VVT MED INC. — Audit Report / Information 2020

Mar 1, 2021

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CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 and 2019

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of DXI Capital Corp.

Opinion

We have audited the accompanying consolidated financial statements of DXI Capital Corp. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2020 and 2019, and the consolidated statements of comprehensive loss, changes in shareholders’ equity (deficit), and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 2 of the consolidated financial statements, which indicates that the Company, incurred an income of $6.2 million during the year ended December 31, 2020 and as of that date has a working capital deficiency of $394,000 and an accumulated deficit of $126.5 million. As stated in Note 2, these events and conditions indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information obtained at the date of this auditor's report includes Management’s Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor’s report is Grant P. Block.

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Vancouver, Canada February 25, 2021

Chartered Professional Accountants

DXI CAPITAL CORP.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in Canadian Dollars)

		December 31,	December	31,
(thousands of Canadian dollars)	Notes	2020	2019
		$	$
ASSETS
Current
Cash		73		193
Accounts receivable		2		131
Prepaids and deposits		6		36
Assets held for sale	5	-		323
Current Assets		81		683
Non-current
Deposits		-		314
Propertyand equipment	6	2	1,070
Total Assets		83	2,067
LIABILITIES
Current
Accounts payable and accrued liabilities		100	1,786
Loans from related parties	8	375		408
Lease liabilities	9	-		16
Liabilities directlyassociated with assets held for sale	5	-		304
Current Liabilities		475	2,514
Non-current
Loans from related parties	8	-	2,443
Decommissioningliability	10	-	3,878
Total Liabilities		475	8,835
SHAREHOLDERS' EQUITY (DEFICIT)
Share capital	11	113,747	109,323
Contributed surplus		12,191	13,084
Subscriptions received in advance	11	169		-
Deficit		(126,499)	(132,698)
Accumulated other comprehensive income		-	3,523
Total Shareholders' Equity (Deficit)		(392)	(6,768)
Total Liabilities and Shareholders' Equity (Deficit)		83	2,067
Going concern - Note 2(b)
Approved on behalf of the Board:
"signed"		"signed"
Ronnie Bozzer - Director		Robert Hodgkinson - Director

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

1

DXI CAPITAL CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Expressed in Canadian Dollars)

		Year ended December	Year ended December	31
(thousands of Canadian dollars, except per share amounts)	Notes	2020	2019
		$	$
REVENUES
Gross revenues		330		1,278
Royalties		(35)		(150)
Total Revenues, net of royalties		295		1,128
EXPENSES
Operating and transportation		436		1,502
Amortization, depletion and impairment losses		1,274		837
General and administrative		470		1,005
Financing expenses		384		765
Stock-based compensation		6		115
Foreign exchange loss		1		6
Loss on held-for-sale assets		268		2,124
Total Expenses		2,839		6,354
Loss before income taxes		(2,544)		(5,226)
Gain on disposal of subsidiaries	7	8,743		-
Other income		-		5
Income(loss) for theyear		6,199		(5,221)
Other Comprehensive Income (Loss)
Items that may be subsequently reclassified to profit or loss:
Foreign currencytranslation adjustment	7	(3,523)		(122)
Comprehensive income(loss)		2,676		(5,343)
Income(loss) per common share - basic and diluted		1.45		(2.77)
Weighted average common shares outstanding(1)
Basic		4,282,646	1,884,564
Diluted		4,282,646	1,884,564

(1) Basic and diluted income (loss) per common share based on the weighted average number of common shares outstanding during the period, which has been adjusted retroactively to reflect the effects of the one hundred-to-one share consolidation.

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

2

DXI CAPITAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(Expressed in Canadian Dollars)

