properties, fair value less costs to sell may be determined by using discounted future net cash flows of proved and probable reserves using forecast prices and costs. Value in use is determined by estimating the net present value of future net cash flows expected from the continued use of the asset or CGU.

Impairment losses recognized in prior years are assessed at each reporting date for any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depletion and depreciation, if no impairment loss had been recognized.

(k)    Taxes

Income taxes

Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and affects neither accounting profit nor taxable profit. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when the asset is realized or the liability is settled, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, when they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

12

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 3– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(k)    Taxes (continued)

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Production taxes

Royalties, resource rent taxes and revenue-based taxes are accounted for under International Accounting Standards (‘IAS’) 12 when they have characteristics of an income tax. This is considered to be the case when they are imposed under Government authority and the amount is payable based on taxable income, rather than based on quantity produced or as a percentage of revenue, after adjustment for temporary differences. For such arrangements, current and deferred tax is provided on the same basis as described above for other forms of taxation. Obligations arising from royalty arrangements that do not satisfy these criteria are recognized as a reduction of revenues.

(l)    Share capital

The Company’s common shares, stock options, share purchase warrants and flow-through shares are classified as equity instruments only to the extent that they do not meet the definition of a financial liability or financial asset. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction, net of tax, from the proceeds.

(m)    Flow-through shares

The Company will from time to time, issue flow-through common shares to finance a portion of its exploration program. Pursuant to the terms of the flow-through share agreements, these shares transfer the tax deductibility of qualifying resource expenditures to investors. On issuance, the Company separates the flow-through share into i) a flow-through share premium, equal to the estimated premium, if any, investors pay for the flow-through feature, which is recognized as a liability and; ii) share capital. Upon expenditures being incurred, the Company derecognizes the liability and recognizes a deferred income tax recovery for the amount of tax reduction renounced to the shareholders.

(n)    Future accounting pronouncements

Certain pronouncements were issued by “IASB” or “IFRIC” that are mandatory for accounting periods beginning after January 1, 2019 or later periods. The following new accounting standards, amendments to accounting standards and interpretations, have not been early adopted in these consolidated financial statements:

IFRS 16, “Leases”: In January 2016, the IASB issued the standard to replace IAS 17 “Leases”. IFRS 16 eliminates the distinction between operating leases and finance leases for lessees and requires the recognition of right-of-use assets and lease liabilities on the balance sheet. The Company will elect to apply the exemptions for short-term leases and leases of low-value assets. Theses leases will not be required to be recognized on the balance sheet. The standard is effective for annual reporting periods beginning on or after January 1, 2019. The Company plans to adopt IFRS 16 on January 1, 2019 using the modified retrospective approach. As at December 31, 2018, the Company continues to evaluate and assess the potential effect of the adoption of IFRS 16 on its consolidated financial statements. The Company anticipates there will be an impact on its consolidated financial statements due to the operating lease commitments as disclosed in note 17.

13

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 4 - CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of financial statements in accordance with IFRS requires management to make estimates and judgments that affect reported assets, liabilities, revenues, expenses, gains, and losses. These estimates and judgments are subject to change based on experience and new information. The financial statement areas that require significant estimates and judgments are as follows:

Decommissioning liability

The Company recognizes decommissioning liabilities for its exploration and evaluation assets and property and equipment. Measurement of the decommissioning liabilities involves estimates and judgements as to the cost and timing of incurrence of future decommissioning programs. It also involves assessment of appropriate discount rates, rates of inflation applicable to future costs and the rate used to measure the accretion charge for each reporting period. Measurement of the liability also reflects current engineering methodologies as well as current and expected future environmental legislation and standards. Actual decommissioning costs will ultimately depend on future market prices for the decommissioning costs which will reflect the market conditions at the time the decommissioning costs are actually incurred. The final cost of the currently recognized decommissioning provisions may be higher or lower than currently provided for.

Share-based payment transactions

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Management uses judgment to determine the most appropriate valuation model to estimate the fair value for share-based payment transactions. The inputs to the valuation model, including the expected life of the share option, volatility and dividend yield, require judgment for determination.

Exploration and evaluation expenditures

The application of the Company’s accounting policy for exploration and evaluation expenditures requires judgment in determining whether it is likely that future economic benefits will flow to the Company, which is based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If, after the expenditure is capitalized, information becomes available suggesting that the recovery of the expenditure is unlikely, the amount capitalized is written off in profit or loss in the period in which the new information becomes available.

Financial contract liability

The application of the Company’s accounting policy for financial liabilities requires the Company to adjust the carrying amounts of the financial liabilities in the event it revises its payments or receipts to reflect actual and revised estimated cash flows. The Company’s financial contract liability was originally recognized at fair value using the effective interest method which ensures that any interest expense over the period of repayment is at a constant rate on the balance of the liability carried in the balance sheet. Effective June 30, 2014, the Company’s financial contract liability was reduced by the residual reserve value of its working interest in the wellbores at September 30, 2016.

