SKYQ 10-Q
Sky Quarry Inc. (SKYQ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from _______________ to _______________.
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
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(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.0001 | SKYQ | Nasdaq Capital Market |
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the previous 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ |
¨ | Smaller reporting company | ||
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| Emerging growth company | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of August 12, 2026, there were
SKY QUARRY INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED JUNE 30, 2026
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION |
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Item 1. | 1 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 26 | |
Item 3. | 32 | ||
Item 4. | 32 | ||
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PART II – OTHER INFORMATION |
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Item 1. | 33 | ||
Item 1A. | 34 | ||
Item 2. | 34 | ||
Item 3. | 34 | ||
Item 4. | 34 | ||
Item 5. | 35 | ||
Item 6. | 35 | ||
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (this “Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are intended to be covered by the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report, including statements that relate to, among others, our plans, objectives and expectations for our business, strategy, operations, financial condition, results of operations and liquidity included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and elsewhere in this Report, are forward-looking statements. Words such as “aim,” “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “if,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” and variations of such words and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.
Forward-looking statements are not guarantees of future performance and are, by their very nature, uncertain and risky. Although Sky Quarry Inc.’s (“Sky Quarry,” the “Company,” “we,” “us” or “our”) management believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond the Company’s control. These risks and uncertainties include, without limitation: our ability to continue as a going concern and to obtain additional financing on acceptable terms; our ability to resume and sustain refinery operations at our Eagle Springs Refinery, including the availability of crude oil feedstock; commodity price volatility, including fluctuations in the price of crude oil, diesel, and other refined products; our ability to execute our ATM equity offering program and access capital markets; the outcome of pending or future litigation, including the KF Business Ventures proceedings and other claims; our ability to service or refinance our existing indebtedness; our ability to consummate the Potential Transaction involving digital infrastructure assets and realize its anticipated benefits; risks relating to the development and commercialization of our ECOSolv technology and the PR Springs facility; risks related to environmental compliance, permitting, and regulatory changes; international, national, and local economic and market conditions; our ability to attract and retain qualified personnel; our ability to maintain compliance with Nasdaq listing requirements; changes in interest rates, inflation, and the cost of capital; business disruptions, supply chain challenges, and geopolitical uncertainties; and other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission (the “SEC”), including the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2025 and this Report. Actual results may differ materially from those expressed or implied by these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this Report. Except as may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or circumstances after the date of this Report. You are urged to carefully review and consider the risks, uncertainties, and additional discussions related thereto in this Report and other filings we file from time to time with the SEC.
1
PART I – FINANCIAL INFORMATION
ITEM 1 Financial Statements
2
Sky Quarry Inc.
Condensed Consolidated Balance Sheets (Unaudited)
As of June 30, 2026 and December 31, 2025
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ASSETS |
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Current assets: |
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Cash |
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Prepaid expenses and other assets |
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Inventory |
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Total current assets |
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Property, plant and equipment |
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Oil and gas properties |
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Restricted cash |
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Right-of-use-asset |
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Goodwill |
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Total assets |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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Operating lease liability |
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Warrant liabilities |
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Lines of credit |
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Current portion of notes payable |
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Total current liabilities |
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Notes payable, net of current portion |
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Operating lease liability, net of current portion |
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Total liabilities |
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Commitments and contingencies |
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SHAREHOLDERS’ EQUITY: |
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Common Stock $ |
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Additional paid in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total shareholders’ equity |
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Total liabilities and shareholders' equity |
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See accompanying Notes to Condensed Consolidated Financial Statements.
3
Sky Quarry Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
For the three and six months ended June 30, 2026 and 2025
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Net sales | $ | | $ | | $ | | $ | |
Cost of goods sold |
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Gross margin |
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Operating expenses: |
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General and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest income or (expense) |
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Gain (loss) on extinguishment of debt |
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Gain or (loss) on warrant revaluation |
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Other income (expense) |
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Gain on disposal of assets |
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Other expense, net |
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Loss before provision for income taxes |
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Provision for income taxes |
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Net loss |
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Other Comprehensive Loss |
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Exchange loss on translation of foreign operations |
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Net loss and comprehensive loss |
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Loss per common share |
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Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( |
Weighted average shares outstanding |
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Basic and diluted |
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See accompanying Notes to Condensed Consolidated Financial Statements.
4
Sky Quarry Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
For the three and six months ended June 30, 2026 and 2025
| Common Stock Outstanding |
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| Accumulated Deficit |
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Balance January 1, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||
Common shares issued for non-cash consideration |
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Debt converted to common shares |
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Share based compensation |
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Stock warrants issued |
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Other comprehensive income |
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Net loss |
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Balance March 31, 2025 |
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Common shares issued for non-cash consideration |
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Debt converted to common shares |
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Share based compensation |
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Stock warrants issued |
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Other comprehensive loss |
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Net loss |
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Balance June 30, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||
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Balance December 31, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||
Common shares subscription, less offering costs |
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Common shares issued for non-cash consideration |
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Debt converted to common shares |
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Share based compensation |
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Other comprehensive loss |
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Net loss |
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Balance March 31, 2026 |
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Common shares subscription, less offering costs |
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Common shares issued for non-cash consideration |
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Debt converted to common shares |
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Share based compensation |
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Other comprehensive loss |
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Net loss |
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Balance June 30, 2026 | $ | $ | $ | ( | $ | ( | $ |
See accompanying Notes to Condensed Consolidated Financial Statements
5
Sky Quarry Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three and six months ended June 30, 2026 and 2025
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss | $ | ( | $ | ( |
Adjustments to reconcile net loss to cash and restricted cash and cash equivalents used in operating activities: |
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Share based compensation |
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Depreciation and amortization |
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Amortization of debt issuance costs |
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Amortization of ROU asset |
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Loss (gain) on revaluation of warrant liabilities |
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Loss on extinguishment of debt |
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Gain on the sale of assets |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other assets |
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Inventory |
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Accounts payable and accrued expenses |
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Operating lease liability |
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Net cash and restricted cash and cash equivalents used in operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Proceeds from sale of assets |
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Purchase of property, plant, and equipment |
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Purchase of oil and gas development assets |
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Net cash and restricted cash and cash equivalents used in investing activities |
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CASH FLOWS FROM FINANCING |
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Proceeds on lines of credit |
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Payments on lines of credit |
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Proceeds from note payable |
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Payments on note payable |
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Payments on finance lease |
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Proceeds on issuance of common stock |
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Net issuance cost |
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Net cash and restricted cash and cash equivalents provided by (used in) financing activities |
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Effects of exchange rate on cash |
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Increase (decrease) in cash and restricted cash and cash equivalents |
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Cash and cash equivalents and restricted cash, beginning of the period |
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Cash and restricted cash and cash equivalents, end of the period | $ | $ | |
See accompanying Notes to Condensed Consolidated Financial Statements.
6
Sky Quarry Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three and six months ended June 30, 2026 and 2025
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid for interest | $ | | $ | |
Cash paid for taxes |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Common shares issued for non-cash consideration | $ | | $ | |
Conversion of debt |
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See accompanying Notes to Condensed Consolidated Financial Statements
7
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1.NATURE OF OPERATIONS
Sky Quarry, Inc. and its subsidiaries (“Sky Quarry”, “SQI” or the “Company”) is a domestic refining and resource development company. Through its Foreland Refinery Corp wholly owned subsidiary located near Ely, Nevada, the Company operates the only licensed permitted crude oil refinery in that state servicing the crude oil supply in the Uintah basin. For over 25 years, the refinery has produced diesel, vacuum gas oil (VGO), naphtha and asphalt for adjacent regional markets in the United States. Recent refinery shutdowns in California have highlighted fuel resiliency needs for this area which we intend to support and supply. Sky Quarry’s second wholly owned subsidiary known as 2020 Resources, LLC owns a development stage facility known as PR Springs near Vernal, Utah representing an opportunity to monetize further resources in the area for growth. For more information, visit www.skyquarry.com.
2.BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements include the accounts of Sky Quarry and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
These accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are not audited. Certain information and footnote disclosures that are usually included in the financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted in accordance with SEC rules and regulations. The accompanying condensed consolidated financial statements contain all the adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of June 30, 2026 and December 31, 2025, the results of operations for the three and six months ended June 30, 2026 and 2025, and the cash flows for the three and six months ended June 30, 2026 and 2025. The results of operations for the three and six months ended June 30, 2026 and 2025 are not necessarily indicative of the results for a full-year period. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC.
Significant Accounting Policies
The significant accounting policies were described in Note 1 to the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2025. There have been no changes to these policies during the quarter ended June 30, 2026, that are of significance or potential significance to the Company.
Recently Issued and Adopted Accounting Pronouncements
The Company has reviewed recently issued accounting standard updates and determined that all applicable standards have already been adopted, as disclosed in the Company’s previously filed Annual Report on Form 10-K. Accordingly, there are no new pronouncements requiring adoption in the current interim reporting period.
Reverse Stock Split
The Company effected the Reverse Stock Split (as defined below) on March 15, 2026, at 11:59 PM Eastern Time, and the split has been retroactively applied to all share and per share amounts presented in the financial statements. See Note 17 for additional information.