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Subscriptions
Number Share Contributed received in
(thousands of Canadian dollars, except number of shares) of Shares Capital Surplus advance Deficit AOCI(L) Total
$ $ $ $ $ $
Balance as at January 1, 2020 2,485,126 109,323 13,084 - (132,698) 3,523 (6,768)
Shares issued via debt conversion, net of issuance costs 9,125,092 4,424 - - - - 4,424
Reversal of contributed surplus related to value of conversion
feature on convertible debt - - (899) - - - (899)
Subscriptions received - - - 169 - - 169
Stock-based compensation - - 6 - - - 6
Net income - - - - 6,199 (3,523) 2,676
Adjustment due to fractional rounding (88) - - - - - -
Balance as at December 31, 2020 11,610,130 113,747 12,191 169 (126,499) - (392)
Balance as at January 1, 2019 1,036,060 101,715 13,934 - (127,477) 3,645 (8,183)
Shares issued via private placements, net of issuance costs 708,824 3,182 - - - - 3,182
Shares issued via debt conversion, net of issuance costs 740,242 4,426 - - - - 4,426
Reversal of contributed surplus related to value of conversion
feature on convertible debt - - (965) - - - (965)
Stock-based compensation - - 115 - - - 115
Net loss - - - - (5,221) - (5,221)
Foreign currency translation adjustment - - - - - (122) (122)
Balance as at December 31, 2019 2,485,126 109,323 13,084 - (132,698) 3,523 (6,768)
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• Accumulated other comprehensive income (loss)

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

3

DXI CAPITAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in Canadian Dollars)

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Year ended December 31
(thousands of Canadian dollars) Notes 2020 2019
$ $
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net income (loss) for the year 6,199 (5,221)
Adjustment for items not affecting cash:
Amortization, depletion and impairment losses 1,274 837
Stock based compensation 6 115
Non-cash financing expenses 384 762
Miscellaneous non-cash items 3 -
Loss on held-for-sale assets 5 268 2,124
Gain on disposal of subsidiaries 7 (8,743) -
Cash flows used in operations (609) (1,383)
Changes in operating working capital 13 190 (422)
Total Cash Flows used in Operating Activities (419) (1,805)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Deposits - (99)
E&E expenditures - (8)
Additions to property and equipment 6 (6) (1,469)
Proceeds from disposal of subsidiary 7 6 -
Changes in investing working capital 13 - 212
Total Cash Flows from (used in) Investing Activities - (1,364)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Advance of loans from related parties 375 -
Convertible debt, net of financing costs - 239
Shares issued for cash, net of share issue costs - 3,182
Shares issue costs on debt and interest conversion (23) -
Principal payments on lease liabilities 9 (16) (86)
Changes in financing working capital 13 (37) 1
Total Cash Flows from Financing Activities 299 3,336
CHANGE IN CASH (120) 167
CASH, BEGINNING OF YEAR 193 26
CASH, END OF YEAR 73 193
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Supplemental cash flow information - Note 13

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

4

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 1 – CORPORATE INFORMATION

DXI Capital Corp. (the “Company”) is a public company trading on the NEX under the symbol of “DXI.H”, operated by the TSX Venture Exchange (“TSXV”) in Canada. On September 11, 2020, the Company changed its name from DXI Energy Inc. to DXI Capital Corp. and effected a one hundred-to-one share consolidation of its common shares. All shares and per share amounts in these consolidated financial statements have been adjusted retroactively for all periods presented to reflect the effects of the share consolidation. The address of its registered office is 404 – 999 Canada Place, Vancouver, British Columbia.

The Company has been engaged in the business of exploring and developing oil and gas assets in North America. In the 1st nine months of 2020, the Company disposed all its oil and gas assets. As of December 31, 2020, the Company has no active operations. The management and board of directors are currently forging a new direction for the Company’s shareholders.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, 0855524 B.C. Ltd., incorporated in British Columbia. These financial statements also include the accounts of Dejour Energy (Alberta) Ltd. (“DEAL”), incorporated in Alberta, until May 31, 2020 and Dejour Energy (USA) Corp. (“DUSA”), incorporated in Nevada, until August 26, 2020. The Company sold its equity interest in DEAL entirely and deconsolidated these accounts from its financial statements on May 31, 2020, the effective date of the change of control (note 7). The 100% equity interest of DUSA was seized by one of the Company’s secured lenders and these accounts were deconsolidated from its financial statements on August 26, 2020, the effective date of the change of control (note 7). All intercompany transactions are eliminated upon consolidation.

These consolidated financial statements were authorized and approved for issuance by the Board of Directors on February 25, 2021.

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 net income of $6.2 million during the year ended December 31, 2020 and as of that date has a working capital deficiency of $394,000 and an accumulated deficit of $126.5 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 fund future operations or activities. There is no assurance that future operations or 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 statement of financial position classifications used that would be necessary if the going concern assumptions were not appropriate.