At December 31, 2017, the financial contract liability was adjusted to reflect the present value of the amount outstanding at year-end, net of the present value of the residual reserves of its working interest in the wellbores. During the year ended December 31, 2018, the Company reached a settlement agreement with the Drilling Fund by assigning certain non-producing, non-core leasehold interests in the Piceance Basin of Colorado to retire the financial contract liability in full, leaving $Nil balance at December 31, 2018 (note 11).

14

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 4 - CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)

Impairment

Management applies judgment in assessing the existence of impairment and impairment reversal indicators based on various internal and external factors.

The recoverable amounts of CGUs and individual assets have been determined based on the higher of fair value less costs to sell or value-in-use. The key estimates the Company applies in determining the recoverable amount normally include anticipated future commodity prices, expected production volumes, future operating and development costs, and discount rates. Changes to these assumptions will affect the recoverable amounts of CGUs and individual assets and may then require a material adjustment to their related carrying value. At December 31, 2018, the Company has one CGU in Canada (Drake/Woodrush) and one CGU in the United States (Kokopelli) – Note 5.

Financial instruments

When estimating the fair value of financial instruments, the Company uses valuation methodologies that utilize observable market data where available. In addition to market information, the Company incorporates transaction specific details that market participants would utilize in a fair value measurement, including the impact of non-performance risk.

Reserves

The estimate of reserves is used in forecasting the recoverability and economic viability of the Company’s oil and gas properties, and in the depletion and impairment calculations. The process of estimating reserves is complex and requires significant interpretation and judgment. It is affected by economic conditions, production, operating and development activities, and is performed using available geological, geophysical, engineering, and economic data. Reserves are evaluated at least annually by the Company’s independent reserve evaluators and updates to those reserves, if any, are estimated internally. Future development costs are estimated using assumptions as to the number of wells required to produce the commercial reserves, the cost of such wells and associated production facilities and other capital costs.

NOTE 5– PROPERTY AND EQUIPMENT

	Canadian Oil		United States
	and Gas		Oil and Gas		Corporate and
	Properties		Properties		Other Assets		Total
	$		$		$		$
Cost:
Balance at January 1, 2017	33,628		16,372		182		50,182
Additions	405		39		5		449
Change in decommissioning provision	94		(3	)	-		91
Disposals	-		-		(29	)	(29	)
Foreign currency translation and other	-		(1,060	)	-		(1,060	)
Balance at December 31, 2017	34,127		15,348		158		49,633
Additions	778		1		2		781
Change in decommissioning provision	(232	)	(2	)	-		(234	)
Disposals (Note 11)	-		(486	)	(1	)	(487	)
Foreign currency translation and other	-		1,363		-		1,363
Balance at December 31, 2018	34,673		16,224		159		51,056

15

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 5– PROPERTY AND EQUIPMENT (continued)

	Canadian Oil		United States
	and Gas		Oil and Gas		Corporate and
	Properties		Properties		Other Assets		Total
	$		$		$		$
Accumulated amortization, depletion and impairment losses:
Balance at January 1, 2017	(29,092	)	(1,714	)	(164	)	(30,970	)
Amortization and depletion	(561	)	(223	)	(3	)	(787	)
Impairment losses	(870	)	-		-		(870	)
Disposals	-		-		25		25
Foreign currency translation and other	-		131		-		131
Balance at December 31, 2017	(30,523	)	(1,806	)	(142	)	(32,471	)
Amortization and depletion (Note 6)	(951	)	(205	)	(4	)	(1,160	)
Impairment losses (Note 6)	(3,100	)	(11,459	)	-		(14,559	)
Foreign currency translation and other	-		(185	)	-		(185	)
Balance at December 31, 2018	(34,574	)	(13,655	)	(146	)	(48,375	)

	Canadian Oil	United States
	and Gas	Oil and Gas	Corporate and
	Properties	Properties	Other Assets	Total
	$	$	$	$
Carrying amounts:
At December 31, 2017	3,604	13,542	16	17,162
At December 31, 2018	99	2,569	13	2,681

On December 31, 2018, the Company assigned certain non-producing, non-core leasehold interests at its Kokopelli properties in United States to settle in full a financial contract liability. The settlement resulted in a non-recurring gain on settlement of $6,857,000 (Note 11).

Amortization and Depletion

Amortization and depletion is computed using the unit of production method by reference to the total production for the CGU over the estimated net proved and probable reserves of oil and gas for the CGU determined by independent consultants. The calculation of amortization and depletion for the year ended December 31, 2018 included estimated future development costs as estimated by the Company’s external reserves evaluator.

The following table summarizes the factors used to calculate the amortization and depletion:

		Estimated Future Development Costs
Country	CGU	2018	2017
		$	$
Canada	Drake/Woodrush	Nil	Nil
United States	Kokopelli	5,286	83,700

Impairment

In accordance with IFRS, impairment tests were conducted at December 31, 2018 on each of the Company’s CGUs. The estimated recoverable amounts were determined using fair value less cost to sell. In determining the recoverability of oil and gas interests and making these evaluations, the Company used the net present value of the cash flows from proved plus probable oil and gas reserves of each CGU as estimated by the Company’s independent reserve evaluator.