3.GOING CONCERN
These condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes that the Company will be able to realize its assets and satisfy its liabilities in the normal course of business for the foreseeable future. Management is aware, in making its going concern assessment, of material uncertainties related to events and conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. As of June 30, 2026, the Company has an accumulated deficit of $
Currently, repairs to the refinery have been completed and initial feedstock has been procured, subject to scale up operational testing and state inspection. As of the date of this report, the Foreland Refinery operations have not yet
8
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
restarted after a significant non-operating turnout period with no meaningful cash flow contributed to the Company during 2026 year to date. Without additional financing, the Company does not have sufficient operating cash flows to pay for its expenditures and settle its obligations as they mature. Subsequent to June 30, 2026, there is uncertainty in meeting these obligations. The Company does have to raise additional capital in the form of debt, equity and/or warrant exercise proceeds, or a combination thereof, to fund future capital expenditures, retire maturing debt obligations and any possible acquisitions. The Company’s current plan includes generating margin contribution from resumed refinery operations, closely monitoring its operating expenses, refinancing its current debt with longer term debt with amortization schedules that decrease monthly debt service obligations and utilizing equity offering proceeds where appropriate. These actions are intended to mitigate the going concern uncertainties and support the Company’s growth plans in commercializing its extraction technology. There is no assurance, however, that the Company will be successful in these efforts.
As of the date of this report, the Foreland Refinery operations have not yet restarted after a significant non-operating turnout period with no meaningful cash flow contributed to the Company during 2026 year to date. Without additional financing, the Company does not have sufficient operating cash flows to pay for its expenditures and settle its obligations as they mature. Subsequent to June 30, 2026, there is uncertainty in meeting these obligations. The Company does have to raise additional capital in the form of debt, equity and/or warrant exercise proceeds, or a combination thereof, to fund future capital expenditures, retire maturing debt obligations and any possible acquisitions. The Company’s current plan includes generating margin contribution from resumed refinery operations, closely monitoring its operating expenses, refinancing its current debt with longer term debt with amortization schedules that decrease monthly debt service obligations and utilizing equity offering proceeds where appropriate. These actions are intended to mitigate the going concern uncertainties and support the Company’s growth plans in commercializing its extraction technology. There is no assurance, however, that the Company will be successful in these efforts.
Management believes that the implementation of its plans will allow the Company to continue as a going concern. Investors are encouraged to review the financial statements and related disclosures for a comprehensive understanding of the Company’s financial position.
The condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption inappropriate. These adjustments could be material.
4.INVENTORY
Inventory consists primarily of raw crude, chemicals and finished goods. Inventory consisted of the following:
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Finished goods |
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Raw materials |
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Chemicals |
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Total |
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5.MINERAL LEASES
Through its acquisition of 2020 Utah, the Company indirectly acquired certain mineral rights under three mineral leases entitled “Utah State Mineral Lease for Bituminous-Asphaltic Sands” between the State of Utah’s School and Institutional Trust Land Administration (“SITLA”), as lessor, and 2020 Utah, as lessee, covering certain lands in the PR Springs Area largely adjacent to each other (the “SITLA Leases”). The SITLA Mineral Lease consisted of the following and is included in property plant and equipment under capital projects started in the Condensed Consolidated Balance Sheets.
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Cost |
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December 31,2024 | $ | |
Additions |
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December 31,2025 |
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Additions |
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Accumulated Amortization |
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June 30, 2026, 2025, and 2024 |
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9
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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Carrying Amounts |
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June 30, 2026 | $ |
During the six months ended June 30, 2026, and year ended December 31, 2025, the Company did not record any amortization of the lease rights as operations have not yet commenced.
10
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company (through its subsidiary) holds mineral leases (or the operating rights under leases) covering approximately 5,880 net acres within the State of Utah. Terms of the SITLA Leases are set forth in the table below.
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Reference |
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ML-49927 |
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ML-51705 |
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Total |
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Notes:
(1)Leases may be extended past expiry date by continued payment of annual rent and annual advance minimum royalty.
(2)Annual rent may be credited against production royalties payable during the year.
(3)Annual advance minimum royalty may be credited against production royalties payable during the year.
(4)The production royalty is payable on the market price of products produced from the leased substances, without deduction of costs for mining, overhead, labor, distribution or general and administrative activities.
6.PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is comprised of the following:
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Buildings | $ | $ | ||
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Capital projects started |
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Office furniture and equipment |
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Total property, plant and equipment |
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Less: Accumulated depreciation and amortization |
| ( |
| ( |
Property, plant and equipment, net | $ | $ |
Eagle Springs Refinery consists of tanks, buildings, refining processing equipment, shop, lab and equipment. For Eagle Springs Refinery, each class of property, plant and equipment is estimated to have a useful life of 5 years and are being amortized over a straight-line basis.
Depreciation and amortization expense totaled $
7.OIL AND GAS PROPERTIES
Oil and gas properties are comprised of the following:
|
| June 30, |
| December 31, | |
Balance, beginning of period |
| $ | $ | ||
Disposal |
|
|
| ( | |
Additions |
|
|
| ||
Balance, end of period |
| $ | $ |
Oil and gas properties, located in the eastern Utah tar sands, includes undeveloped lands, unproved properties, research and development equipment, mining equipment and seismic costs where management has not fully evaluated for technical feasibility and commercial viability.
As of June 30, 2026, the Company holds oil and gas assets representing more than 10% of the total assets, which are primarily the PR Springs facility costs, which includes all direct costs incurred to acquire or construct the assets, including tanks, buildings, extraction processing equipment, shop, lab and equipment. The costs of the PR Springs facility under construction are capitalized as part of oil and gas properties. These costs include direct materials, labor,
11
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
and overhead attributable to the construction activities. As the facility is not yet operational, depreciation has not commenced. The construction project is classified as "construction in progress" until the PR Springs facility is placed into service. Once the asset is ready for its intended use, depreciation will begin based on its estimated useful life. The Company evaluates oil and gas properties for impairment in accordance with ASC 360-10-35. If indicators of impairment arise, the Company will assess the recoverability of the asset’s carrying value by comparing the asset’s carrying amount to the undiscounted future cash flows expected to be generated by the asset. If impairment is identified, the asset will be written down to its fair value. As of June 30, 2026, the Company has determined that there has been no impairment of the PR Springs facility under construction, as there are no indicators suggesting a decline in the asset's recoverable value. The Company has no proven reserves, and there have been no significant changes in reserves during the reporting period. The capitalized costs related to these oil and gas assets amount to $
PR Springs has not commenced active extraction of reserves. Consequently, the Company is not required to provide reserve quantities or future cash flow disclosures in accordance with ASC 935-235-50-2. Based on our analysis of the asset group, we have determined that no impairment is necessary as of the reporting date. The carrying amounts of the development-stage extraction facility and related oil and gas properties are fully supported by projected future cash flows, which are derived from reasonable and supportable assumptions regarding commodity prices, expected production rates, and operating costs once the assets are operational. Additionally, no significant adverse changes in the economic environment, regulatory landscape, or project costs have occurred to suggest that the recoverable amount of these assets is less than their carrying value. As such, the assets continue to meet the criteria for capitalization, and no impairment loss has been recognized in accordance with ASC 360-10-35. Further, under ASC 932-360-35-19, the impairment analysis specifically considers the recoverability of costs capitalized for oil and gas properties in the development phase. As these costs are expected to be recoverable through future production, no impairment charge was required as of June 30, 2026 or June 30, 2025.
8.RIGHT-OF-USE ASSET AND LEASE LIABILITY
The Company currently leases office space, which are classified as operating leases under ASC 842.
The components of operating lease expense, associated with the Company’s leasing of office space, consisted of amortization of the right-of-use asset of $
The weighted average remaining lease term in years was
Amortization expense on operating leases is included as part of general and administrative expenses on the income statement. The total lease expense recognized on the income statement is the sum of the accretion of the lease liability and amortization expense. This total expense reflects the cost of using the leased asset over the lease term.
The following table reconciles the undiscounted future cash flows for the next five years and thereafter to the operating lease liabilities recorded within the condensed consolidated balance sheet as of June 30, 2026:
2026 (Remainder) | $ | |
2027 | $ | |
2028 | $ | |
2029 | $ | |
Total lease payments |
| |
Less: amounts representing interest |
| ( |
Present value of lease liabilities | $ |
The Company previously leased remote accommodation camps under finance lease agreements. During the third quarter of 2025, the Company terminated its finance lease arrangement, and all associated right-of-use assets and lease liabilities were fully derecognized during June 2025. No termination payments were made in connection with the early termination.
The components of finance lease expense, associated with the Company’s leasing of remote accommodation camps, consisted of amortization of the right-of-use asset of $
12
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
2025, respectively, and accretion of the lease liability of $
The weighted average remaining lease term in years was
Amortization expense on financing leases is included as part of general and administrative expenses on the statement of operations. The total lease expense recognized on the statement of operations is the sum of the accretion of the lease liability and amortization expense. This total expense reflects the cost of using the leased asset over the lease term.
Included in the total lease payments are approximately $
9.GOODWILL
Goodwill is derived from the acquisition of Foreland in 2022. Goodwill recognized from the acquisition was $
10.ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
| June 30, 2026 |
| December 31, 2025 | |
Trade accounts payable | $ | $ | ||
Accrued expenses |
|
| ||
Other |
|
| ||
| $ | $ |
11.WARRANT LIABILITY
The details of warrant liability transactions for the three and six months ended June 30, 2026 and 2025, are as follows:
|
| June 30, 2026 |
| December 31, 2025 |
Beginning balance | $ | $ | ||
Fair value upon issuance of warrants |
|
| ||
Change in fair value |
|
| ( | |
Ending balance | $ | $ |
On August 27, 2024, as consideration for the reduction of weekly payments to certain lenders during the Company’s Reg A Offering, the Company issued common stock warrants to purchase (“Purchase Warrant”) up to an aggregate of 78,125 shares of the Company’s common stock (the “Common Warrants”) at $4.50 per share.