In March 2020, there was a global pandemic outbreak of COVID-19. The actual and threatened spread of the virus globally has had a material adverse effect on the global economy and; specifically, the regional economies in which the Company operates. The pandemic could continue to have a negative impact on the stock market, including trading prices of the Company’s shares and its ability to raise new capital.

5

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 2 – BASIS OF PRESENTATION (continued)

(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. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for the cash flow information.

(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.

(e) Functional and presentation currency

The consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Company and its Canadian subsidiary, 0855524 B.C. Ltd.

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 statement of financial position 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 income (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 income (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 (loss) related to the subsidiary are reallocated between controlling and non-controlling interests.

6

For the Years Ended December 31, 2020 and 2019

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 statement of financial position 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 arising on the translation of monetary items or on settlement of monetary items are recognized in profit or loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognized in the consolidated statement of comprehensive loss. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.

(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.

7

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

(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)

Oil and gas properties and other property and equipment costs

Items of property and equipment, which include oil and gas development and production (“D&P”) 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).

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%
Right-of-use asset	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.

8

For the Years Ended December 31, 2020 and 2019

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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, 2020, the Company has no active operations. Previously, the Company had been engaged in the business of exploring and developing oil and gas properties in North America.

(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.

9

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

(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)

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.

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 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 performance obligations	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 to performance obligations	The transaction price is allocated to the Goods delivery.
Recognize revenue as performance obligations 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.

10

For the Years Ended December 31, 2020 and 2019

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(i) Financial instruments

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

Financial assets

At December 31, 2020 and 2019, 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, 2020 and 2019, the Company held no financial instrument in both the FVTPL category and FVOCI category.

The Company's financial assets measured at amortized cost are cash and accounts receivable. At December 31, 2020, the Company has no active operations. Previously, the Company had been engaged in the business of exploring and developing oil and gas properties in North America. The Company had four customers and the expected credit loss (“ECL”) related to the customers was nil.

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, 2020 and 2019. These liabilities are classified and measured at fair value through profit and loss.

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

Derivative financial instruments, such as warrants issued in US dollars or contracts entered into to manage the exposure to volatility in commodity prices, are initially recognized at fair value at the date at which the derivatives are issued and are subsequently re-measured at fair value. Commodity contracts are not used for trading or other speculative purposes. These derivatives do not qualify for hedge accounting and changes in fair value are recognized immediately in profit and loss.

Impairment of financial assets

At each reporting date, the Company assesses the ECL associated with its financial assets to determine whether any financial asset is impaired.

(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.

11

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

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.

12

For the Years Ended December 31, 2020 and 2019

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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) Assets held for sale and discontinued operations

Assets held for sale

The Company classifies assets, or disposal groups, as held for sale when it expects to recover their carrying amounts primarily through sale rather than through continuing use. To meet criteria to be held for sale, the sale must be highly probable, and the assets or disposal groups must be available for immediate sale in their present condition. The Company must be committed to a plan to sell the assets or disposal group, and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.

The Company measures assets or disposal groups at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is first allocated to goodwill, and then to remaining assets and liabilities on a pro-rata basis, except that no loss is allocated to inventories or financial assets. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognized in the statement of comprehensive loss; however, gains are not recognized in excess of any cumulative impairment loss. Upon classifying asset or disposal groups as held for sale, the Company presents the assets separately as a single amount and the associated liabilities separately as a single amount on the consolidated statements of financial position. Comparative period consolidated statements of financial position are not restated. Assets held for sale are not depreciated, depleted, or amortized.

13

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Discontinued operations

A discontinued operation is a component of the Company’s business that represents a separate major line of business or geographical area of operations that has been disposed of or classified as held for sale. The operations and cash flows can be clearly distinguished from the rest of the Company, both operationally and for financial reporting purposes. When the Company classifies an operation as a discontinued operation, it re-presents the comparative consolidated statements of comprehensive loss as if the operation had been discontinued from the start of the comparative year. In doing this, the Company excludes the results for the discontinued operations and any gain or loss from disposal from the consolidated statements of operations from continuing operations and presents them on a separate line as profit or loss (net of tax) from the discontinued operation. Per share information and changes related to discontinued operations are presented separately from continuing operations. Cash flows from discontinued operations are presented separately from cash flows from continuing operations in the consolidated statements of cash flows. Since the Company had no substantial continuing operations after the sale of DUSA and DEAL, segregation of discontinued operations was not considered necessary.