16

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 5– PROPERTY AND EQUIPMENT (continued)

Key input estimates used in the determination of cash flows from oil and gas reserves include the following:

a)	Reserves – Assumptions that are valid at the time of reserve estimation may change significantly when new information becomes available. Changes in forward price estimates, production costs or recovery rates may change the economic status of reserves and may ultimately result in reserves being restated.
b)	Crude oil and natural gas prices – Forward price estimates of the crude oil and natural gas prices are used in the cash flow model. Commodity prices have fluctuated widely in recent years due to global and regional factors including supply and demand fundamentals, inventory levels, exchange rates, weather, economic and geopolitical factors.
c)	Discount rate – The discount rate used to calculate the net present value of cash flows is an after-tax discount rate. The discount rates used ranged from 12.75% to 14.5%.

Below are the following forward commodity price estimates used in the December 31, 2018 impairment test:

	Natural gas	NGL	Crude oil		NYMEX
Year	(AECO)	(Edmonton Pentanes Plus)	(Edmonton Par)	WTI Oil	Henry Hub Gas
	Cdn $ / mmbtu	Cdn $ / bbl	Cdn $ / bbl	US$ / bbl	US$ / mmbtu
2019	1.85	67.67	63.33	56.25	3.00
2020	2.29	79.22	75.32	63.00	3.15
2021	2.67	83.54	79.75	67.00	3.35
2022	2.90	85.49	81.48	70.00	3.50
2023	3.14	87.80	83.54	72.50	3.63
2024	3.23	90.30	86.06	75.00	3.70
2025	3.34	93.33	89.09	77.50	3.77
2026	3.41	96.86	92.62	80.41	3.85
2027	3.48	98.81	94.57	82.02	3.93
2028	3.54	100.80	96.56	83.66	4.00
Each benchmark price increased on average approximately 2% thereafter

At December 31, 2018, indicators of impairment were determined to exist in the Company’s Drake/Woodrush CGU, as a result of negative technical reserve revisions due to continued low natural gas prices in northeastern British Columbia. An impairment test was carried out on the Drake/Woodrush CGU, resulting in an impairment of $3,100,000 (December 31, 2017 - $870,000). The impairment was recognized because the carrying value exceeded the recoverable amount. The recoverable amount was determined using the fair value less costs of disposal methodology which is classified as Level 3 fair value measurements.

At December 31, 2018, the Company determined that indicators of impairment existed in its Kokopelli CGU, as a result of the assignment of certain non-core, non-producing leasehold interests to settle in full the financial contract liability (note 11). The assigned leasehold interests reduced certain of the Company’s probable reserves and, in turn, a significant portion of the Level 3 fair value for purposes of measuring impairment. An impairment test was conducted on the Kokopelli CGU, resulting in an impairment of $11,459,000 (December 31, 2017 - $Nil). The impairment was recognized because the carrying value exceeded the recoverable amount. The recoverable amount was determined using the fair value less costs of disposal methodology which is classified as Level 3 fair value measurements.

17

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 6– AMORTIZATION, DEPLETION AND IMPAIRMENT LOSSES

	Year ended December 31
	2018	2017
	$	$
Exploration and Evaluation Assets (E & E assets)
Impairment losses	9	971
Property and Equipment (D & P assets)
Amortization and depletion (Note 5)	1,160	787
Impairment losses (Note 5)	14,559	870
	15,728	2,628

NOTE 7– LOANS FROM RELATED PARTIES

(a)	Loan from Hodgkinson EquitiesCorporation (“HEC”)
(i)	$4,500,000 loan

On June 5, 2017, the Company entered into an amended loan agreement with Hodgkinson Equities Corporation (“HEC”) for the loan amount of $4,500,000 whereby the parties agreed to (a) extend the due date from November 30, 2018 to June 5, 2022; (b) reduce the interest rate to Canadian prime rate plus 1% per annum; (c) provide the right to convert the entire outstanding amount into 58,441,558 common shares of the Company at a price of $0.077 per share; and (d) secure the loan by all assets of Dejour USA and issue a first mortgage in favour of HEC on DEAL’s oil and gas properties. The first mortgage security so issued ranked “pari passu” with HVI’s first mortgage security interest (note 7(b)).

As at December 31, 2018, the carrying value of the loan liability is as follows:

	$
Balance upon initial recognition	2,337
Accretion expense	265
Cash interest	(104	)
Balance at December 31, 2017	2,498
Accretion expense	539
Cash interest	(200	)
Balance at December 31, 2018	2,837
Current portion	(375	)
Non-current portion	2,462

Other terms of the loan are:

• the Company may repay the loan at any time without penalty;

• the Company, through DEAL, must receive HEC’s approval to further encumber DEAL’s Canadian oil and gas properties; and

• In the event of default, all the indebtedness secured by the promissory note becomes due and payable and the interest rate is immediately increased to Canadian prime rate plus 4.5% per annum.

Subsequent to December 31, 2018, the Company entered into an agreement with HEC to convert $2,500,000 into 41,666,666 shares of the Company. The agreement is subject to “disinterested shareholder” approval at the Company’s “Annual General and Special Meeting of Shareholders” in April 2019.