The Purchase Warrant provides for a value calculation for the Purchase Warrant using the Black Scholes model in the event of certain fundamental transactions. The fair value calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined this provision introduces leverage to the holders of the Purchase Warrant that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrant as a liability in its condensed consolidated balance sheet. The classification of the Purchase Warrant, including whether the Purchase Warrant should be recorded as a liability or as equity, is evaluated at the end of each reporting period with changes in the fair value reported in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. The Purchase Warrant was initially recorded at a fair value at $
During the three and six months ended June 30, 2026, the Company recognized change in fair value of the warrant liability of $
13
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
All changes in the fair value of the warrant liabilities are recognized as a change in fair value of warrant liability in the Company’s consolidated statements of operations until they are either exercised or expire.
The warrant liabilities for the Common Warrants were valued using a Black Scholes pricing model with the following weighted average assumptions:
|
| June 30, 2026 |
| December 31, 2025 |
Stock price |
|
| ||
Risk-free interest rate |
|
| ||
Expected volatility |
|
| ||
Expected life (in years) |
|
| ||
Expected dividend yield |
| - |
| - |
Fair value of warrants | $ | $ |
12. LINES OF CREDIT
| June 30, 2026 |
| December 31, 2025 | |
Invoice purchase and security agreement | $ | $ |
On December 21, 2022, Foreland entered into an Invoice Purchase and Security Agreement (the “IPSA”) and inventory finance rider (the “Rider”) with Alterna Capital Solutions, LLC (“Alterna”). Under the terms of the IPSA, Alterna provides an advance of 85% of the amount of the purchased receivables to Foreland and during the time the receivables remain outstanding, is granted a continuing senior security interest in all assets of Foreland, to the extent and in the amount of the purchased receivables. The Rider provides a standby security for certain letters of credit in place with certain crude oil suppliers to Foreland. The letters of credit are adjusted periodically to correlate with the price and quantities of purchased heavy crude oil. The Agreement is senior secured by the sale-ready and pre-sale petroleum product inventory on hand at Foreland and matures on December 21, 2025. Funds drawn under the agreement accrue interest at a per annum rate equal to the sum of the Wall Street Journal Prime Rate of 7.50% plus 2.25%. In addition, a collateral monitoring fee of 0.17% on outstanding advances made is due monthly. Repayment of advances shall be payable from collection of Foreland accounts receivable, including those accounts arising from the sale of the inventory to its customers.
13.DEBT
Debt consisted of the following:
|
|
|
| Principal |
| Principal |
Lender / Merchant | Maturity Date | Effective Interest Rate |
| June 30, |
| December 31, |
Libertas 2026 | February 14, 2028 | 8% | $ | $ | | |
Private Lender A | November 24, 2025 | 30% |
|
| | |
LendSpark #3 | March 4, 2025 | 68% |
|
| | |
ACMO USOS LLC | March 15, 2021 | 15% |
|
| | |
Libertas #6 | December 6, 2024 | 58% |
|
| | |
Libertas #5 | November 29, 2024 | 58% |
|
| | |
Libertas #7 | January 7, 2025 | 66% |
|
| | |
LendSpark #4 | December 4, 2024 | 68% |
|
| | |
Libertas #4 | September 12, 2024 | 68% |
|
| | |
USA SBA | March 1, 2026 | 1% |
|
| | |
|
|
|
|
| | |
Less: Unamortized debt issuance costs |
|
|
| ( | ||
|
|
| $ | $ | | |
As of June 30, 2026, the maturity date of debt is as follows:
Due in less than one year |
| $ | |
Due in more than one year, but less than two years |
|
| |
Less: Unamortized debt issuance costs |
|
| |
|
| $ |
The past due debt referred to above is owed to Private Lender A in the amount of $
14
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Corporation commence foreclosure proceedings against us, we do not expect any adverse impact on our operations as a result of our past due debt.
The debt terms related to private lenders are as follows:
Upon issuance of the Note, the MCA Obligations and MCA Agreements were fully and irrevocably satisfied, cancelled and extinguished. Libertas provided a general release of all claims against the Company Parties arising out of or related to the MCA Agreements.
15
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
LIABILITY FOR SALE OF FUTURE REVENUES
As of June 30, 2026, the Company is party to several agreements related to the sale of future revenues with Libertas Funding, LLC (“Libertas”), a total of four agreements remain outstanding and four agreements have been terminated. The agreements, summarized below, contain substantially the same terms and conditions and grant a continuing security interest in all assets of Foreland, to the extent and in the amount of the purchased receivables.
As of June 30, 2026, the Company had the following unamortized debt discounts related to the Libertas agreements:
Lender | Date Issue |
| Gross Discount |
| Unamortized Discount |
Libertas #4 | October 25, 2023 | $ | $ | ||
Libertas #5 | January 11, 2024 |
|
| ||
Libertas #6 | January 18, 2024 |
|
| ||
Libertas #7 | February 19, 2024 |
|
| ||
|
| $ | $ |
Mandatorily redeemable preferred stock:
|
|
|
| Principal |
| Principal |
|
| Effective |
| Balance |
| Balance |
| Maturity | Interest |
| June 30, |
| December 31, |
Lender / Merchant | Date | Rate |
| 2026 |
| 2025 |
Private Lender F | October 2, 2030 | 10% | $ | $ | ||
Private Lender F | October 2, 2030 | 10% |
|
| ||
Private Lender F | October 2, 2030 | 10% |
|
| ||
Private Lender F | October 2, 2030 | 10% |
|
| ||
Private Lender F | October 2, 2030 | 10% |
|
| ||
|
|
|
|
| ||
Less: Unamortized debt issuance costs |
| ( |
| ( | ||
|
|
| $ | $ | ||
16
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
As of June 30, 2026, the maturity date of the mandatorily redeemable preferred shares is as follows:
Due in less than one year |
| $ | - |
Due in more than one year |
|
| |
Less: Unamortized debt issuance costs |
|
| ( |
|
| $ |
In July 2025, the Company’s wholly-owned subsidiary, Foreland Refining Corporation ("Foreland”), commenced an offering of its Series A 10% Redeemable Preferred Stock ("Preferred Stock”) pursuant to Regulation Crowdfunding ("Reg CF Offering”).
Pursuant to the terms of the Reg CF Offering, Foreland is offering up to $
The Preferred Stock carries an annual dividend payment of ten percent (10%) ("Preferred Dividend”). The dividend on the Preferred Stock shall accrue, beginning from the date of issuance. Preferred Dividends shall be computed on the basis of the actual number of days elapsed and a 365-day year. The Preferred Dividends shall accrue and be paid to the holder of the Preferred Stock within fifteen (15) days of the end of each calendar year. The Preferred Stock will be senior preferred equity of Foreland and contain customary provisions restricting the payment of dividends on, and the repurchase of, junior and pari passu equity at any time when all Preferred Dividends on the Preferred Stock have not been paid in full in cash.
The Preferred Stock is not convertible into shares of Foreland’s common stock and does not have any voting rights.
Holders of the Preferred Stock shall receive a royalty of $0.75 (for every $1 million of Preferred Stock, prorated for lesser amounts) per barrel of crude oil refined and sold by Foreland, at all times, while the Preferred Stock is outstanding ("Royalty Payment”). The Royalty Payment shall be paid to the holders of the Preferred Stock within thirty (30) days of Foreland’s annual financial statements being audited and filed with the SEC as part of its parent company’s, Sky Quarry Inc. ("Sky Quarry” or "Parent Company”), obligations to file a Form 10-K with the SEC ("Royalty Payment Date”). The amount of the annual Royalty Payment shall not exceed an aggregate return of more than twenty-five percent (25%) per annum to the holders of the Preferred Stock, inclusive of the annual 10% Preferred Dividend.
The Preferred Stock shall be redeemed by Foreland on the date that is five (5) years after the date of issuance ("Automatic Redemption Date”) at a price equal to the liquidation preference. If the Preferred Stock is redeemed prior to the Automatic Redemption Date between the date of issuance and the date that is: (i) thirty-six (36) months thereafter, the Preferred Stock may be redeemed by Foreland in whole or in part in its sole discretion at a price equal to 110% of the liquidation preference; (ii) between thirty-six (36) months and forty-eight (48) months after the issuance of the Preferred Stock, the Preferred Stock may be redeemed by Foreland in whole or in part in its sole
17
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
discretion at a price equal to 105% of the liquidation preference; or (iii) between forty-eight (48) months after the issuance of the Preferred Stock and the Automatic Redemption Date, the Preferred Stock may be redeemed by Foreland in whole or in part in its sole discretion at a price equal to 103% of the liquidation preference. If the Preferred Stock is redeemed prior to the Automatic Redemption Date, the holder of the Preferred Stock shall be entitled to their Royalty Payment through the date of redemption.
14. CONVERTIBLE DEBENTURES
|
| Interest |
| Principal Due |
| Principal Due |
Lender | Maturity Date | Rate |
| June 30, 2026 |
| December 31, 2025 |
Private Lender C | November 24, 2026 | 9% | $ | $ | ||
Private Lender A | March 2, 2025 | 30% |
|
| ||
Private Lender E | August 27, 2027 | 12% |
|
| ||
Private Lender E | May 22, 2027 | 12% |
|
| ||
Private Lender E | July 21, 2027 | 12% |
|
| ||
Private Lender E | April 10, 2026 | 12% |
|
| ||
Private Lender D | July 16, 2025 | 5% | $ |
| ||
|
|
| $ | $ | ||
Less: Unamortized debt issuance costs |
|
|
| ( | ||
|
|
| $ | $ | ||
18
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
15.INCOME TAXES
As of June 30, 2026, the Company had U.S. federal net operating loss carryforwards.