(o) Adoption of new and amended standards

There were no new or amended accounting standards or interpretations that had a significant impact on the Company’s consolidated financial statements during the year ended December 31, 2020.

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:

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.

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.

NOTE 5 – ASSETS HELD FOR SALE

On December 31, 2019, the Company ceased to be an operator of record in the Piceance Basin in the State of Colorado and formally listed its remaining oil and gas properties in the Piceance Basin for sale with an accredited agent in the USA. The Company has no plans to further develop its existing petroleum and natural gas properties in Colorado or explore for new opportunities in the Piceance Basin.

As a result, an impairment test was conducted at December 31, 2019 and the Piceance Basin assets were written down by $2,124,000 to their estimated fair value less transaction costs of $268,000 (US$207,000). The recoverable amount was determined using the fair value less costs to sell methodology which is classified as Level 3 fair value measurements under IFRS. In addition, an impairment test was conducted at June 30, 2020 and the assets were further written down by $268,000 to their estimated fair value less transaction costs of $13,000 (US$10,000).

14

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 5 – ASSETS HELD FOR SALE (continued)

The major classes of assets and liabilities classified as held for sale as at December 31, 2019 are as follows:

	$
Accounts receivable	55
Property and equipment	268
Assets held for sale	323
Accounts payable and accrued liabilities	152
Decommissioning liability	152
Liabilities directly associated with assets held for sale	304

On July 16, 2020, the Company received a notice of demand from its secured lender (“Lender”) for repayment of the Company’s indebtedness to the Lender. Because the Company failed to do so, the Lender seized all the issued and outstanding shares of Dejour Energy (USA) Corp. (see note 7 below for details).

NOTE 6 – PROPERTY AND EQUIPMENT

	Canadian Oil	United States
	and Gas	Oil and Gas	Corporate and
	Properties	Properties	Other Assets	Total
	$	$	$	$
Cost:
Balance at January 1, 2019	34,673	16,224	159	51,056
Additions	1,419	50	-	1,469
Increase in right-of-use asset (note 9)	-	-	97	97
Change in decommissioning provision	146	9	-	155
Disposals	-	-	(8)	(8)
Reclassified to assets held for sale	-	(15,505)	-	(15,505)
Foreign currencytranslation and other	-	(778)	-	(778)
Balance at December 31, 2019	36,238	-	248	36,486
Additions	6	-	-	6
Change in decommissioning provision	206	-	-	206
Disposals(note 7)	(36,450)	-	(77)	(36,527)
Balance at December 31, 2020	-	-	171	171

15

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 6 – 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, 2019	(34,574)	(13,655)	(146)	(48,375)
Amortization and depletion	(459)	(114)	(84)	(657)
Impairment losses	(160)	-	-	(160)
Disposals	-	-	7	7
Reclassified to assets held for sale	-	13,113	-	13,113
Foreign currencytranslation and other	-	656	-	656
Balance at December 31, 2019	(35,193)	-	(223)	(35,416)
Amortization and depletion	(56)	-	(17)	(73)
Impairment losses	(1,201)	-	-	(1,201)
Disposals(note 7)	36,450	-	71	36,521
Balance at December 31, 2020	-	-	(169)	(169)
	Canadian Oil	United States
	and Gas	Oil and Gas	Corporate and
	Properties	Properties	Other Assets	Total
	$	$	$	$
Carrying amounts:
At December 31, 2019	1,045	-	25	1,070
At December 31, 2020	-	-	2	2

NOTE 7 – DISPOSITION OF SUBSIDIARIES

(a) Dejour Energy (Alberta) Ltd. (“DEAL”)

On May 31, 2020, the Company sold its 100% equity interest in DEAL to a privately held Calgary-based exploration and production company for a nominal price. On the date of change of control, the negative net assets value of DEAL was $4,925,000, resulting in a gain of $4,925,000.

	$
Accounts receivable	(37)
Prepaid and others	(275)
Accounts payable and accruals	1,147
Decommissioning liabilities	4,090
Negative net assets sold	4,925
Cash proceeds received	-
Gain on disposal of subsidiary	4,925

(b) Dejour Energy (USA) Corp. (“DUSA”)

On July 16, 2020, the Company received a notice of demand from its secured lender (“Lender”) for repayment of the Company’s indebtedness to the Lender. Because the Company failed to do so, the Lender seized all the issued and outstanding shares of DUSA and sold the 100% equity interest on August 26, 2020 for $13,000 (US$10,000). On the date of change of control, the negative net assets value of DUSA was $3,824,000, resulting in a gain of $3,818,000.