(ii)  $1,000,000 loan

On April 2, 2018, HEC has agreed to assume the loan of $1,000,000 from a director of the Company and his spouse. The loan bears interest at 10% per annum and is secured with a 2^nd mortgage on DEAL’s oil and gas properties of $1,000,000. The principal and interest accrued on the loan are repayable on or before June 30, 2019.

18

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 7– LOANS FROM RELATED PARTIES (continued)

Subsequent to December 31, 2018, the Company entered into an agreement with HEC to convert $1,000,000 into 16,666,666 shares of the Company. The agreement is subject to “disinterested shareholder” approval at the Company’s “Annual General and Special Meeting of Shareholders” in April 2019.

(b)   Loan from Hodgkinson Ventures Inc. (“HVI”)

On June 5, 2017, the Company entered into an amended loan agreement with Hodgkinson Ventures Inc. (“HVI”) for the loan amount of $2,000,000 whereby the parties agreed to (a) extend the due date from November 30, 2018 to June 5, 2022; (b) reduce the interest rate to Canadian prime rate plus 1% per annum; (c) provide the right to convert the entire outstanding amount into 25,974,025 common shares of the Company at a price of $0.077 per share; and issued a first mortgage in favour of HVI on DEAL’s oil and gas properties. The first mortgage security so issued ranked “pari passu” with HEC’s first mortgage security interest (note 7(a)).

As at December 31, 2018, the carrying value of the loan liability is as follows:

	$
Balance upon initial recognition	1,039
Accretion expense	117
Cash interest	(46	)
Balance at December 31, 2017	1,110
Accretion expense	241
Cash interest	(93	)
Balance at December 31, 2018	1,258
Current portion	(167	)
Non-current portion	1,091

Other terms of the loan are:

• the Company may repay the loan at any time without penalty;

• the Company, through DEAL, must receive HVI’s approval to further encumber DEAL’s Canadian oil and gas properties; and

• In the event of default, all the indebtedness secured by the promissory note becomes due and payable and the interest rate is immediately increased to Canadian prime rate plus 4.5% per annum.

On December 10, 2018, HEC and HVI each signed a Waiver of Deferred Payment of Interest (“Waiver”) to the Company to defer and extend payment of all interest amounts owing in respect of the secured promissory notes through to and inclusive of April 30, 2019. The amounts owing at December 31, 2018 are approximately $15,000. The Waiver does not amend the due date of the HEC and HVI loans. Accordingly, no loan principal payments are in default.

NOTE 8– CONVERTIBLE DEBT

In October 2018, the Company contracted with four arm’s length US accredited investors to borrow $780,000 on a first secured basis ranking “pari passu” with HEC and HVI (note 7). The loans bear interest at Canadian prime rate plus 1% per annum, are due on June 5, 2022, and are convertible into 12,999,998 common shares of the Company at a price of $0.06 per share. An initial closing of $520,000 was completed on October 5, 2018 upon receipt of all regulatory approvals. On January 16, 2019, the Company closed the final tranche of $260,000 upon receipt of all regulatory approvals.

The fair value of the $520,000 loan was determined by applying a risk-adjusted rate of 13% to discount the contractual cash flows over the life of the loan. The fair value of the liability component of $407,000 is then deducted from the face value of the loan ($520,000), with the balance being taken directly to equity. Related financing costs of $34,000 were allocated to the liability and equity components. For equity, the costs of $8,000 are accounted for as a deduction from equity. For liability, the costs of $26,000 are accounted for as a deduction from the carrying amount of the liability.

19

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 8– CONVERTIBLE DEBT (continued)

At December 31, 2018, the carrying value of the convertible debt is as follows:

	$
Balance upon initial recognition	381
Accretion expense	14
Cash interest	(7	)
Balance at December 31, 2018	388
Current portion	(32	)
Non-current portion	356

In February 2019, all four US accredited investors exercised the right to convert their debts into 12,999,998 common shares of the Company. The transaction was completed on February 14, 2019.

NOTE 9– FLOW-THROUGH SHARES LIABILITY

The following is a continuity schedule of the liability portion of the flow-through shares issuances:

	Issued in		Issued in
	October		December		Total
	2017		2017
	$		$		$
Balance at January 1, 2017	-		-		-
Liability incurred on flow-through shares issued	21		93		114
Settlement of flow-through share liability on incurring expenditures	(21	)	-		(21	)
Balance at December 31, 2017	-		93		93
Settlement of flow-through share liability on incurring expenditures	-		(93	)	(93	)
Balance at December 31, 2018	-		-		-

NOTE 10– DECOMMISSIONING LIABILITY

	Canadian		United States
	Oil and Gas		Oil and Gas
	Properties(1)		Properties(1)		Total
	$		$		$
Balance at January 1, 2017	3,636		140		3,776
Change in estimated future cash flows	146		(3	)	143
Actual costs incurred and other	(3	)	(8	)	(11	)
Unwinding of discount	60		3		63
Balance at December 31, 2017	3,839		132		3,971
Additions	60		-		60
Change in estimated future cash flows	(296	)	(3	)	(299	)
Actual costs incurred and other	(15	)	12		(3	)
Unwinding of discount	76		3		79
Balance at December 31, 2018	3,664		144		3,808

