SKYQ 10-Q
Sky Quarry Inc. (SKYQ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 | | |
(Do not check if a smaller reporting company) |
| Emerging growth company | |
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 May 15, 2025, there were
SKY QUARRY INC.
FORM 10 -Q QUARTERLY REPORT
FOR THE QUARTER ENDED March 31, 2025
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 | 27 |
Item 3. | 35 | |
Item 4. | 35 | |
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PART II – OTHER INFORMATION |
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Item 1. | 36 | |
Item 1A. | 36 | |
Item 2. | 36 | |
Item 3. | 36 | |
Item 4. | 36 | |
Item 5. | 36 | |
Item 6. | 37 | |
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38 | ||
PART I – FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading: “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
ITEM 1 Financial Statements
1
Sky Quarry Inc.
Condensed Consolidated Balance Sheets
As of March 31, 2025 and December 31, 2024 (Unaudited)
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ASSETS |
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Current assets: |
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Cash |
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Accounts receivables |
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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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Current portion of operating lease liability |
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Current portion of finance lease liability |
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Warrant liability |
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Lines of credit |
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Current maturities of notes payable |
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Total current liabilities |
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Notes payable, less current maturities, net of debt issuance costs |
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Operating lease liability, net of current portion |
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Finance 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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Preferred stock $ |
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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
2
Sky Quarry Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
For the Periods Ended March 31, 2025 and 2024
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Net sales |
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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 expense |
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Loss on extinguishment of debt |
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Gain on warrant valuation |
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Other income (expense) |
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Gain on sale 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 income (loss) |
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Exchange gain (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 |
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Weighted average shares outstanding |
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Basic and diluted |
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See accompanying Notes to Condensed Consolidated Financial Statements.
3
Sky Quarry Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
For the Periods Ended March 31, 2025 and 2024
| Preferred Stock Outstanding | Preferred Stock | Common Stock Outstanding | Common Stock | Additional Paid-in-Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total |
Balance January 1, 2025 | $ | $ | $ | $( | $( | $ | ||
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Common shares issued for non-cash consideration | ||||||||
Debt converted to common shares | ||||||||
Share based compensation | ||||||||
Stock warrants issued | ||||||||
Other comprehensive income | ||||||||
Net loss | ( | ( | ||||||
Balance March 31, 2025 | $ | $ | $ | $( | $( | $ |
| Preferred Stock Outstanding | Preferred Stock | Common Stock Outstanding | Common Stock | Additional Paid-in-Capital | Accumulated Deficit | Accumulated Other Comprehensive Gain (Loss) | Total |
Balance January 1, 2024 | $ | $ | $ | $( | $( | $ | ||
Preferred share subscription, less offering costs | ||||||||
Common share subscription, less offering costs | ||||||||
Debt converted to common shares | ||||||||
Share based compensation | ||||||||
Other comprehensive loss | ( | ( | ||||||
Net loss | ( | ( | ||||||
Balance March 31, 2024 | $ | $ | $ | $( | $( | $ |
See accompanying Notes to Condensed Consolidated Financial Statements.
4
Sky Quarry Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2025 and 2024
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
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Adjustments to reconcile net loss to cash 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 right-of-use asset |
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Gain on revaluation of warrant liabilities |
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Loss on extinguishment of debt |
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Gain on 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 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 exploration and evaluation assets |
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Purchase of property, plant, and equipment |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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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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Debt discount on note payable |
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Payments on finance lease |
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Proceeds on issuance of preferred stock |
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Preferred stock offering costs |
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Proceeds on issuance of common stock |
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Net cash provided by (used in) financing activities |
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Effect of exchange rate on cash |
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Increase (decrease) in cash and restricted cash |
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Cash and restricted cash, beginning of the period |
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Cash and restricted cash, end of the period |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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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 |
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Acquisition of right-of-use assets through financing lease |
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Conversion of debt |
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See accompanying Notes to Condensed Consolidated Financial Statements
5
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”) are, collectively, an oil production, refining, and a development-stage environmental remediation company formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated soils. The recycling and production of oil from asphalt shingles is expected to reduce the dependence on landfills for the disposal of waste and to also reduce dependence on foreign and domestic virgin crude oil extraction for industrial uses.
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 March 31, 2025 and December 31, 2024, the results of operations for the three months ended March 31, 2025 and 2024, and the cash flows for the three months ended March 31, 2025 and 2024. The results of operations for the three months ended March 31, 2025 and 2024, 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, 2024, 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, 2024. There have been no changes to these policies during the quarter ended March 31, 2025, that are of significance or potential significant 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.
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 March 31, 2025, the Company has an accumulated deficit of $
6
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
has received financing and capital through private placements of $
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 March 31, 2025, 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 closely monitoring its growth and operating expenses, refinancing its current debt with longer term debt with amortization schedules that decrease monthly debt service obligations. 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 | $ | $ | ||
Raw materials |
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Chemicals |
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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 Spring Area largely adjacent to each other (the “SITLA Leases”). The SITLA Mineral Lease consisted of the following and is included in oil and gas properties in the Condensed Consolidated Balance Sheets.
7
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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Cost |
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December 31, 2024 |
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Additions |
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March 31, 2025 |
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Accumulated Amortization |
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March 31, 2025 and December 31, 2024 |
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Carrying Amounts |
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March 31, 2025 and December 31, 2024 |
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During the three months ended March 31, 2025, and year ended December 31, 2024, the Company did not record any amortization of the lease rights as operations have not yet commenced.
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.