16

DXI CAPITAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 7 – DISPOSITION OF SUBSIDIARIES (continued)

	$
Property and equipment	(13)
Accounts payable and accruals	149
Decommissioning liabilities (Note 10)	152
Accumulated other comprehensive income	13
Reclassification of cumulative foreign exchange	3,523
Negative net assets sold	3,824
Net cash proceeds received(1)	(6)
Gain on disposal of subsidiary	3,818

(1) consideration less $7,000 in transaction costs

NOTE 8 – LOANS FROM RELATED PARTIES

(a) Loan from Hodgkinson Equities Corporation (“HEC”)

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 584,415 common shares of the Company at a price of $7.70 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 8(b)).

On April 29, 2019, the Company entered into an amending agreement with HEC to convert $2,500,000 into 416,666 common shares of the Company at a price of $6.00 per share. 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, 416,666 common shares of the Company were issued to HEC and 13,731 common shares of the Company were issued in settlement of accrued interest.

Upon receipt of approval by the disinterested shareholders at the Company’s Annual General and Special Meeting of Shareholders on August 20, 2020 and the acceptance by the TSXV on October 22, 2020, 4,332,505 shares of the Company at a price of $0.475 per share (including 121,979 shares in settlement of accrued interest) were issued to HEC on October 22, 2020. Thus, the loan of $2,000,000 and the accrued interest were repaid in full accordingly.

As at December 31, 2020, the carrying value of the loan liability is as follows:

	$
Balance at December 31, 2018	2,837
Accretion expense	229
Reversal of conversion feature on repayment	860
Repayment via share issuance	(2,500)
Balance at December 31, 2019	1,426
Accretion expense	125
Reversal of conversion feature on repayment	449
Repayment via share issuance	(2,000)
Balance at December 31, 2020	-

17

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 8 – LOANS FROM RELATED PARTIES (continued)

(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 259,740 common shares of the Company at a price of $7.70 per share; and (d) secure the loan by all assets of Dejour USA and issue 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 8(a)).

On May 31, 2020, upon the sale of all the issued and outstanding shares of DEAL to a privately held Calgary-based exploration and production company, HVI agreed to fully release and discharge the first mortgage on DEAL’s oil and gas properties. On July 16, 2020, the Company received a notice of demand from HVI for repayment of its indebtedness to HVI. Because the Company failed to do so, HVI was at liberty to realize its security interest and seized all the issued and outstanding shares of DUSA.

Upon receipt of approval by the disinterested shareholders and the acceptance by the TSXV, 4,332,505 shares of the Company at a price of $0.475 per share (including 121,979 shares in settlement of accrued interest) were issued to HVI on October 22, 2020. Thus, the loan of $2,000,000 and the accrued interest were repaid in full accordingly.

As at December 31, 2020, the carrying value of the loan liability is as follows:

	$
Balance at December 31, 2018	1,258
Accretion expense	167
Balance at December 31, 2019	1,425
Accretion expense	125
Reversal of conversion feature on repayment	450
Repayment via share issuance	(2,000)
Balance at December 31, 2020	-

(c) $375,000 loan

On May 21, 2020, the Company entered into a loan agreement with HEC and HVI for the loan amount of $150,000. The loan bears interest at 8% per annum. The principal and interest accrued on the loan were repayable on or before December 31, 2020. The principal loan amount owing at December 31, 2020 is $150,000.

On June 17, 2020, the Company further entered into a loan agreement with HEC for an additional loan amount of up to $100,000. The loan bears interest at 8% per annum. The principal and interest accrued on the loan were repayable on or before December 31, 2020. The principal loan amount owing at December 31, 2020 is $100,000.

On October 19, 2020, the Company further entered into a loan agreement with HVI for an additional loan amount of up to $50,000. The loan bears interest at 8% per annum. The principal and interest accrued on the loan were repayable on or before December 31, 2020. The principal loan amount owing at December 31, 2020 is $50,000.