⁽¹⁾relates to property and equipment (note 5)

20

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 10– DECOMMISSIONING LIABILITY (continued)

The present value of the decommissioning liability was calculated using the following weighted average inputs:

	Canadian Oil	United States
	and Gas	Oil and Gas
	Properties	Properties
As at December 31, 2018:
Discount rate	1.94%	2.15%
Inflation rate	2.00%	2.00%
As at December 31, 2017:
Discount rate	1.94%	2.20%
Inflation rate	2.00%	2.00%

NOTE 11– FINANCIAL CONTRACT LIABILITY

On December 31, 2012, Dejour USA entered into a financial contract with a U.S. oil and gas drilling fund (“Drilling Fund”) to fund the drilling of up to three wells and the completion of up to four wells in the State of Colorado. The total amount contributed by the Drilling Fund was US$7,000,000.

The financial contract contains a provision whereby Dejour USA must purchase the Drilling Funds’ working interest in the four wells funded by the US$7,000,000 if the Drilling Fund fails to obtain a certain minimum return on investment by September 30, 2016. A subsequent amendment limited Dejour USA’s cash exposure to a potential “put” by the Drilling

Fund to US$3,000,000, with the difference to be settled by an assignment of working interests in certain P&NG properties owned by Dejour USA. The Company is not a party to the financial contract.

On September 30, 2016, the Drilling Fund served notice to Dejour USA requiring Dejour USA to purchase the Drilling Funds’ working interest in the 4 wellbores in accordance with the contract. However, prior to serving such notice, the Drilling Fund executed certain assignments transferring ownership of its working interests in the 4 wellbores to another entity and the assignee mortgaged its interest therein.

Effective December 31, 2018, Dejour USA reached a settlement agreement with the Drilling Fund by assigning certain non-producing, non-core leasehold interests in the Piceance Basin of Colorado. As a result, a gain on settlement of the liability of $6,857,000 (US$5,026,000) was recognized as follows:

	$
Balance at January 1, 2017 (US$5,382)	7,226
Foreign exchange gain	(474	)
Balance at December 31, 2017 (US$5,382)	6,752
Non-cash consideration for settlement of the liability (US$356)	(486	)
Gain on settlement of the liability (US$5,026)	(6,857	)
Foreign exchange loss	591
Balance at December 31, 2018	-

21

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 12– SHARE CAPITAL

Authorized

The Company is authorized to issue an unlimited number of common voting shares, an unlimited number of first preferred shares issuable in series, and an unlimited number of second preferred shares issuable in series.No preferred shares have been issued and the terms of preferred shares have not been defined.

In January 2018, the Company renounced $523,000 flow-through funds to investors, using the look-back rule. The flow-through funds had been fully spent by March 31, 2018. As a result of renunciation, a deferred income tax recovery of $93,000 was recognized on settlement of flow-through shares liability.

In December 2017, the Company renounced $149,000 flow-through funds to investors, using the general rule. The flow-through funds had been fully spent by December 31, 2017. As a result of renunciation, a deferred income tax recovery of $21,000 was recognized on settlement of the flow-through shares liability.

In December 2017, the Company completed a private placement and 8,633,166 common shares were issued at a price of $0.075 per share for gross proceeds of $647,000 and an additional 5,738,665 flow-through shares were issued for gross proceeds of $523,000 (5,091,165 at $0.09 per share and 647,500 at $0.10 per share). The Company paid finders’ fees of $51,000 and other costs of $24,000 related to this offering. 946,667 of the common shares were issued at $0.075 per share to certain creditors of the Company to settle the amounts owing to them.

In October 2017, the Company completed a private placement and 42,297,400 common shares were issued at a price of $0.06 per share for gross proceeds of $2,538,000 and additional 2,128,571 flow-through shares were issued at a price of $0.07 per share for gross proceeds of $149,000. The Company paid finders’ fees of $41,000 and other costs of $23,000 related to this offering. 21,924,067 of the common shares were issued at $0.06 per share to Directors and Officers of the Company (17,967,644) and certain creditors of the Company (3,956,423) to settle the amounts owing to them.

NOTE 13– STOCK OPTIONS

The Stock Option Plan (the “Plan”) is a 10% “rolling” plan pursuant to which the number of common shares reserved for issuance is 10% of the Company’s issued and outstanding common shares as constituted on the date of any grant of options.

The Plan provides for the grant of options to purchase common shares to eligible directors, senior officers, employees and consultants of the Company (“Participants”). The exercise periods and vesting periods of options granted under the Plan are to be determined by the Company with approval from the Board of Directors. The expiration of any option will be accelerated if the participant’s employment or other relationship with the Company terminates. The exercise price of an option is to be set by the Company at the time of grant but shall not be lower than the market price (as defined in the Plan) at the time of grant.

