Sky Quarry Inc 10-Q for FY2024 Q3

Sky Quarry Inc. (SKYQ)

10-Q 2024-11-14 For: 2024-09-30

Added on April 10, 2026

About this 10-Q

Sky Quarry Inc filed this 10-Q on November 14, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).

Headline figures

Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net loss: $4.45M; compared with a net loss of $597.53K a year earlier

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Delaware	84-1803091
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

707 W. 700 South, Suite 101
Woods Cross, UT	84087
(Address of principal executive offices)	(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001	SKYQ	Nasdaq Capital Market

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
(Do not check if a smaller reporting company)		Emerging growth company	☒

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosure About Market Risks	33
Item 4.	Controls and Procedures	33

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35

SIGNATURES		36

	September 30, 2024	December 31, 2023


ASSETS

Current assets:
Cash	`$292,920`	`$326,822`
Accounts receivables	`1,529,254`	`3,517,469`
Prepaid expenses and other assets	`293,826`	`114,387`
Inventory	`2,685,943`	`2,437,181`
Total current assets	`4,801,943`	`6,395,859`

Property, plant, and equipment	`6,882,227`	`6,287,351`
Oil and gas properties	`8,435,197`	`7,745,205`
Restricted cash	`2,887,588`	`4,354,014`
Right-of-use asset	`132,093`	`184,548`
Goodwill	`3,209,003`	`3,209,003`

Total assets	`$26,348,051`	`$28,175,980`

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	`$3,119,645`	`$4,904,121`
Current portion of operating lease liability	`56,806`	`69,777`
Warrant liability	`1,936,937`	`-`
Lines of credit	`1,728,138`	`3,061,698`
Current maturities of notes payable	`8,749,719`	`4,835,567`
Total current liabilities	`15,591,245`	`12,871,163`

Notes payable, less current maturities, net of debt issuance costs	`2,057,198`	`2,100,514`
Operating lease liability, net of current portion	`77,824`	`116,246`
Total Liabilities	`17,726,267`	`15,087,923`

Commitments and contingencies

Shareholders’ Equity:
Preferred stock $0.001 par value: 25,000,000 shares authorized; 369,221 and 246,000 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	`369`	`246`
Common stock $0.0001 par value: 100,000,000 shares authorized: 17,446,512 and 16,323,091 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	`1,744`	`1,632`
Additional paid in capital	`28,593,381`	`22,527,262`
Accumulated other comprehensive loss	`(209,639)`	`(201,505)`
Accumulated deficit	`(19,764,071)`	`(9,239,578)`
Total shareholders’ equity	`8,621,784`	`13,088,057`

Total liabilities and shareholders’ equity	`$26,348,051`	`$28,175,980`

	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Net sales	`$4,846,795`	`$14,397,648`	`$19,174,369`	`$39,140,246`

Cost of goods sold	`4,532,565`	`11,647,135`	`18,409,703`	`33,406,211`
	`314,230`	`2,750,513`	`764,666`	`5,734,035`

Operating expenses:
General and administrative	`1,205,032`	`1,173,593`	`3,322,846`	`3,186,714`
Share based compensation	`74,604`	`102,571`	`534,572`	`325,887`
Depreciation and amortization	`219,746`	`157,470`	`589,267`	`308,875`
Total Operating expenses	`1,499,382`	`1,433,634`	`4,446,685`	`3,821,476`

Income (loss) from operations	`(1,185,152)`	`1,316,879`	`(3,682,019)`	`1,912,559`

Other income (expense):
Loss on issuance of private placement	`(1,935,934)`	`-`	`(1,935,934)`	`-`
Interest expense	`(1,320,115)`	`(1,914,406)`	`(4,773,663)`	`(1,821,529)`
Other income (loss)	`(4,059)`	`-`	`1,085`	`-`
Loss on extinguishment of debt	`-`	`-`	`(108,887)`	`(188,227)`
Gain (loss) on sale of assets	`-`	`-`	`(25,075)`	`550,000`
Other expense, net	`(3,260,108)`	`(1,914,406)`	`(6,842,474)`	`(1,459,756)`

Income (loss) before provision for income taxes	`(4,445,260)`	`(597,527)`	`(10,524,493)`	`452,803`