On December 22, 2020, the the Company further entered into a loan agreement with HEC for an additional loan amount of up to $75,000. The loan bears interest at 8% per annum. The principal and interest accrued on the loan were repayable on or before December 31, 2020. The principal loan amount owing at December 31, 2020 is $75,000. Additionally, the parties agreed to extend the due date of the aggregate sum of the loans of $375,000 to March 31, 2021.

18

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 9 – LEASE LIABILITIES

	$
Balance at January 1, 2019		-
Initial recognition		97
Interest expense		5
Lease payments		(86)
Balance at December 31, 2019		16
Lease payments		(16)
Balance at December 31, 2020		-

The Company had lease liabilities for contracts related to 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. As at December 31, 2020, the lease contracts for the offices in Vancouver and Calgary were expired.

NOTE 10 – DECOMMISSIONING LIABILITY

	Canadian Oil	United States
	and Gas	Oil and Gas
	Properties	Properties	Total
	$	$	$
Balance at January 1, 2019	3,664	144	3,808
Additions	40	-		40
Change in estimated future cash flows	118	9		127
Actual costs incurred and other	-	(3)		(3)
Unwinding of discount	56	2		58
Reclassified as liability directly associated with assets held for
sale (notes 5 and 7)	-	(152)	(152)
Balance at December 31, 2019	3,878	-	3,878
Change in estimated future cash flows	205	-		205
Unwinding of discount	7	-		7
Disposal (note 7)	(4,090)	-	(4,090)
Balance at December 31, 2020	-	-		-

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, 2020:
Discount rate	-	-
Inflation rate	-	-
As at December 31, 2019:
Discount rate	1.62%	1.67%
Inflation rate	2.00%	2.00%

19

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 11 – 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.

Issued and Outstanding

In October and November 2020, the Company issued 9,080,791 common shares at a price of $0.475 per share to settle a total of $4,314,000 in debt owed to various creditors, including the issuance of 8,665,010 shares to settle a total of $4,000,000 in loans from related parties and a total of $116,000 in accrued interest. The Company incurred professional and other costs of $15,000 related to these debt settlements.

In January 2020, the Company issued 44,301 common shares at a price of $3.00 per share for the settlement of accrued interest of $133,000. The Company incurred professional and other costs of $8,000 related to this debt settlement.

In December 2019, the Company completed a private placement and 319,944 units were issued at a price of $3.00 per unit. Each unit consists of one common share and one common share purchase warrant. Each whole common share purchase warrant is exercisable into one common share of the Company at $4.00 per share on or before December 2, 2020. Gross proceeds raised were $960,000. In connection with this private placement, the Company paid finders’ fees of $61,000 and other related costs of $13,000.

In July 2019, the Company completed a private placement and 58,356 common shares were issued at a price of $6.00 per share for gross proceeds of $350,000. The Company paid professional and other costs of $9,000 related to this offering. 100% of the common shares were issued to two officers of the Company.

In March 2019, the Company completed a private placement and 330,523 common shares were issued at a price of $6.00 per share for gross proceeds of $1,983,000. The Company paid professional and other costs of $28,000 related to this offering. 9,062 of the common shares were issued to a director of the Company (2,396) and a creditor of the Company (6,666) to settle the amount of $14,000 and $40,000 respectively owing to them.

In February 2019, the Company issued 129,999 common shares for the conversion of secured loans of $780,000. In May 2019, the Company issued 583,333 common shares for the conversion of secured loans of $3,500,000 and 26,910 common shares for the settlement of accrued interest of $161,000.

Subscriptions received in advance

In September 2020, the former CFO of the Company subscribed to 355,894 shares of the Company at a price of $0.475 per share for total proceeds of $169,000. As of the date of these financial statements, the settlement of unpaid salaries has been approved by the TSXV and these shares were issued on February 17, 2021.

NOTE 12 – STOCK OPTIONS AND SHARE PURCHASE WARRANTS

(a) 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.

20

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 12 – STOCK OPTIONS AND SHARE PURCHASE WARRANTS (continued)

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, 2019	48,500	13.00
Options granted	35,000	6.00
Options cancelled	(8,000)	13.00
Balance at December 31, 2019	75,500	10.00
Options cancelled	(75,500)	10.00
Balance at December 31, 2020	-	-

No stock options were issued during the year ended December 31, 2020. The fair value of the options issued during the year ended December 31, 2019 was estimated using the Black Scholes option pricing model with the following weighted average inputs:

For the year ended December 31		2019
Fair value at grant date	$	3.00
Expected volatility		108.49%
Expected option life		2.16 years
Dividends		0.0%
Risk-free interest rate		1.82%
Estimated forfeiture rate		4.10%

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.