The following table summarizes information about outstanding stock option transactions:

			Weighted
	Number of		average
	options		exercise price
			$
Balance at January 1, 2017 and December 31, 2017	3,400,000		0.16
Options granted	1,850,000		0.09
Options cancelled	(400,000	)	0.16
Balance at December 31, 2018	4,850,000		0.13

22

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 13– STOCK OPTIONS (continued)

Details of the stock options as at December 31, 2018 are as follows:

	Outstanding				Exercisable
		Weighted average			Weighted average
	Number	exercise	contractual	Number	exercise	contractual
	of options	price	life (years)	of options	price	life (years)
		$			$
$0.09	1,850,000	0.09	2.00	1,850,000	0.09	2.00
$0.16	3,000,000	0.16	2.43	3,000,000	0.16	2.43
	4,850,000	0.13	2.26	4,850,000	0.13	2.26

The fair value of the options issued during the year ended December 31, 2018 (2017 – no stock options were granted) was estimated using the Black Scholes option pricing model with the following weighted average inputs:

For the year ended December 31		2018
Fair value at grant date	$	0.04
Expected volatility		100.59%
Expected option life		1.46 years
Dividends		0.0%
Risk-free interest rate		1.80%
Estimated forfeiture rate		5.04%

Expected volatility is based on historical volatility and average weekly stock prices were used to calculate volatility. Management believes that the annualized weekly average of volatility is the best measure of expected volatility.

NOTE 14– SUPPLEMENTAL INFORMATION

(a)   Changes in working capital consisted of the following:

	Year ended December 31
	2018		2017
	$		$
Changes in working capital:
Accounts receivable	203		284
Prepaids and deposits	(29	)	(10	)
Accounts payable and accrued liabilities	766		15
	940		289
Comprised of:
Operating activities	720		219
Investing activities	214		32
Financing activities	6		38
	940		289
Other cash flow information:
Cash paid for interest	397		480
Income taxes paid	-		-

23

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 14– SUPPLEMENTAL INFORMATION (continued)

(b)   Per share amounts:

Basic loss per share amounts has been calculated by dividing the net loss for the year attributable to the shareholders’ of the Company by the weighted average number of common shares outstanding. Stock options and share purchase warrants were excluded from the calculation. The basic and diluted net loss per share is the same as the stock options and share purchase warrants were anti-dilutive. The following table summarizes the common shares used in calculating basic and diluted net loss per common share:

	Year ended December 31,
	2018	2017
Weighted average common shares outstanding
Basic	103,606,088	61,682,462
Diluted	103,606,088	61,682,462

NOTE 15– RELATED PARTY TRANSACTIONS

During the year ended December 31, 2018 and 2017 and in addition to the loans from related parties (note 7), the Company entered into the following transactions with related parties:

(a)

Compensation awarded to key management included a total of salaries and consulting fees of $230,000 (2017 - $466,000) and non-cash stock-based compensation of $77,000 (2017 - $Nil). Key management includes the Company’s officers and directors. The salaries and consulting fees are included in general and administrative expenses. Included in accounts payable and accrued liabilities at December 31, 2018 is $207,000 (December 31, 2017 - $131,000) owing to the two officers of the Company.

(b)

Interest expenses of $397,000 (2017 - $370,000) related to the loans from related parties were paid in cash to a director of the Company and his spouse or the companies controlled by or associated with a director of the Company. And, interest expenses of $Nil (2017 - $139,000) related to the loans from related parties were paid via issuance of the Company’s shares to the companies controlled by or associated with a director of the Company.

NOTE 16– INCOME TAXES

The actual income tax provisions differ from the expected amounts calculated by applying the Canadian combined federal and provincial corporate income tax rates to the Company’s loss before income taxes. The components of these differences are as follows:

	2018		2017
	$		$
Loss before income taxes	(11,727	)	(5,232	)
Corporate tax rate	27.00%		26.44%
Expected tax recovery	(3,166	)	(1,383	)
Increase (decrease) resulting from:
Differences in foreign tax rates and change
in statutory tax rates	73		6,381
Impact of foreign exchange rate changes	(1,343	)	1,277
Change in unrecognized deferred tax assets	4,288		(6,507	)
Stock based compensation and expiry of losses	148		33
Non taxable/deductible amounts	-		199
Deferred income tax recovery	-		-

24

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 16– INCOME TAXES (continued)

No deferred tax asset has been recognized in respect of the following losses and deductible temporary differences as it is not considered probable that sufficient future taxable profit will allow the deferred tax assets to be recovered.

	2018	2017
	$	$
Deferred income tax assets
Non-capital losses available	22,683	20,998
Capital losses available	1,113	1,113
Resource tax pools in excess of net book value	7,506	5,279
Share issue costs and others	1,030	654
Unrecognized deferred tax assets	32,332	28,044

The Company has the approximate amounts of tax pools available as follows:

As at December 31	2018	2017
	$	$
Canada:
Exploration and development expenditures	17,810	17,100
Unamortized share issue costs	176	261
Capital losses	8,242	8,242
Non-capital losses	34,979	33,120
	61,207	58,723
United States:
Exploration and development expenditures	9,317	15,883
Undeducted expenses	3,001	2,760
Non-capital losses	58,992	53,733
	71,310	72,376
Total	132,517	131,099