The Company considered all positive and negative evidence. Given the caution of Subtopic 30-21 regarding the difficulty in forming a conclusion that a valuation allowance is not needed in the case of cumulative losses, it is the Company’s conclusion that it is more likely than not that the Company’s existing deferred tax assets in the U.S. will
19
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
not be realized and that a valuation allowance is necessary as of June 30, 2026. Accordingly, the Company has recorded a full valuation allowance of in the U.S. The Company has evaluated all the negative and positive evidence as of June 30, 2026, and concludes that due to the Company being in a 3-year cumulative loss position, it is more likely than not that the net Canadian deferred tax assets will be not realized. As such, the Company has recorded and maintained a full valuation allowance in Canada.
The Company has not performed a Section 382 study to determine whether it had experienced a change in ownership and, if so, whether the tax attributes (net operating losses or credits) were impaired. Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s ability to utilize net operating loss or other tax attributes, such as research tax credits, in any taxable year may be limited if the Company has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if there is a cumulative increase of more than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who own at least 5% of a corporation’s stock within a specified testing period. Similar rules may apply under state tax laws.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted this for the year ended December 31, 2025.
As of June 30, 2026, and December 31, 2025, the Company does not have any unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2026 and December 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions.
16.NET LOSS PER COMMON SHARE
Net loss per common share is computed based on the weighted average number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, convertible preferred stock and warrants are considered to be potential common stock. The computation of diluted net loss per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.
Basic net loss per common share is the amount of net loss for the period available to each weighted average share of common stock outstanding during the reporting period. Diluted net loss per common share is the amount of net loss for the period available to each weighted average share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an anti-dilutive effect.
All outstanding options, warrants and convertible preferred stock for common shares are not included in the computation of diluted net loss per common share because they are anti-dilutive, which for six months ended June 30, 2026 and 2025, totaled
17.EQUITY
During the six months ended June 30, 2026 and 2025, the Company issued
During the six months ended June 30, 2026 and 2025, the Company issued
On June 14, 2024, the SEC qualified an offering of securities submitted by the Company under Regulation A (the “2024 Reg A Offering”). Under the 2024 Reg A Offering, the Company proposed to sell up to
On March 5, 2026, the
20
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Common Stock began trading on a Reverse Stock Split-adjusted basis on the Nasdaq Capital Market on March 16, 2026. The trading symbols for the Common Stock will remain “SKYQ”. The next CUSIP number for the Common Stock following the Reverse Stock Split is 83087C303.
As a result of the Reverse Stock Split, every eight (8) shares of the pre-split issued and outstanding shares of Common Stock automatically converted into one (1) post-split share of Common Stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, registered stockholders who would be entitled to receive fractional shares of Common Stock because they held a number of shares not evenly divisible by the Reverse Stock Split ratio had their fractional share rounded up to the nearest whole number of shares of Common Stock. No cash was paid in lieu of fractional shares.
The Reverse Stock Split had no effect on the number of authorized shares of Common Stock nor the par value of the Common Stock. The Reverse Stock Split affected all stockholders uniformly and did not affect any stockholder’s ownership percentage of the Company’s shares of Common Stock (except to the extent that the Reverse Stock Split resulted in some of the stockholders’ fractional shares being rounded up).
On April 22, 2026, in connection with its At-the Market Program (the “ATM Program”), the Company entered into that certain Amended and Restated Sales Agreement (the “A&R Sales Agreement”) with Muriel Siebert & Co., LLC (“Siebert” or the “Agent”), pursuant to which Siebert replaced Cantor Fitzgerald & Co. (“Cantor”) as the principal and/or the sole designated sales agent. The material terms and conditions of the Sales Agreement, dated January 12, 2026, by and between the Company and Cantor otherwise remain unchanged.
On April 22, 2026, in connection with its ATM Program, the Company filed a prospectus supplement with the SEC, updating the aggregate sales price to up to $12,600,000, pursuant to the A&R Sales Agreement. As of June 28, 2026 the Company issued
On May 27, 2026 the Compensation Committee of the Board of Directors granted and the Company issued a total of
On June 18, 2026, the Company issued
From April 23, 2026 until June 24, 2026, under the previously announced ATM equity sales program, the Company issued
The table below sets forth the shares reserved as of June 30, 2026, by the Company for future potential issuance.
| Maximum Issuable |
Company Stock Option Plan | |
|
|
Common Share Purchase Warrants issued | |
Shares issuable on exercise of outstanding Offering Warrants | 0 |
Shares issuable on exercise of outstanding Brokers Warrants issued | |
Reservation for conversion of maximum issuable common shares | |
Shares issuable on exercise of outstanding Brokers Warrants issued | |
Reservation for convertible note | |
TOTAL SHARES RESERVED FOR ISSUANCE |
21
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
On June 14, 2024, the Company entered into an engagement agreement with Digital Offering, LLC to provide broker-dealer services in connection with the 2024 Reg A Offering. Under the terms of the engagement letter, the Company will issue a warrant to purchase one share of the Company’s common stock (an “Agent Warrant”) equal to 2.30% of the total Shares sold to investors under the offering at an exercise price of $7.50 per share and subject to transfer, lock-up and exercise restrictions as set forth in Rule 5110 of the Financial Industry Regulatory Authority, Inc (“FINRA”), as applicable. The 2024 Reg A Offering closed on October 9, 2024, and
As of June 30, 2026, the Company had a total of
18.STOCK OPTION PLAN AND RESTRICTED SHARE AWARDS
On March 27, 2020, the Company adopted an incentive stock option plan (the “Plan”). The Plan allows the Board of Directors of the Company to grant restricted shares and options to acquire shares of common stock of the Company to directors, officers, key employees and consultants. The option price, term and vesting periods are determined at the discretion of the Board of Directors, subject to certain restrictions as required by the policies of Section 422 of the Internal Revenue Code. The Plan is a fixed number plan with a maximum of
On September 7, 2024, the Company amended the 2020 Stock Plan to increase the number of shares of common stock of the Corporation available for grant under the plan from 208,334 (as adjusted for the 1 for 3 reverse split) to
The table below sets forth share options outstanding as of June 30, 2026.
Grant Date | Options Outstanding |
| Exercise Price | Expiration | Vesting |
September 1, 2022 | $ | August 31, 2027 | Equally over 3 years commencing on first anniversary of grant date | ||
October 15, 2023 |
| October 14, 2028 | Equally over 3 years commencing on first anniversary of grant date | ||
November 1, 2023 |
| October 31, 2028 | 3,334 vest immediately, remaining vest equally over 3 years commencing on first anniversary of grant date | ||
November 22, 2024 |
| November 23, 2027 | Equally over 3 years commencing on first anniversary of grant date |
During the three and six months ended June 30, 2026 and 2025, the Company recorded share-based compensation expense of $
As of June 30, 2026, the Company had $
The following sets forth the outstanding common share options and related activity for the period ended June 30, 2026:
|
| Weighted Average | |
| Number of | Exercise Price | |
| Options | Per Share | |
Outstanding as of December 31, 2025 | $ |
| |
Granted |
| ||
Exercised | - | - |
|
Forfeited | ( | $ |
|
Outstanding as of June 30, 2026 | $ |
| |
22
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Grant Date | Restricted Shares | Issue Price | Expiration | Vesting |
December 31, 2024 | $ | January 2, 2026 | Vested on August 8, 2025 by board resolution | |
January 10, 2025 | $ | January 12, 2026 | Vested on August 8, 2025 by board resolution | |
February 28, 2025 | $ | March 2, 2026 | Vested on August 8, 2025 by board resolution | |
May 27, 2025 | $ | May 29, 2026 | Vested on August 8, 2025 by board resolution | |
November 4, 2025 | $ | September 4, 2026 | Vesting over 10 months | |
November 5, 2025 | $ | November 5, 2025 | Vested at issuance | |
May 27, 2026 | $ | May 27, 2026 | Vested at issuance |
As of the six months ended June 30, 2026, the Company recorded restricted share-based compensation expense of $
19.RELATED-PARTY TRANSACTIONS
Related party transactions in these consolidated financial statements are as follows:
The JPM Agreement terminated immediately upon the listing of the company’s common stock on the Nasdaq stock market in October 2024.
During the three months ended March 31, 2025, the company received $
The Company paid an aggregate of $0 in board fees during the quarter to its directors. Subsequent to the second quarter 2026, in July 2026, the Company paid $175,000 to each of its independent directors, Alex Monje, Robert Byrne and Omar Hussien for board services.
These directors qualify as related parties under ASC 850 due to their fiduciary roles with the Company.
The Company paid a one time bonus during the second quarter 2026 to its interim CEO Marcus Laun of $9,375. In July 2026, the Company paid a one time performance bonus to its interim CEO of $100,000.
The Company paid a one time bonus during the second quarter 2026 to its executive Chairman Matthew Flemming of $10,416. In July 2026, the Company paid a one time performance bonus to its executive Chairman of $125,000.
All fees were paid in accordance with the Company's policies.