(b) Share Purchase Warrants

The following table summarizes information about warrant transactions:

	Number of	Weighted average
	Warrants	Exercise price
		$
Balance at December 31, 2018	-	-
Warrants granted	319,944	4.00
Balance at December 31, 2019	319,944	4.00
Warrants expired	(319,944)	4.00
Balance at December 31, 2020	-	-

21

DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 13 – SUPPLEMENTAL CASH FLOW INFORMATION

Changes in working capital consisted of the following:

	Year ended December	Year ended December	31
	2020	2019
	$	$
Changes in working capital:
Accounts receivable		182	(1)
Prepaids and deposits		30	22
Accountspayable and accrued liabilities		(59)	(230)
		153	(209)
Comprised of:
Operating activities		190	(422)
Investing activities		(0)	212
Financingactivities		(37)	1
		153	(209)
Other cash flow information:
Cash paid for interest		-	-
Income taxes paid		-	-

NOTE 14 – RELATED PARTY TRANSACTIONS

During the year ended December 31, 2020 and 2019 and in addition to the loans from related parties (note 8), the Company entered into the following transactions with related parties:

• (a) Compensation awarded to key management included a total of salaries and director fees of $87,000 (2019 - $311,000) and non-cash stock-based compensation of $6,000 (2019 - $114,000). Key management includes the Company’s officers and directors. The salaries and director fees are included in general and administrative expenses. Included in accounts payable and accrued liabilities at December 31, 2020 is $Nil (December 31, 2019 - $268,000) owing to the officers and directors of the Company.

• (b) Interest expenses of $249,000 (2019 - $161,000 via issuance of the Company’s 26,909 common shares) related to loans from related parties were paid via the issuance of the Company’s 288,259 common shares to companies controlled by or associated with a director of the Company.

NOTE 15 – 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:

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DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 15 – INCOME TAXES (continued)

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2020 2019
$ $
Income (loss) before income taxes 6,199 (5,221)
Corporate tax rate 27.00% 27.00%
Expected tax expenses (recovery) 1,674 (1,410)
Increase (decrease) resulting from:
Differences in foreign tax rates and change
in statutory tax rates (2,226) 1,233
Impact of foreign exchange rate changes 330 946
Change in unrecognized deferred tax assets (11,057) (946)
Permanent differences (11,309) 177
Impact of disposal of subsidiaries 22,588 -
- -
Deferred income tax expenses (recovery)
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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.

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2020 2019
$ $
Deferred income tax assets
Non-capital losses available 7,091 23,193
Capital losses available 12,379 1,113
Resource tax pools in excess of net book value 821 6,299
Share issue costs and others 37 780
Unrecognized deferred tax assets 20,328 31,385
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The Company has a non-capital loss carry forward balance of $26,261,000 (2019 - $97,805,000). These losses will expire from 2026 to 2040. The balance of the remaining tax pools is $94,875,000 (2019 - $35,124,000).

NOTE 16 – COMMITMENTS

At December 31, 2020, the Company’s undiscounted contractual obligations and commitments are as follows:

			Payments	Due by Period
	1	Year	2-3 Years	4-5 Years		Total
		$	$	$		$
Debt repayments		375		-	-		375
		375		-	-		375

NOTE 17 – 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:

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DXI CAPITAL CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

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

NOTE 17 – DETERMINATION OF FAIR VALUES (continued)

• 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.

As at December 31, 2020, the Company had no financial instruments measured at fair value.

NOTE 18 – 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 is the risk of loss associated with a counter-party’s inability to fulfill its payment obligations. At December 31, 2020, financial assets on the statement of financial position are comprised of cash and accounts receivable. The maximum credit exposure at December 31, 2020 is the carrying amount of cash of $73,000. A major financial institution holds the cash.

(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 Company’s approach to mitigate the liquidity risk is to ensure, as far as possible, it always 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 currently has no operating properties and therefore the exposure to market risk is minimal.

(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, 2020.

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