The exploration and development expenditures at December 31, 2018 can be carried forward to reduce future income taxes indefinitely. The non-capital losses for income tax purposes expire as follows:

	Canada	United States	Total
	$	$	$
2026	24	2,753	2,777
2027	3,606	3,669	7,275
2028	4,674	276	4,950
2029	3,842	3,552	7,394
2030	2,068	3,017	5,085
2031	2,408	3,038	5,446
2032	4,372	8,271	12,643
2033	2,167	17,632	19,799
2034	3,966	13,773	17,739
2035	2,292	590	2,882
2036	1,815	1,783	3,598
2037	2,354	80	2,434
2038	1,391	558	1,949
	34,979	58,992	93,971

25 

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 17– COMMITMENTS

The following is a summary of the Company’s undiscounted contractual obligations and commitments as at December 31,

2018:

	Payments Due by Period
	1 Year	2-3 Years	4-5 Years	Total
	$	$	$	$
Debt repayments(1)	1,000	-	7,020	8,020
Interest payments(2)	50	-	-	50
Operating leases	75	17	-	92
	1,125	17	7,020	8,162

(1)	Short-term and long-term loans from related parties and convertible debt
(2)	Fixed interest payments on loan from related parties of $1,000,000

NOTE 18– OPERATING SEGMENTS

Segment information is provided on the basis of geographic segments as the Company manages its business through two geographic regions – Canada and the United States. The two geographic segments presented reflect the way in which the Company’s management reviews business performance. The Company’s revenue and losses of each geographic segment are as follows:

	Canada				United States				Total
	2018		2017		2018		2017		2018		2017
	$		$		$		$		$		$
Year ended December 31
Revenues, net of royalties	1,219		1,814		525		666		1,744		2,480
Segmented loss	(6,268	)	(4,948	)	(5,364	)	(261	)	(11,632	)	(5,209	)
Amortization, depletion and impairment losses	4,062		1,785		11,666		844		15,728		2,629
Interest expense	901		950		-		-		901		950
Capital expenditures	780		414		1		42		781		456

NOTE 19– DETERMINATION OF FAIR VALUES

A number of the Company’s accounting policies and disclosures require the determination of fair value. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that financial asset or financial liability. Due to the use of subjective judgments and uncertainties in the determination of these fair values the values should not be interpreted as being realizable in an immediate settlement of the financial instruments.

The Company classifies the fair value of financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instruments:

• Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

• Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

• Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

26

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 19– DETERMINATION OF FAIR VALUES (continued)

The following tables provide fair value measurement information for financial assets and liabilities as at December 31, 2018 and December 31, 2017:

			Quoted Prices in	Significant Other	Significant
	Carrying	Fair	Active Markets	Observable Inputs	Unobservable
December 31, 2018	Amount	Value	(Level 1)	(Level 2)	Inputs (Level 3)
	$	$	$	$	$
Financial Assets:
Cash and cash equivalents	26	26	26	-	-
Accounts receivable	185	185	185	-	-
Financial Liabilities:
Accounts payable	1,507	1,507	1,507	-	-
Loans from related parties	5,095	5,095	-	-	5,095
Convertible debt	388	388	-	-	388

			Quoted Prices in	Significant Other	Significant
	Carrying	Fair	Active Markets	Observable Inputs	Unobservable
December 31, 2017	Amount	Value	(Level 1)	(Level 2)	Inputs (Level 3)
	$	$	$	$	$
Financial Assets:
Cash and cash equivalents	1,010	1,010	1,010	-	-
Accounts receivable	388	388	388	-	-
Financial Liabilities:
Accounts payable	658	658	658	-	-
Loans from related parties	4,608	4,608	-	-	4,608
Financial contract liability	6,752	6,752	-	-	6,752

NOTE 20– FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT

The Company operates in the United States, giving rise to exposure to market risks from changes in foreign currency rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

The Company also has exposure to a number of risks from its use of financial instruments including: credit risk, liquidity risk, and market risk. This note presents information about the Company’s exposure to each of these risks and the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital.

(a)   Credit Risk

Credit risk arises from credit exposure to receivables due from joint operating partners and marketers included in accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets.

The Company is exposed to third party credit risk through its contractual arrangements with its current or future joint operating partners, marketers of its petroleum and natural gas production and other parties. In the event such entities fail to meet their contractual obligations to the Company, such failures may have a material adverse effect on the Company’s business, financial condition, and results of operations.

27

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 20– FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT (continued)

(a)   Credit Risk (continued)

The objective of managing the third party credit risk is to minimize losses in financial assets. The Company assesses the credit quality of the partners, taking into account their financial position, past experience, and other factors. The Company mitigates the risk of non-collection of certain amounts by obtaining the joint operating partners’ share of capital expenditures in advance of a project and by monitoring accounts receivable on a regular basis. As at December 31, 2018 and 2017, no accounts receivable has been deemed uncollectible or written off during the year.

As at December 31, 2018, the Company’s receivables consist of $137,000 (2017 - $196,000) from joint operating partners, $12,000 (2017 - $121,000) from oil and natural gas marketers and $36,000 (2017 - $71,000) from other trade receivables. The Company considers all amounts outstanding for more than 90 days as past due. Currently, there is no indication that amounts are non-collectable; thus a provision for doubtful accounts has not been set up. As at December 31, 2018, $Nil (2017 - $Nil) of accounts receivable are past due.

