INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)

June 30, 2019

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, the interim financial statements must be accompanied by a notice indicating that they have not been reviewed by an auditor.

The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared by and are the responsibility of the management.

The Company’s independent auditor has not performed a review of these unaudited interim condensed consolidated financial statements in accordance with standards established by CPA Canada for a review of interim financial statements by an entity’s auditor.

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

Going concern - Note 2(b)

Approved on behalf of the Board:

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

DXI ENERGY INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(DEFICIT)
(Expressed in Canadian Dollars)

* Accumulated other comprehensive income (loss)

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

Supplemental cash flow information - Note 12

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 interim condensed 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 Audit Committee on August 6, 2019.

NOTE 2 – BASIS OF PRESENTATION

(a)      Basis of presentation

The interim condensed consolidated financial statements for the six months ended June 30, 2019 and 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting. These interim results do not include all the information required for the full annual financial statements and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2018. The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2018, except for the adoption of new standards effective as of January 1, 2019. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effect.

The Company applies, for the first time, IFRS 16 “Leases”. As required by IAS 34, the nature and effect of these changes are disclosed below in note 3 of the financial statements.

(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 $1,403,000 during the six months ended June 30, 2019 and as of that date has a working capital deficiency of $1.8 million and an accumulated deficit of $128.9 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.

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NOTE 3 – CHANGE IN ACCOUNTING POLICIES

The Company adopted IFRS 16 "Leases" on January 1, 2019. 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 adopted IFRS 16 using the modified retrospective approach, whereby the cumulative effect of initially applying the standard was recognized as a $97,000 increase to right-of-use assets (included in "property and equipment") with a corresponding increase to lease liabilities. The right-of-use assets recognized were measured at amounts equal to the present value of the lease liabilities. The weighted average incremental borrowing rate used to determine the lease liabilities at adoption was approximately 10%. The right-of-use asset and lease liabilities recognized relate to the Company's head office lease in Vancouver and the lease for its Calgary office. The Company elected to not apply lease accounting to the short-term leases and leases for low-value assets.

NOTE 4 – PROPERTY AND EQUIPMENT

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NOTE 4 – PROPERTY AND EQUIPMENT (continued)

The Company determined that there were no indicators of impairment for its Canadian and U.S. oil and gas interests or no indicators of impairment reversal for its Canadian and U.S. oil and gas interests at June 30, 2019.

NOTE 5 – AMORTIZATION, DEPLETION AND IMPAIRMENT LOSSES

NOTE 6 – LOANS FROM RELATED PARTIES

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 6(b)).

As at June 30, 2019, the carrying value of the loan liability is as follows:

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NOTE 6 – LOANS FROM RELATED PARTIES (continued)

Other terms of the loan are:

The Company entered into an agreement with HEC to convert $2,500,000 into 41,666,666 shares of the Company. The agreement was approved by the “disinterested” or minority shareholders at the Company’s “Annual General and Special Meeting of Shareholders” on April 29, 2019. On May 6, 2019, 41,666,666 shares of the Company were issued to HEC. The loan amount owing at June 30, 2019 is $2,000,000.

(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.

The Company entered into an agreement with HEC to convert $1,000,000 into 16,666,667 shares of the Company. The agreement was approved by the “disinterested” or minority shareholders at the Company’s “Annual General and Special Meeting of Shareholders” on April 29, 2019. On May 6, 2019, 16,666,667 shares of the Company were issued to HEC and the loan was repaid in full accordingly.

(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 6(a)).

As at June 30, 2019, the carrying value of the loan liability is as follows:

Other terms of the loan are:

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NOTE 6 – LOANS FROM RELATED PARTIES (continued)

On May 1, 2019, 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 September 30, 2019. The amounts owing at June 30, 2019 are approximately $33,000. The Waiver does not amend the due date of the HEC and HVI loans. Accordingly, no loan principal payments are in default.

NOTE 7 – 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 6). 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. The Company closed the private placement of convertible debt in two tranches in October 2018 ($520,000) and January 2019 ($260,000) for an aggregate amount of $780,000 upon receipt of all regulatory approvals.

The fair value of the $780,000 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 $613,000 is then deducted from the face value of the loan ($780,000), with the balance being taken directly to equity. Related financing costs of $41,000 were allocated to the liability and equity components. For equity, the costs of $10,000 are accounted for as a deduction from equity. For liability, the costs of $31,000 are accounted for as a deduction from the carrying amount of the liability.

At June 30, 2019, the carrying value of the convertible debt is as follows:

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 8 – LEASE LIABILITIES

The Company has lease liabilities for contracts related to the office space for its offices in Vancouver and Calgary. Leases are entered into and exited in coordination with specific business requirements which includes the assessment of the appropriate durations for the related leased assets.

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NOTE 9 – DECOMMISSIONING LIABILITY

⁽¹⁾ relates to property and equipment (note 4)

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

NOTE 10 – 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.

Subsequent to June 30, 2019, the Company completed a private placement and 5,835,667 common shares were issued at a price of $0.06 per share for gross proceeds of $350,000. 100% of the common shares were issued to two officers of the Company.

In March 2019, the Company completed a private placement and 33,052,334 common shares were issued at a price of $0.06 per share for gross proceeds of $1,983,000. The Company paid professional and other costs of $28,000 related to this offering. 906,267 of the common shares were issued to a director of the Company (239,600) and a creditor of the Company (666,667) to settle the amounts owing to them.

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NOTE 11 – 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:

Details of the stock options as at June 30, 2019 are as follows:

The fair value of the options issued during the six months ended June 30, 2019 and 2018 was estimated using the Black Scholes option pricing model with the following weighted average inputs:

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.

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NOTE 12 – SUPPLEMENTAL INFORMATION

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:

NOTE 13 – RELATED PARTY TRANSACTIONS

During the six months ended June 30, 2019 and 2018 and in addition to the loans from related parties (note 6), the Company entered into the following transactions with related parties:

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NOTE 14 – 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:

NOTE 15 – SEASONALITY OF OPERATIONS

There are factors causing quarterly variances that may not be reflective of the Company’s future performance. These include, but are not limited to weather conditions, oil and gas production, drilling activities which are affected by oil and natural gas commodity prices, global economic environment, as well as unexpected production curtailment caused by activities such as plant shutdown work. As the Company has operations in the United States, the consolidated financial results may vary between periods due to the effect of foreign exchange fluctuations in translating the expenses of its operations in the United States to Canadian dollars. As a result, quarterly operating results should not be relied upon as any indication of results for any future period.

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