20.DISAGGREGATED REVENUE
Revenue consisted of the following refined product types sold domestically in the Southwest USA region for June 30:
|
| Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended |
|
| June 30, 2026 |
| June 30, 2025 |
| June 30, 2026 |
| June 30, 2025 |
Diesel | $ | $ | $ | $ | ||||
Liquid Asphalt |
|
|
|
| ||||
VGO |
|
|
|
| ||||
Naphtha |
|
|
|
| ||||
Other |
|
|
|
| ||||
Total Net Sales | $ | $ | $ | $ |
The Company refines crude oil to produce several key products, including Diesel, Liquid Asphalt, Vacuum Gas Oil (VGO), and Naphtha, each with distinct industrial applications. Diesel is used primarily in transportation and
23
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
industrial sectors, while Liquid Asphalt is essential for road construction and roofing. VGO serves as an intermediate product for further refining, and Naphtha is used as a feedstock for gasoline production and petrochemicals.
21.DISAGGREGATED EXPENSES
Cost of sales consisted of the following for June 30:
|
| Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended |
|
| June 30, 2026 |
| June 30, 2025 |
| June 30, 2026 |
| June 30, 2025 |
Crude Oil | $ | ( | $ | $ | ( | $ | ||
Fuels and chemicals |
|
|
|
| ||||
Freight out |
|
|
| ( |
| |||
Freight in |
|
|
|
| ||||
Salary and wages |
|
|
|
| ||||
Depreciation and amortization |
|
|
|
| ||||
Repairs and maintenance |
|
|
|
| ||||
Other |
|
|
|
| ||||
| $ | $ | $ | $ |
General and administrative expenses consisted of the following for June 30:
|
| Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended |
|
| June 30, 2026 |
| June 30, 2025 |
| June 30, 2026 |
| June 30, 2025 |
Executive compensation | $ | $ | $ | $ | ||||
Professional fees |
|
|
|
| ||||
Insurance |
|
|
|
| ||||
Lease and utilities |
|
|
|
| ||||
Travel |
|
|
|
| ||||
Licenses |
|
|
|
| ||||
Other general and administrative |
|
|
|
| ||||
Bank charges |
|
|
|
| ||||
Auto |
|
|
|
| ||||
| $ | $ | $ | $ |
Professional fees included the following for June 30:
|
| Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended |
|
| June 30, 2026 |
| June 30, 2025 |
| June 30, 2026 |
| June 30, 2025 |
Auditor | $ | $ | $ | $ | ||||
Legal |
|
|
|
| ||||
Business development |
|
|
|
| ||||
Membership and subscriptions |
|
|
|
| ||||
Environmental |
|
|
|
| ||||
Investor relations |
| ( |
|
| ( |
| ||
Other |
|
|
|
| ||||
Tax |
|
|
|
| ||||
| $ | $ | $ | $ |
22.SEGMENT REPORTING
The Company has one reportable segment: refined crude oil. The Company refines crude oil to produce several key products, including Diesel, Liquid Asphalt, VGO, and Naphtha, each with distinct industrial applications. Diesel is used primarily in transportation and industrial sectors, while Liquid Asphalt is essential for road construction and roofing. VGO serves as an intermediate product for further refining, and Naphtha is used as a feedstock for gasoline production and petrochemicals.
24
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company’s chief operating decision maker is the chief executive officer. The chief decision maker uses gross profit to evaluate income generated from segment assets in deciding whether to reinvest profits into the refined crude oil segment or into other parts of the entity.
The Company is in the process of developing a second segment, 2020 Resources LLC (PR Springs facility), which currently is not generating revenues. There continues to be associated development costs which are being capitalized, with a plan to be completed in the summer 2027.
The following presents selected financial information with respect to our single reportable segment for the three and six months ended June 30, 2026 and 2025:
|
| Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended |
|
| June 30, |
| June 30, |
| June 30, |
| June 30, |
|
| 2026 |
| 2025 |
| 2026 |
| 2025 |
Net sales | $ | $ | $ | $ | ||||
Cost of goods sold |
|
|
|
| ||||
Gross margin |
| ( |
| ( |
| ( |
| ( |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
| ||||
Depreciation and amortization |
|
|
|
| ||||
Total operating expenses |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
Loss from operations |
| ( |
| ( |
| ( |
| ( |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income or (expense) |
| ( |
| ( |
| ( |
| ( |
Gain (loss) on extinguishment of debt |
| ( |
|
| ( |
| ( | |
Gain or (loss) on warrant revaluation |
| ( |
| ( |
| ( |
| |
Other income (expense) |
| ( |
| ( |
| ( |
| |
Gain on disposal of assets |
|
|
|
| ||||
Other expense, net |
| ( |
| ( |
| ( |
| ( |
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
| ( |
| ( |
| ( |
| ( |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
Net loss |
| ( |
| ( |
| ( |
| ( |
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss |
|
|
|
|
|
|
|
|
Exchange loss on translation of foreign operations |
| ( |
| ( |
| ( |
| ( |
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss |
| ( |
| ( |
| ( |
| ( |
|
|
|
|
|
|
|
|
|
Loss per common share |
|
|
|
|
|
|
|
|
Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
|
|
The segmented assets as of June 30, 2026 are as follows:
|
|
|
| 2020 |
|
|
|
| Foreland |
| Resource |
|
|
|
| Refining |
| LLC |
| Total |
Total assets | $ | $ | $ |
The segmented assets as of December 31, 2025 are as follows:
|
|
|
| 2020 |
|
|
|
| Foreland |
| Resource |
|
|
|
| Refining |
| LLC |
| Total |
Total assets | $ | $ | $ |
25
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
23.COMMITMENTS AND CONTINGENCIES
As of June 30, 2026, the Company has the following commitments for two leased land rights of way rentals in Nye County, Nevada, totaling approximately 40 acres:
| Acres | Expiration |
| Annual Fee |
Right-of-Way Grant N-41035 | December 31, 2054 | $ | ||
Right-of-Way Grant N-42414 | December 31, 2044 |
| ||
|
|
| $ |
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
24.SUBSEQUENT EVENTS
Management performed a review and determined that, except as disclosed elsewhere herein and below, no material events occurred subsequent to June 30, 2026 through the date of the presentation of these financial statements.
On July 6, 2026, the Company issued an aggregate of 49,195 shares of its restricted common stock to Bengt Eriksson for interest due in the amount of $104,293 for the period between July 1, 2025 and December 31, 2025 pursuant to the convertible promissory note dated November 24, 2023 based on the Nasdaq official closing price of the Corporation’s common stock of $2.12 per share on July 6, 2026;
On July 15, 2026, the Board of Directors (the "Board”) of Sky Quarry Inc. (the "Company”), upon the recommendation of the Compensation Committee of the Board, approved a one-time, discretionary cash award in the amount of $100,000 (the "Executive Supplemental Award”) to Marcus Laun, in recognition of his service as the Company’s President, interim Chief Executive Officer and interim Chief Financial Officer and his leadership in guiding the Company through its growth initiatives. The Executive Supplemental Award is a lump-sum cash payment approved by the Board outside of, and in addition to, the Company’s annual incentive compensation program. The Company also paid $175,000 to each of its three independent directors for Board services, and $125,000 to its executive Chairman.
26
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to our unaudited condensed consolidated financial statements, which appear elsewhere in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2026.
Overview
We operate a regional refinery (the Eagle Springs Refinery) producing diesel, VGO, naphtha and liquid paving asphalt from crude oil supplied from the Uintah basin near Ely, Nevada. In addition to our goal of growing the refinery, we have a separate division in the development-stage (PR Springs) formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated sands and soils, providing sustainable refined crude products. We anticipate several benefits from the recycling and production of oil from asphalt shingles reducing the dependence on landfills for the disposal of waste and reducing dependence on foreign oil.
We have developed a process for separating oil from oily sands and other oil-bearing solids utilizing a proprietary solvent, which we refer to as our ECOSolv technology or the ECOSolv process. The solvent is used in a closed-loop distillation and evaporation circuit which results in up to 99% of the solvent being recoverable for continuous reuse and requires no water. The solvent has demonstrated oil separation rates of up to 95% in bench testing using samples of both mined crushed ore and ground asphalt shingles. Bench testing was conducted in house, and through unaffiliated third parties which were completed in May and August 2022.
Currently, we intend to finish retrofitting our oil sands remediation facility located in PR Springs in eastern Utah in the 2027 calendar year when the necessary funding is obtained to recycle waste asphalt shingles using our ECOSolv technology, to produce and sell oil as well as asphalt paving aggregate mined from our bitumen deposit.
We intend to continue to develop regional model asphalt shingle recycling facilities, which can be deployed in areas with high concentrations of waste asphalt shingles and near asphalt shingle manufacturing centers. Our design contemplates a modular, scalable, purpose-built facility capable of remediating waste asphalt shingles and separation into their base components of bitumen / asphalt cement, shingle granules, sand aggregate, limestone and fiberglass.
The Company has a single segment reporting approach given all revenues are generated from Foreland Refining products. The Company anticipates the possibility of segmental reporting in the future in connection with alternative revenue streams and cost centers.
Reverse Stock Split
We filed a Certificate of Amendment to our Certificate of Incorporation with the State of Delaware on March 5, 2026 to effect a one-for-eight (1-for-8) reverse stock split (the “Reverse Stock Split”) of our shares of common stock, par value $0.0001 (the “Common Stock”). The Reverse Stock Split was effective on March 15, 2026, at 11:59 PM Eastern Time.
All historical share and per-share amounts reflected throughout the consolidated financial statements and our discussions herein in this Item 2 have been adjusted to reflect the Reverse Stock Split.