Provision for income taxes	`-`	`-`	`-`	`(2,327)`

Net income (loss)	`(4,445,260)`	`(597,527)`	`(10,524,493)`	`450,476`

Other comprehensive income (loss)
Exchange gain (loss) on translation of foreign operations	`-`	`(254)`	`(8,134)`	`16,170`

Net income (loss) and comprehensive income (loss)	`$(4,445,260)`	`$(597,781)`	`$(10,532,627)`	`$466,646`

Earnings (loss) per common share
Basic	`$(0.25)`	`$(0.04)`	`$(0.59)`	`$0.03`
Diluted	`$(0.25)`	`$(0.04)`	`$(0.59)`	`$0.03`
Weighted average shares outstanding
Basic	`17,819,356`	`16,323,103`	`17,819,356`	`16,323,103`
Diluted	`17,819,356`	`16,323,103`	`17,819,356`	`16,323,103`

	Preferred Stock Outstanding	Preferred Stock	Common Stock Outstanding	Common Stock	Additional Paid-in-Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss	Total
Balance January 1, 2024	`246,021`	`$246`	`16,323,091`	`$1,632`	`$22,527,262`	`$(9,239,578)`	`$(201,505)`	`$13,088,057`
Preferred share subscription, less offering costs	`79,000`	`79`	`-`	`-`	`156,547`	`-`	`-`	`156,626`
Common share subscription, less offering costs	`-`	`-`	`7,969`	`1`	`19,496`	`-`	`-`	`19,497`
Share based compensation	`-`	`-`	`-`	`-`	`270,176`	`-`	`-`	`270,176`
Other comprehensive loss	`-`	`-`	`-`	`-`	`-`	`-`	`(8,134)`	`(8,134)`
Net loss	`-`	`-`	`-`	`-`	`-`	`(2,419,061)`	`-`	`(2,419,061)`
Balance March 31, 2024	`325,021`	`325`	`16,331,060`	`1,633`	`22,973,481`	`(11,658,639)`	`(209,639)`	`11,107,160`
Preferred share subscription, less offering costs	`44,200`	`44`	`-`	`-`	`110,456`	`-`	`-`	`110,500`
Stock warrants issued	`-`	`-`	`-`	`-`	`1,261,739`	`-`	`-`	`1,621,739`
Common share subscription, less offering costs	`-`	`-`	`51,929`	`5`	`122,520`	`-`	`-`	`122,525`
Share based compensation	`-`	`-`	`-`	`-`	`189,792`	`-`	`-`	`189,792`
Common stock issued on warrant exercise	`-`	`-`	`225,400`	`23`	`693,423`	`-`	`-`	`693,446`
Net loss	`-`	`-`	`-`	`-`	`-`	`(3,660,172)`	`-`	`(3,660,172)`
Balance June 30, 2024	`369,221`	`369`	`16,608,389`	`1,661`	`25,351,411`	`(15,318,811)`	`(209,639)`	`9,824,991`
Stock warrants issued	`-`	`-`	`-`	`-`	`796,205`	`-`	`-`	`796,205`
Share based compensation	`-`	`-`	`-`	`-`	`74,604`	`-`	`-`	`74,604`
Common stock issued on warrant exercise	`-`	`-`	`838,123`	`83`	`2,371,161`	`-`	`-`	`2,371,244`
Net loss	`-`	`-`	`-`	`-`	`-`	`(4,445,260)`	`-`	`(4,445,260)`
Balance September 30, 2024	`369,221`	`$369`	`17,446,512`	`$1,744`	`$28,593,381`	`$(19,764,071)`	`$(209,639)`	`$8,621,784`

	2024	2023

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	`$(10,524,493)`	`$450,476`
Adjustments to reconcile net income to cash used in operating activities:
Share based compensation	`534,572`	`325,887`
Depreciation and amortization	`589,267`	`308,875`
Amortization of debt issuance costs	`2,936,408`	`285,543`
Amortization of right-of-use asset	`52,455`	`21,557`
Loss on issuance of warrants	`1,936,937`	`-`
Loss on extinguishment of debt	`108,887`	`188,227`
Loss (gain) on sale of assets	`25,075`	`(550,000)`