(b)   Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The nature of the oil and gas industry is capital intensive and the Company maintains and monitors a certain level of cash flow to finance operating and capital expenditures.

The Company’s ongoing liquidity and cash flow are impacted by various events and conditions. These events and conditions include but are not limited to commodity price fluctuations, general credit and market conditions, operation and regulatory factors, such as government permits, the availability of drilling and other equipment, lands and pipeline access, weather, and reservoir quality.

To mitigate the liquidity risk, the Company closely monitors its credit facility, production level and capital expenditures to ensure that it has adequate liquidity to satisfy its financial obligations.

(c)   Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect the Company’s net earnings. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns. The Company utilizes financial derivatives to manage certain market risks. All such transactions are conducted in accordance with the risk management policy that has been approved by the Board of Directors.

(i)    Foreign Currency Exchange Risk

Foreign currency exchange rate risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a result of changes in foreign exchange rates. Although substantially all of the Company’s oil and natural gas sales are denominated in Canadian dollars, the underlying market prices in Canada for oil and natural gas are impacted by changes in the exchange rate between the Canadian and United States dollars. Given that changes in exchange rate have an indirect influence, the impact of changing exchange rates cannot be accurately quantified. The Company had no forward exchange rate contracts in place as at or during the year ended December 31, 2018 and 2017.

The Company was exposed to the following foreign currency risk at December 31:

	2018		2017
Expressed in foreign currencies	CND$		CND$
Cash and cash equivalents	17		30
Accounts receivable	100		228
Accounts payable and accrued liabilities	(199	)	(213	)
Balance sheet exposure	(82	)	45

28

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 20– FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT (continued)

(c)   Market Risk (continued)

The following foreign exchange rates applied for the year ended and as at December 31:

	2018	2017
December 31, reporting date rate	1.3642	1.2545
YTD average USD to CAD	1.2957	1.2986

The Company has performed a sensitivity analysis on its foreign currency denominated financial instruments. Based on the Company’s foreign currency exposure noted above and assuming that all other variables remain constant, a 10% appreciation of the US dollar against the Canadian dollar would result in the increase of net loss of $8,000 at December 31, 2018 (2017 – decrease of net loss of $5,000). For a 10% depreciation of the above foreign currencies against the Canadian dollar, assuming all other variables remain constant, there would be an equal and opposite impact on net loss.

(ii)   Interest Rate Risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. At December 31, 2018, the Company was exposed to interest rate fluctuations on the loans from related parties and convertible debt which bore a floating rate of interest. Assuming all other variables remain constant, an increase or decrease of 1% in market interest rate at December 31, 2018 would have increased or decreased net loss by $70,000. The Company had no interest rate swap contracts in place at or during the year ended December 31, 2018 and 2017.

(iii) Commodity Price Risk

Revenues and consequently cash flows fluctuate with commodity prices and the US/Canadian dollar exchange rate. Commodity prices are determined on a global basis and circumstances that occur in various parts of the world are outside of the control of the Company. The Company may protect itself from fluctuations in prices by using the financial derivative sales contracts. The Company may enter into commodity price contracts to manage the risks associated with price volatility and thereby protect its cash flows used to fund its capital program. Assuming all other variables remain constant, an increase or decrease of oil price of $1 per bbl and gas price of $0.01 per mcf at December 31, 2018 would have decreased or increased net loss by $25,000. The Company had no commodity contracts in place at December 31, 2018.

(d)   Capital Management Strategy

The Company’s policy on capital management is to maintain a prudent capital structure so as to maintain financial flexibility, preserve access to capital markets, maintain investor, creditor and market confidence, and to allow the Company to fund future developments. The Company considers its capital structure to include share capital, cash and cash equivalents, and working capital. In order to maintain or adjust capital structure, the Company may from time to time issue shares or enter into debt agreements and adjust its capital spending to manage current and projected operating cash flows and debt levels.

The Company’s share capital is not subject to any external restrictions. The Company has not paid or declared any dividends, nor are any contemplated in the foreseeable future. There have been no changes to the Company’s capital management strategy during the year ended December 31, 2018.

29

DXI ENERGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2018 and 2017

(All tabular amounts are expressed in thousands of Canadian dollars unless otherwise noted)

NOTE 21– SUBSEQUENT EVENTS

Subsequent to December 31, 2018, the Company completed the following transactions, all of which have been conditionally approved in advance by the appropriate Canadian regulatory authorities:

• Issued by way of private placement 29,899,352 shares at a price of $0.06 per share for gross (and net) proceeds of $1,794,000;

• converted $780,000 in secured convertible debt to 12,999,998 shares, and

• Signed an agreement whereby certain secured lenders agreed to convert $3,500,000 in secured loans to the Company for 58,333,332 shares. The agreement is subject to “disinterested shareholder” approval at the Company’s “Annual General and Special Meeting of Shareholders” currently scheduled for April 29, 2019.

30