ATM Program
On April 22, 2026, the Company replaced Cantor Fitzgerald & Co. with Muriel Siebert & Co., LLC (“Siebert” or the “Agent”) as the principal and/or the sole designated sales agent and updated the size of the program to up to $12,600,000. As of June 30, 2026, the Company issued 4,781,795 shares of common stock through its ATM sales agents, generating net proceeds of $12,539,949.
Exclusivity Agreement
In March 2026, the Company entered into an exclusivity agreement (the “Exclusivity Agreement”) with a counterparty in connection with the Company’s evaluation of a potential transaction involving the acquisition of digital infrastructure assets (the “Potential Transaction”). No definitive terms have been agreed upon, and the Company has not entered into any definitive agreement with respect to the Potential Transaction.
27
Plant Outages and Maintenance
Our facilities require ongoing maintenance and from time-to-time certain repairs, improvements and retrofitting, which may require us to temporarily shut down or operate at a diminished capacity. Our Eagle Springs refinery operated by Foreland Refinery Corporation experienced a shut down during the fourth quarter of 2025 and first half of 2026 in connection with a boiler repair and related items. Currently, repairs to the refinery have been completed and initial feedstock has been procured, subject to scale up operational testing and state inspection. The unscheduled repairs and outages at Foreland’s Eagle Springs Refinery have had a negative impact on our final financial results for the third and fourth quarters of 2025, and financial results for the first and second quarters of 2026. We expect the facility to be operational by the end of the third quarter of 2026.
Our Financial Condition and Going Concern Issues
As a result of our financial condition, we have included in our condensed consolidated financial statements as of June 30, 2026 and December 31, 2025, and for the three and six months ended June 30, 2026 and 2025, a note indicating that there is significant doubt about the Company’s ability to continue as a going concern. The opinion on the December 31, 2025 audited financial statements from our independent registered public accounting firm for those statements also includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. From inception (June 4, 2019) through June 30, 2026, we have incurred accumulated net losses of $42,542,109. To address our going concern, we aim to increase revenues by securing greater volumes of crude oil for our Foreland refinery, which should enhance our contribution margin. Additionally, we are pursuing opportunities to reduce debt service through refinancing or repayment of existing obligations, establish strategic partnerships, and raise capital through equity or debt offerings, or a combination of these actions. Given our current revenue and cash usage levels, we have pressing working capital needs that necessitate raising funds through equity or debt issuance, coupled with efforts to boost revenue and control operating expenses. However, there is no guarantee that we will be able to raise sufficient capital, grow revenues, and generate the cash flow needed to meet our operating expenses and capital requirements effectively.
Special Notes Regarding Smaller Reporting Company Status
We are filing this report as a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). As a result of being a smaller reporting company, we are allowed and have elected to omit certain information from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate.
Results of Operations for the three and six months ended June 30, 2026 and 2025
Introduction
This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three and six months ended June 30, 2026 and 2025, respectively. We have derived this data from our unaudited interim condensed consolidated financial statements included in this Quarterly Report.
We had net sales of $0 and $383 for the three and six months ended June 30, 2026, compared to $4,541,472 and $10,874,439 for the three and six months ended June 30, 2025. Our cost of goods sold for the three months ended June 30, 2026, were $685,601, compared to $4,658,440 for the three months ended June 30, 2025. Year to date cost of goods sold of $1,075,202 for the six months ended June 30, 2026, compared to $11,717,499 for the six months ended June 30, 2025. Cost of goods sold does not change directly with sales due to certain fixed-cost allocations across significantly lower production barrels. The significant decrease in our sales was the direct result of the Company’s challenges associated with the outage of our Eagle Springs refinery.
Our operating expenses were $1,888,605 for the three months ended June 30, 2026, compared to $1,623,612 for the three months ended June 30, 2025. Year to date operating expenses were $3,104,051 for the six months ended June 30, 2026, compared to $3,559,370 for the six months ended June 30, 2025. Our operating expenses consisted of general and administrative, and depreciation and amortization.
28
Net Sales and Net Loss
Our net sales, costs of goods sold, gross profit, operating expenses, other income (expense) and net loss for the three and six months ended June 30, 2026 and 2025, were as follows:
|
| Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended |
|
| June 30, |
| June 30, |
| June 30, |
| June 30, |
|
| 2026 |
| 2025 |
| 2026 |
| 2025 |
Net sales | $ | - | $ | 4,541,472 | $ | 383 | $ | 10,874,439 |
Cost of goods sold |
| 685,601 |
| 4,658,440 |
| 1,075,202 |
| 11,717,499 |
Gross margin |
| (685,601) |
| (116,968) |
| (1,074,819) |
| (843,060) |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
| 1,886,956 |
| 1,620,696 |
| 3,100,192 |
| 3,554,426 |
Depreciation and amortization |
| 1,649 |
| 2,916 |
| 3,859 |
| 4,944 |
Total operating expenses |
| 1,888,605 |
| 1,623,612 |
| 3,104,051 |
| 3,559,370 |
|
|
|
|
|
|
|
|
|
Loss from operations |
| (2,574,206) |
| (1,740,580) |
| (4,178,870) |
| (4,402,430) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income or (expense) |
| (349,476) |
| (318,708) |
| (683,465) |
| (1,191,176) |
Gain (loss) on extinguishment of debt |
| (1,015,345) |
| 29,093 |
| (1,284,741) |
| (56,660) |
Gain or (loss) on warrant revaluation |
| (99,540) |
| (174,354) |
| (174,882) |
| 100,626 |
Other income (expense) |
| (16,809) |
| (4,101) |
| (53,663) |
| 3,376 |
Gain on disposal of assets |
| - |
| - |
| - |
| 3,920 |
Other expense, net |
| (1,481,170) |
| (468,070) |
| (2,196,751) |
| (1,139,914) |
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
| (4,055,376) |
| (2,208,650) |
| (6,375,621) |
| (5,542,344) |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
| - |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
Net loss |
| (4,055,376) |
| (2,208,650) |
| (6,375,621) |
| (5,542,344) |
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss |
|
|
|
|
|
|
|
|
Exchange loss on translation of foreign operations |
| (4) |
| (2,097) |
| (6) |
| (1,675) |
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss |
| (4,055,380) |
| (2,210,747) |
| (6,375,627) |
| (5,544,019) |
|
|
|
|
|
|
|
|
|
Loss per common share |
|
|
|
|
|
|
|
|
Basic and diluted | $ | (0.77) | $ | (0.82) | $ | (1.44) | $ | (2.17) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
Basic and diluted |
| 5,257,807 |
| 2,698,677 |
| 4,412,662 |
| 2,552,812 |
Net Sales
The following table shows net sales by category for the three and six months ended June 30, 2026 and 2025:
|
| Three Months Ended |
| Three Months Ended | Change |
| Six Months Ended |
| Six Months Ended | Change |
|
| June 30, 2026 |
| June 30, 2025 |
|
| June 30, 2026 |
| June 30, 2025 |
|
Diesel | $ | - | $ | 1,755,938 | -100% | $ | 382 | $ | 3,608,873 | -100% |
Liquid Asphalt |
| - |
| 1,400,990 | -100% |
| 1 |
| 4,125,288 | -100% |
VGO |
| - |
| 1,306,615 | -100% |
| - |
| 2,931,119 | -100% |
Naphtha |
| - |
| 75,996 | -100% |
| - |
| 196,482 | -100% |
Other |
| - |
| 1,933 | -100% |
| - |
| 12,677 | -100% |
Total Net Sales | $ | - | $ | 4,541,472 | -100% | $ | 383 | $ | 10,874,439 | -100% |
We had net sales of $0 for the three months ended June 30, 2026, compared to $4,541,472 for the three months ended June 30, 2025, a decrease of $4,541,472. Year-to-date net sales of $383 for the six months ended June 30, 2026, compared to $10,874,439 for the six months ended June 30, 2025, a decrease of $10,874,056. Beginning in late June 2025 the Company’s production was limited due to crude supplier disruptions and delays in completing certain maintenance activities. The lack of refinery operational revenue during the first and second quarters of 2026 was the result of refinery repairs that were concluded subsequent to the end of the period. Restart challenges and reconnecting refinery feedstock supply will be the primary focus of the Company in the subsequent quarter to generate revenues from operations. The Company expects production to resume in September 2026.
Additionally, feedstock pricing, based partly on WTI market pricing rose from approximately $57 per barrel on January 1, 2026 to $70 per barrel by June 30, 2026, roughly a 23% increase according to the US Energy Information Administration (EIA). Currently, we believe regional market dynamics may be reflected in the second half of 2026 in crack spreads or refinery margins, based on industry peers’ publicly available comments.