Changes in operating assets and liabilities:
Accounts receivable	`1,988,215`	`(617,718)`
Prepaid expenses and other assets	`(179,438)`	`54,847`
Inventory	`(248,762)`	`(384,173)`
Accounts payable and accrued expenses	`(1,784,476)`	`2,466,748`
Operating lease liability	`(51,393)`	`(20,715)`
Net cash provided by (used in) operating activities	`(4,616,746)`	`2,529,554`

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of assets	`-`	`200,000`
Purchase of exploration and evaluation assets	`(689,992)`	`(22,444)`
Purchase of property, plant and equipment	`(1,209,220)`	`(1,484,820)`
Net cash used in investing activities	`(1,899,212)`	`(1,307,264)`

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds on lines of credit	`33,556,317`	`20,501,839`
Payments on lines of credit	`(34,889,877)`	`(17,828,498)`
Proceeds from note payable	`16,767,738`	`2,935,860`
Payments on note payable	`(12,216,266)`	`(41,854)`
Debt discount on note payable	`(1,565,278)`	`(2,816,744)`
Proceeds on issuance of preferred stock	`308,000`	`-`
Preferred stock offering costs	`(40,874)`	`-`
Proceeds on issuance of common stock	`4,790,597`	`28,741`
Common stock offering costs	`(1,720,619)`	`-`
Net cash generated by financing activities	`5,023,763`	`2,779,344`

Effect of exchange rate on cash	`(8,134)`	`16,170`

Increase (decrease) in cash and restricted cash	`(1,500,327)`	`4,017,804`
Cash and restricted cash, beginning of the period	`4,680,836`	`1,354,566`

Cash and restricted cash, end of the period	`$3,180,509`	`$5,372,370`

		September 30,		December 31,
		2024		2023
Finished goods	$	2,015,569	$	1,287,927
Raw materials		416,457		892,665
Chemicals		253,917		256,589
	$	2,685,943	$	2,437,181

		SITLA Mineral Lease
Cost
January 1, 2023		`$63,800`
Additions		`-`
December 31, 2023		`63,800`
Additions		`-`
September 30, 2024		`$63,800`

Accumulated Amortization
September 30, 2024 and December 31, 2023		`$-`

Carrying Amounts
September 30, 2024		`$63,800`
December 31, 2023		`$63,800`

Reference	Gross Acres	Net Acres	Lease Expiry Date (1)	Annual Rent (2)	Annual Advance Minimum Royalty (3)	Production Royalty Rate (4)
ML-49579	50.4	50.4	12/31/2024	`$500`	`$5,000`	`6.5%`
ML-49927	4,319.9	4,319.9	5/31/2025	`4,320`	`43,200`	`6.5%`
ML-51705	1,560.0	1,560.0	1/31/2020	`1,560`	`15,600`	`8%`

Total	5,930.3	5,930.3		`$6,380`	`$63,800`

	September 30, 2024	December 31, 2023
Buildings	`$1,575,000`	`$1,575,000`
Machinery and equipment	`6,611,753`	`5,435,388`
Office furniture and equipment	`6,733`	`6,733`
	`8,193,486`	`7,017,121`
Less: Accumulated depreciation and amortization	`(1,311,259)`	`(729,770)`
	`$6,882,227`	`$6,287,351`

	September 30, 2024	December 31, 2023
Balance, beginning of period	`$7,745,205`	`$7,477,238`
Disposal	`-`	`(411,400)`
Additions	`689,992`	`679,367`
Balance, end of period	`$8,435,197`	`$7,745,205`


2024 (Remainder)	`$21,494`
2025	`87,481`
2026	`36,898`
Total lease payments	`145,873`
Less: amounts representing interest	`(11,243)`
Present value of lease liabilities	`$134,630`

	September 30, 2024	December 31, 2023
Trade accounts payable	`$2,766,648`	`$4,753,782`
Accrued expenses	`331,809`	`120,888`
Accrued vacation	`18,491`	`25,971`
Sales tax payable	`2,697`	`3,480`
	`$3,119,645`	`$4,904,121`

	September 30, 2024	December 31, 2023
Stock price	`$4.50`	`$-`
Risk-free interest rate	`3.66%`	`-%`
Expected volatility	`85%`	`-%`
Expected life (in years)	`5`	`-`
Expected dividend yield	`-`	`-`
Fair value of warrants	`$1,936,937`	`$-`

	September 30, 2024	December 31, 2023
Invoice purchase and security agreement	`$1,279,013`	`$1,696,368`
Inventory finance rider	`449,125`	`1,365,330`
	`$1,728,138`	`$3,061,698`

Lender / Merchant	Maturity Date	Effective Interest Rate	Principal Balance September 30, 2024	Principal Balance December 31, 2023
Libertas #5	December 6, 2024	58%	$ 2,937,305	$ -
Libertas #6	November 29, 2024	58%	1,723,582	-
Lendspark #3	March 4, 2025	68%	1,554,522	-
Private Lender A	October 14, 2024	150%	1,435,368	-
Lendspark #4	December 4, 2024	68%	1,004,397	-
Libertas #7	January 7, 2025	66%	916,140	-
Libertas #4	September 12, 2024	68%	626,014	1,394,324
Libertas #8	March 6, 2025	68%	515,140	-
Parkside Funding	September 6, 2024	177%	216,000	-
ACMO USOS LLC	March 15, 2021	15%	191,699	191,699
UFS West	September 6, 2024	177%	188,400	-
Private Lender B	March 23, 2023	20%	83,487	72,085
USA SBA	March 1, 2026	1%	53,957	82,265
Libertas #2	June 16, 2024	56%	-	1,320,000
Libertas #3	August 3, 2024	56%	-	1,019,667
Libertas #1	April 5, 2024	66%	-	897,749
Lendspark #1	April 19, 2024	68%	-	646,169
Private Lender A	May 21, 2023	30%	-	393,978
			11,446,011	6,017,936
Less: Unamortized debt issuance costs			(2,684,805)	(1,100,104)
			$ 8,761,206	$ 4,917,832


Due in less than one year		`$11,392,054`
Due in more than one year, but less than two years		`53,957`
Less: Unamortized debt issuance costs		`(2,684,805)`
		`$8,761,206`

	September 30, 2024	December 31, 2023
Beginning balance	`$-`	`$-`
Fair value upon issuance of warrants	`1,936,937`	`-`
Change in fair value	`-`	`-`
Ending balance	`$1,936,937`	`$-`

Lender	Date Issue	Gross Discount	Unamortized Discount
Libertas #4	October 25, 2023	$ 449,737	$ 155,327
Libertas #5	January 11, 2024	575,936	377,033
Libertas #6	January 18, 2024	990,000	642,535
Libertas #7	February 19, 2024	397,500	222,095
Libertas #8	May 16, 2024	175,000	127,817
		$ 2,588,173	$ 1,524,807

	Maximum Issuable
Company Stock Option Plan	4,000,000

Common Share Purchase Warrants issued	1,223,333
Shares issuable on exercise of outstanding Offering Warrants issued under the Reg A Offering	3,787,933
Shares issuable on exercise of outstanding Brokers Warrants issued under the Reg A Offering	48,522
Reservation for conversion of maximum issuable common shares	3,333,333
Shares issuable on exercise of outstanding Brokers Warrants issued under the Reg A Offering	76,666
Reservation for convertible note	416,667
TOTAL SHARES RESERVED FOR ISSUANCE	12,886,454

Grant Date	Options Outstanding	Exercise Price	Expiration	Vesting
2022-09-01	427,781	$ 2.70	2027-08-31	Equally over 3 years commencing on first anniversary of grant date
2023-08-01	3,334	$ 9.09	2028-07-31	Vested immediately
2023-10-05	446,338	$ 4.80	2028-10-14	Equally over 3 years commencing on first anniversary of grant date
2023-11-01	83,334	$ 4.80	2028-10-31	27,778 vest immediately, remaining vest equally over 3 years commencing on first anniversary of grant date

	Number of Options	Weighted Average Exercise Price Per Share
Outstanding as of December 31, 2023	`1,269,667`	`$3.87`
Granted	`-`	`-`
Exercised	`-`	`-`
Forfeited	`(308,880)`	`3.86`
Outstanding as of September 30, 2024	`960,787`	`$3.88`