29
Cost of Goods Sold
The following table shows cost of goods sold by category for the three and six months ended June 30, 2026 and 2025:
|
| Three Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| Six Months Ended |
|
|
| June 30, 2026 |
| June 30, 2025 | Change |
| June 30, 2026 |
| June 30, 2025 | Change |
Crude Oil | $ | (109,809) | $ | 2,729,208 | -104% | $ | (110,114) | $ | 7,513,308 | -101% |
Fuels and chemicals |
| 266,203 |
| 379,887 | -30% |
| 265,135 |
| 811,733 | -67% |
Freight out |
| 1,723 |
| 435,180 | -100% |
| (80,272) |
| 1,189,269 | -107% |
Freight in |
| 67,100 |
| 361,331 | -81% |
| 64,299 |
| 823,715 | -92% |
Salary and wages |
| 134,822 |
| 338,683 | -60% |
| 259,925 |
| 629,641 | -59% |
Depreciation and amortization |
| 226,252 |
| 311,372 | -27% |
| 488,899 |
| 552,510 | -12% |
Repairs and maintenance |
| 85,577 |
| 91,011 | -6% |
| 161,393 |
| 159,641 | 1% |
Other |
| 13,733 |
| 11,768 | 17% |
| 25,937 |
| 37,682 | -31% |
| $ | 685,601 | $ | 4,658,440 | -85% | $ | 1,075,202 | $ | 11,717,499 | -685,601% |
Our cost of goods sold for the three months ended June 30, 2026 was $685,601 compared to $4,658,440 for the three months ended June 30, 2025, a decrease of $3,972,839. Our year to date cost of goods sold for the six months ended June 30, 2026, was $1,075,202 compared to $11,717,499 for the six months ended June 30, 2025, a decrease of $10,642,297. Gross loss for the three months ended June 30, 2026 was $685,601, compared to $116,968 for the three months ended June 30, 2025, an increase of $568,633 for the comparative period. The decline in cost of sales for the three months ended June 30, 2026 presented compared to the prior periods was primarily due to the decline in net sales described above.
Cost of goods sold as a percentage of net sales was 685,601% for the three months ended June 30, 2026, compared to 103% for the three months ended June 30, 2025. We believe this comparison is not meaningful as the refinery was not operational during 2026 as described above.
General and Administrative
The following table shows general and administrative expenses by category for the three and six months ended June 30, 2026 and 2025:
|
| Three Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| Six Months Ended |
|
|
| June 30, 2026 |
| June 30, 2025 | Change |
| June 30, 2026 |
| June 30, 2025 | Change |
Executive compensation | $ | 1,029,027 | $ | 773,061 | 33% | $ | 1,537,760 | $ | 1,406,691 | 9% |
Professional fees |
| 623,765 |
| 498,987 | 25% |
| 1,076,313 |
| 1,464,073 | -26% |
Insurance |
| 112,620 |
| 160,918 | -30% |
| 244,656 |
| 323,693 | -24% |
Lease and utilities |
| 50,196 |
| 55,335 | -9% |
| 94,649 |
| 114,610 | -17% |
Travel |
| 23,410 |
| 46,744 | -50% |
| 60,590 |
| 104,148 | -42% |
Licenses |
| 24,326 |
| 14,102 | 73% |
| 44,455 |
| 15,165 | 193% |
Other general and administrative |
| 19,063 |
| 35,534 | -46% |
| 32,662 |
| 60,888 | -46% |
Bank charges |
| 4,549 |
| 1,501 | 203% |
| 9,107 |
| 6,924 | 32% |
Auto |
| - |
| 34,514 | -100% |
|
|
| 58,234 |
|
| $ | 1,886,956 | $ | 1,620,696 | 16% | $ | 3,100,192 | $ | 3,554,426 | -13% |
Our general and administrative expenses increased by $266,260 for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily due to an increase of $255,966 in executive compensation attributable to increased salaries for executive officers expensed in the current year, The increased general and administrative costs for the three months ended June 30, 2026 compared to 2025 were also due to a $124,778 increase in professional fees related to legal matters found in Part II, Item 1, partially offset decreases in advertising and marketing, and business development expenses.
Other Income (Expense)
Other expense was $1,481,170 for the three months ended June 30, 2026, compared to $468,070 for the three months ended June 30, 2025, an increase of $1,013,100. In the three months ended June 30, 2026, other income (expense) consisted of interest expense $349,476, loss on extinguishment of debt $1,015,345, loss on warrant valuation $99,540, and other expense $16,809. In the three months ended June 30, 2025, other income (expense) consisted of interest expense $318,708, loss on warrant valuation $174,354, offset by gain on extinguishment of debt $29,093 and other income $4,101.
Other expense was $2,196,751 for the six months ended June 30, 2026, compared to $1,139,914 for the six months ended June 30, 2025, an increase of $1,056,837. In the six months ended June 30, 2026, other income (expense) consisted of interest expense of $683,465, loss on extinguishment of debt of $1,284,741, loss on change in fair value
30
of warrant liabilities of $174,882, and other expense of $53,663. In the six months ended June 30, 2025, other income (expense) consisted of interest expense of $1,191,176, loss on extinguishment of debt of $56,660, offset by gain on change in fair value of warrant liabilities of $100,626, other income of $3,376, and gain on disposal of assets of $3,920.
The warrant liability is revalued at each reporting date based on changes in the underlying factors influencing the fair value of the warrants, such as the Company’s stock price, volatility, and other market conditions. The Company’s management believes that the non-cash gain recognized in the current period from the remeasurement of warrant liabilities is not reflective of ongoing operating performance. During the period, the Company incurred significant interest expense related to its term debt. This interest expense is primarily due to the high financing costs associated with the term notes, which were utilized to support ongoing working capital needs and operational expenses. These notes, characterized by higher interest rates relative to traditional debt instruments, have resulted in a notable impact on our financial performance for the quarter. This increase in interest expense reflects the financial obligations of maintaining liquidity and funding operations, particularly during a phase of substantial investment in refinery refurbishment and related activities. The Company continues to evaluate its capital structure to optimize costs and enhance financial stability, considering refinancing options and alternative capital sources where feasible.
Net Loss
Net loss was $4,055,376 or a loss of $(0.77) per share, for the three months ended June 30, 2026, compared to net loss of $2,208,650 or $(0.82) per share, for the three months ended June 30, 2025. Net loss was $6,375,621 or a loss of $(1.44) per share, for the six months ended June 30, 2026, compared to net loss of $5,542,344 or $(2.17) per share, for the six months ended June 30, 2025.
Our net loss compared to the previous periods’ net loss was primarily driven by a reduction in total production of the refinery attributable to the outage, which resulted in significantly reduced revenues during the period, combined with increased losses on extinguishment of debt associated with the Libertas Conversion and Exchange Agreement.
Liquidity and Capital Resources
Introduction
We had negative operating cash flows for the six months ended June 30, 2026 of $5,413,699. Our cash on hand as of June 30, 2026, was $7,226,564. In connection with the Foreland Refinery acquisition and PR Springs facility retrofit program, we believe we will continue to have material capital expenditures and face long term cash needs. While we anticipate that these needs will be satisfied through the issuance of our debt and/or equity securities until such time as our cash flows from operations will satisfy our cash needs, we cannot provide any assurances of such.
Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2026 and December 31, 2025, respectively, are as follows:
|
| June 30, |
| December 31, |
| Increase (decrease) |
Cash | $ | 7,226,564 | $ | 35,370 | $ | 7,191,194 |
Total Current Assets |
| 10,430,418 |
| 1,327,680 |
| 9,102,738 |
Total Assets |
| 28,327,888 |
| 19,214,821 |
| 9,113,067 |
Total Current Liabilities |
| 14,035,404 |
| 15,120,773 |
| (1,085,369) |
Total Liabilities | $ | 16,565,815 | $ | 16,027,854 | $ | 537,961 |
Our cash increased by $7,191,194 as of June 30, 2026, as compared to December 31, 2025. Our total current assets increased by $9,102,738 primarily because of the ATM program during the current quarter.
Our total assets increased by $9,113,067 due to the changes in cash of $7,191,194 and inventory of $828,167.
Our current liabilities as of June 30, 2026 as compared to December 31, 2025, decreased by $1,085,369 primarily as a result of a decrease in accounts payable of $390,951 and a decrease in current portion of notes payable of $1,016,700, partially offset by increases in warrant liabilities of $174,882 and an increase in lines of credit of $160,312. Our long term liabilities increased by $1,623,330 primarily due to an increase in long term notes payable of $1,567,131 as a result of the refinancing of the Company’s previously outstanding sale of future revenue obligations.
The increase in liabilities, noted above, are due to the losses described above.
To repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
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On June 27, 2025, the Company’s wholly owned subsidiary, Foreland Refining Corporation, launched a Regulation Crowdfunding (“Reg CF”) offering to fund working capital and general corporate purposes. The offering is terminated and raised a total of $513,300. Although the Reg CF is being conducted at the subsidiary level, the proceeds are expected to support business lines that may be consolidated into the Company’s operations. The offering is not expected to have a material near-term impact on the Company’s consolidated liquidity position.
ATM Program
We continue to maintain an ATM Program. On January 12, 2026, we entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor, pursuant to which we, from time to time, may offer and sell shares (the “ATM Shares”) of our common stock, through or to Cantor, acting as principal and/or sales agent, having an aggregate sales price of up to $4,700,000.
On April 22, 2026, the Company entered into that certain Amended and Restated Sales Agreement (the “A&R Sales Agreement”) with Siebert, pursuant to which Siebert replaced Cantor as the principal and/or the sole designated sales agent. The material terms and conditions of the Sales Agreement otherwise remain unchanged.
On April 22, 2026, in connection with its ATM Program, the Company filed a prospectus supplement with the SEC, updating the aggregate sales price to up to $12,600,000, pursuant to the A&R Sales Agreement. Through the ATM Program, the Company issued an aggregate of approximately 4,773,348 shares of Common Stock, resulting in aggregate gross proceeds of approximately $13,528,940. Of this total, the Company sold approximately 417,696 shares through Cantor pursuant to the Sales Agreement, generating gross proceeds of approximately $1,306,941, and sold 4,355,652 shares through Siebert pursuant to the A&R Sales Agreement, generating proceeds of approximately $12,221,999.
Cash Requirements
Our cash on hand as of June 30, 2026, was $7,226,564. The Company will continue to require additional cash to meet ongoing operational and capital needs. Despite the company’s efforts to increase production capacity at the refinery, as well as ongoing maintenance and refurbishment activities, and the high interest payments, we are not yet generating sufficient cash flow to cover operational costs. The need for cash is driven by both ongoing operating expenses, and costs of indebtedness. We anticipate that these needs will be satisfied through the issuance of debt or the sale of our equity securities, or a combination thereof, until such time as improvements to our cash flows from operations will satisfy our cash flow needs. Management remains committed to securing the necessary resources to ensure the Company can meet its financial obligations and continue executing its long-term objectives. There is no assurance, however, that we will be successful in these efforts.
Sources and Uses of Cash
Operating Activities
Our net cash used in operating activities for the six months ended June 30, 2026 and 2025, was $5,413,699, as compared to net cash used of $729,401, respectively. Our net cash used in operating activities for the six months ended June 30, 2026, consisted of a net loss of $6,375,621, unfavorable working capital changes of $4,684,298, adjusted for share based compensation of $694,002, depreciation and amortization of $492,758, amortization of debt issuance costs of $98,976, amortization of right-of-use asset of $37,112, loss on extinguishment of debt of $1,284,741, and loss on revaluation of warrant liability of $174,882. Our net cash used in operating activities for the six months ended June 30, 2025 consisted of a net loss of $5,542,344, less unfavorable changes in working capital of $738,676, share-based compensation of $309,354, depreciation and amortization of $557,454, amortization of right-of-use asset of $48,842, amortization of debt issuance costs of $807,636, and loss on extinguishment of debt of $56,660.
Investing Activities
Our cash flow used in investing activities for the six months ended June 30, 2026 and 2025, was $460,221 and $381,296, respectively, an increase of $78,925. Our investing activities during six months ended June 30, 2026, consisted of payments for property, plant and equipment of $460,221. Our investing activities during the six months ended June 30, 2025, consisted of a net increase from property, plant and equipment of $352,973, purchase of gas development assets of $42,383, and an increase from proceeds of sale of assets of $14,060.
Financing Activities
Our net cash provided by (used in) financing activities for the six months ended June 30, 2026 and 2025, was $13,063,714 and $1,226,930, respectively, an increase of $11,836,784. Our cash flows from financing activities during the six months ended June 30, 2026, consisted of proceeds of lines of credit of $202,630, proceeds from notes
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payable of $896,866, proceeds from common stock $13,907,446, offset by payments on lines of credit of $42,318 and payments on notes payable of $533,413. Our cash flows from financing activities during the six months ended June 30, 2025, consisted of proceeds of lines of credit of $8,338,455, proceeds from notes payable of $574,380, and issuance of common stock of $0, offset by payments on lines of credit of $8,465,550, and payments on notes payable of $1,670,741.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
Not applicable
ITEM 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management conducted an evaluation, under the supervision and participation of our principal executive officer and principal financial officer on June 30, 2026, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of June 30, 2026, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of June 30, 2026, were not effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2026, that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures provide our management with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within the Company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.
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PART II – OTHER INFORMATION
ITEM 1Legal Proceedings
From time to time, we have in the past and may in the future become subject to legal proceedings or claims arising in the ordinary course of our business. Except as described below, we are not currently a party to any legal proceedings, the outcome of which, if determined adversely, we believe would individually or in aggregate have a material adverse effect on our business, financial condition or results of operations.
Sealock Matter.
David Sealock, former Chief Executive Officer of the Company, filed a whistleblower retaliation complaint with the U.S. Department of Labor – OSHA under Section 806 of the Sarbanes-Oxley Act (Case No. 301072795, dated February 23, 2026). OSHA’s Denver regional office served the complaint on the Company on March 5, 2026, and the Company filed its written response and supporting exhibits on March 25, 2026, requesting dismissal of the claim. The complaint alleges that Sky Quarry retaliated against Mr. Sealock in violation of the SOX whistleblower provisions (18 U.S.C. § 1514A), with the alleged protected activity centered on the August 10, 2025-dated memorandum submitted to the Company’s HR director. The complaint does not state a specific monetary demand.
The Company categorically denies retaliation and requested dismissal on multiple grounds.
The OSHA administrative proceeding is the only formal action to date. The matter is in OSHA’s investigative stage, with no findings issued.
Delwo Matter
On March 24, 2026, Darryl Delwo, the Company’s former Chief Financial Officer, filed a complaint against the Company and its interim-CEO Marcus Laun in the Superior Court of California, County of Los Angeles, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and tortious interference with contract. Mr. Delwo alleges that the Company failed to increase his compensation as promised following the Company's October 2024 IPO and NASDAQ listing, failed to pay portions of his salary throughout 2024 and 2025, and refused to provide separation payments and benefits owed under his Executive Employment Agreement following his resignation for which he claims there was Good Reason on August 4, 2025. The complaint also alleges that Mr. Laun personally and deliberately induced the Board to withhold Mr. Delwo’s compensation and contractual benefits, acting outside the scope of his employment and with malice. Mr. Delwo seeks damages of not less than $875,012.35 on each cause of action, plus attorneys' fees and pre-judgment interest, and has demanded a jury trial.
KF Business Ventures Matter
On March 4, 2026, KF Business Ventures, LP (“KF Business”), a California limited partnership, filed a complaint against Company, Foreland Refining Corp., a Texas corporation and wholly owned subsidiary of the Company, and 2020 Resources LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, in the Third Judicial District Court of Salt Lake County, Utah.
The complaint arises from several contractual arrangements between KF Business and the defendants. First, KF Business alleges that the Company breached an Advisory Agreement dated December 2, 2024, pursuant to which the Company agreed to pay KF Business $10,500 plus $10,500 of the Company’s Common Stock per month in exchange for business advisory services. KF Business alleges that the Company has failed to pay $126,000 in cash and 41,096 shares of Common Stock owed through February 2026, with monthly payments continuing to accrue.
Second, KF Business alleges that the Company breached a Secured Promissory Note dated December 2, 2024, in the original principal amount of $1,200,000 (as amended, the “Sky Quarry KF Business Note”). The Sky Quarry KF Business Note was subsequently amended in April 2025 and July 2025 to extend the payment deadline to November 24, 2025, and to modify the interest rate to 30% per annum. KF Business alleges that the Company failed to make payment when due.
Third, KF Business alleges that Foreland Refining Corp. breached a Secured Promissory Note dated July 24, 2025 (the “Foreland Refining KF Business Note”), in the principal amount of $1,000,000, bearing interest at 30% per annum, with all unpaid principal and interest due on November 24, 2025. KF Business alleges that Foreland Refining Corp. failed to make payment when due.
Fourth, KF Business alleges that the Company and 2020 Resources LLC breached a Guaranty Agreement dated July 24, 2025, pursuant to which the Company and 2020 Resources LLC guaranteed payment of the Sky Quarry KF Business Note and the Foreland Refining KF Business Note.
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In connection with these obligations, KF Business holds security interests in certain collateral pursuant to (i) a security agreement, which granted KF Business a security interest in two natural gas turbine power generators owned by 2020 Resources LLC, and (ii) a security agreement, which granted KF Business a security interest in various assets of 2020 Resources LLC, including accounts, equipment, inventory, and intellectual property.
The complaint asserts fifteen causes of action, including breach of contract, breach of the implied covenant of good faith and fair dealing and quasi contract/unjust enrichment/quantum meruit, and judicial foreclosure and replevin in connection with the security agreements. KF Business seeks relief, including damages in an aggregate amount of $2,200,000 in principal under the promissory notes, plus interest at 30% per annum, $126,000 in unpaid advisory fees and 41,096 shares of the Company’s Common Stock, along with attorneys’ fees, costs, pre- and post-judgment interest, and judicial foreclosure and possession of collateral.
The Company intends to vigorously defend against the claims asserted in this action. The litigation is in its early stages and no assurance can be given as to the timing or outcome of the proceeding. An unfavorable outcome could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.
ITEM 1ARisk Factors
Not applicable.
ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
ITEM 3Defaults Upon Senior Securities
The promissory notes payable to KF Business Ventures, LP (aggregate principal amount of approximately $2,200,000) matured on November 24, 2025 and remain unpaid as of the date of this filing. The aggregate amount in default exceeds 5% of the Company’s total consolidated assets as of June 30, 2026. For additional detail regarding the notes payable and related litigation, see Note 13 to the condensed consolidated financial statements and Part II, Item 1 (Legal Proceedings) in this Quarterly Report.
ITEM 4Mine Safety Disclosures
Not applicable.
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ITEM 5Other Information
During the quarter ended June 30, 2026, no director or officer of the Company adopted or terminated any contract, instruction, or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act, and no director or officer adopted or terminated any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).
ITEM 6Exhibits
(a)Exhibits
Exhibit No. | Description | ||||||
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10.1 | Amended and Restated Sales Agreement, dated as of April 22, 2026, by and between the Company and Muriel Siebert & Co., LLC. (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed on April 22, 2026). | ||||||
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31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. | ||||||
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31.2* | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. | ||||||
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32.1** | Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). | ||||||
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32.2** | Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). | ||||||
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101.INS | Inline XBRL Instance Document | ||||||
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101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||||||
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
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104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | ||||||
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Sky Quarry Inc. | ||
Dated: August 12, 2026 | /s/ | Marcus Laun | |
| By: | Marcus Laun |
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| Its: | Interim Chief Executive Officer and Interim Chief Financial Officer (Principal Executive Officer) | |
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