	Three Months Ended September 30, 2024	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2024	Nine Months Ended September 30, 2023
Executive compensation	`$474,457`		`$677,042`	`$1,157,696`		`$1,838,402`
Professional fees	`382,688`		`316,223`	`920,378`		`858,657`
Insurance	`150,516`		`49,068`	`479,600`		`133,237`
Lease and utilities	`113,590`		`53,915`	`200,090`		`146,399`
Bank charges	`11,840`		`3,494`	`136,477`		`9,488`
Travel expenses	`27,252`		`49,414`	`158,748`		`134,175`
Automobile	`24,510`		`-`	`79,544`		`-`
Licenses	`13,384`		`18,809`	`36,068`		`51,073`
Other	`6,795`		`5,628`	`154,244`		`15,283`
	`$1,205,032`		`$1,173,593`	`$3,322,846`		`$3,186,714`

	Acres	Expiration	Annual Fee
Right-of-Way Grant N-41035	19.66	2024-12-31	`$2,850`
Right-of-Way Grant N-42414	20.32	2044-12-31	`1,400`
			`$4,250`

		Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
		September 30,		September 30,		September 30,		September 30,
		2024		2023		2024		2023

Net sales	$	4,846,795	$	14,397,648	$	19,174,369	$	39,140,246

Cost of goods sold		4,532,565		11,647,135		18,409,703		33,406,211

Gross profit		314,230		2,750,513		764,666		5,734,035

Operating expenses:
General and administrative		1,205,032		1,173,593		3,322,846		3,195,049
Share based compensation		74,604		102,571		534,572		325,887
Depreciation and amortization		219,746		157,470		589,267		308,875
Foreign exchange		0		0		0		(8,335)
Total operating expenses		1,499,382		1,433,634		4,446,685		3,821,476

Income (loss) from operations		(1,185,152)		1,316,879		(3,682,019)		1,912,559

Other income (expense)
Loss on extinguishment of debt		0		0		(108,887)		(188,227)
Interest expense		(1,320,115)		(1,914,406)		(4,773,663)		(1,821,529)
Loss on issuance of private placement warrants		(1,935,934)		0		(1,9358,934)		0
Gain (loss) on sale of assets		0		0		(25,075)		550,000
Other income (expense)		(4,059)		0		1,085		0
Income (loss) before income tax expense		(4,445,260)		(597,527)		(10,524,493)		452,803
Income tax benefit (expense)		0		0		0		(2,327)
Net income (loss)	$	(4,445,260)	$	(597,527)	$	(10,524,493)	$	450,476
Exchange loss on translation of foreign operations		0		(254)		(8,134)		16,168
Net income (loss) and comprehensive income (loss)	$	(4,445,260)	$	(597,781)	$	(10,532,627)	$	466,646

	September 30,		December 31,		Increase/
	2024		2023		(Decrease)

Cash	$	292,920	$	326,822	$	(33,902)
Total Current Assets	4,801,943			6,395,859	(1,593,916)
Total Assets	26,348,051			28,175,980	(1,827,929)
Total Current Liabilities	15,591,245			12,871,163	2,720,082
Total Liabilities	17,726,267			15,087,923	2,638,344

Exhibit No.	Description

3.1 (1)	Amended and Restated Certificate of Incorporation

3.2 (1)	Amendments to Certificate of Incorporation

3.3 (1)	Bylaws of Sky Quarry Inc

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.

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.

32.1*	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

32.2*	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

101.INS	XBRL Instance Document

101.SCH	XBRL Schema Document

101.CAL	XBRL Calculation Linkbase Document

101.DEF	XBRL Definition Linkbase Document

101.LAB	XBRL Labels Linkbase Document

101.PRE	XBRL Presentation Linkbase Document

(1)	Incorporated by referencing from our Registration Statement on Form 1-A filed with the Commission on July 7, 2021

	Sky Quarry Inc.


Dated: November 14, 2024	`/s/`David Sealock
	`By:`David Sealock
	`Its:`Chief Executive Officer

1.	I have reviewed this Quarterly Report on Form 10-Q of Sky Quarry Inc. (the “registrant”);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2024

	/s/ Darryl Delwo
Name:	Darryl Delwo
Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

Date: November 14, 2024		/s/ David Sealock
	Name:	David Sealock
	Title:	Chief Executive Officer
		(Principal Executive Officer)