Reference | Gross Acres | Net Acres | Lease Expiry Date (1) | Annual Rent (2) | Annual Advance Minimum Royalty (3) | Production Royalty Rate (4) |
ML-49927 | ||||||
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.
8
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
6.PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is comprised of the following:
| March 31, | December 31, | |
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Buildings |
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Machinery and equipment |
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Office furniture and equipment |
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Less: Accumulated depreciation and amortization |
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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:
| March 31, | December 31, | |
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Balance, beginning of period |
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Disposal |
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Additions |
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Balance, end of period |
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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 March 31, 2025, the Company holds oil and gas assets representing more than 10% of the total assets, which are primarily the PR Spring 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 Spring facility under construction are capitalized as part of oil and gas properties. These costs include direct materials, labor, 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 Spring 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 March 31, 2025, the Company has determined that there has been no impairment of the PR Spring facility under construction, as there are no indicators suggesting a decline in the asset's recoverable value. The Company has no proved reserves, and there have been no significant changes in reserves
9
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 March 31, 2025 or December 31, 2024.
8.RIGHT-OF-USE ASSET AND LEASE LIABILITY
The Company currently leases office space, which are classified as operating leases, and leases remote camp accommodations which are classified as finance 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 1.17 and 2.17 as of March 31, 2025 and 2024, respectively. The weighted average discount rate as of March 31, 2025, and 2024, was 10.25%.
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 March 31, 2025:
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2025 | |
2026 | |
Total lease payments | |
Less: amounts representing interest | ( |
10
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Present value of lease liabilities | $ |
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 $
The weighted average remaining lease term in years was 18.75 and 19.75 as of March 31, 2025 and 2024, respectively. The weighted average discount rate as of March 31, 2025, was 10.25%.
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 finance lease expense for the three months ended March 31, 2025, is approximately $110,000 in demobilization costs associated with the decommissioning and removal of the remote accommodation camps at the end of the lease term. These costs have been capitalized as part of the lease liability and right-of-use asset and are being recognized over the term of the lease.
The following table reconciles the undiscounted future cash flows for the next five years and thereafter to the financing lease liabilities recorded within the consolidated balance sheet as of March 31, 2025:
2025 | $ |
2026 | |
2027 | |
2028 | |
2029 | |
Total lease payments | |
Less: amounts representing interest | ( |
Present value of lease liabilities | $ |
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:
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| March 31, 2025 | December 31, 2024 |
Trade accounts payable |
| $ | $ |
Accrued expenses |
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Accrued vacation |
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Sales tax payable |
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| $ | $ |
11
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
11.WARRANT LIABILITY
The details of warrant liability transactions for the three months ended March 31, 2025 and March 31, 2024, are as follows:
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| March 31, 2025 | March 31, 2024 |
Beginning balance |
| $ | $ |
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 625,000 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 $1,936,937 at the grant date and is re-valued at each reporting date. Upon the issuance of warrants, the fair value of the Purchase Warrant liability was recorded as a loss on debt modification.
During the three months ended March 31, 2025, the Company recognized change in fair value of the warrant liability of $
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:
|
| March 31, 2025 | December 31, 2024 |
Stock price |
| $ | $ |
Risk-free interest rate |
| ||
Expected volatility |
| ||
Expected life (in years) |
| ||
Expected dividend yield |
| - | - |
Fair value of warrants |
| $ | $ |
12
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
12.LINES OF CREDIT
| March 31, 2025 | December 31, 2024 |
Invoice purchase and security agreement | $ | $ |
Inventory finance rider | ||
| $ | $ |
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:
Lender / Merchant | Maturity Date |
Effective Interest Rate | Principal Balance March 31, 2025 | Principal Balance December 31, 2024 |
Libertas #6 | December 6, 2024 | 58% | $ | $ |
Private Lender A | March 2, 2025 | 20% | ||
Libertas #5 | November 29, 2024 | 58% | ||
LendSpark #3 | March 4, 2025 | 68% | ||
LendSpark #4 | December 4, 2024 | 68% | ||
Libertas #7 | January 7, 2025 | 66% | ||
Libertas #4 | September 12, 2024 | 68% | ||
Libertas #8 | March 6, 2025 | 68% | ||
ACMO USOS LLC | March 15, 2021 | 15% | ||
USA SBA | March 1, 2026 | 1% | ||
|
|
| ||
Less: Unamortized debt issuance costs |
| ( | ( | |
|
|
| $ | $ |
13
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
As of March 31, 2025, the maturity date of debt is as follows:
|
|
|
Due in less than one year |
| $ |
Less: Unamortized debt issuance costs |
| ( |
|
| $ |
The past due debt referred to above is owed to Libertas Funding LLC in the amount of $
The debt terms related to private lenders are as follows:
14
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
15
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
On June 20, 2024, the Company entered into a promissory note for $800,000 from private lender A. The note is secured by the 2020 Resources LLC’s Solar Turbine, bears interest at 10% per month, with a minimum interest of $100,000, and matured on August 20, 2024. Repayment of the note was to be paid from the proceeds of the Warrant Offering with distribution of escrow funds of sixty percent (60%) to private Lender A. As an inducement for advancing the note, the lender was issued 200,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $2.70 per share for a period of five years from the issuance date. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. On July 18, 2024, the note was repaid in full.
LIABILITY FOR SALE OF FUTURE REVENUES
As of March 31, 2025, the Company is party to several agreements related to the sale of future revenues with Libertas Funding, LLC (“Libertas”), a total of five agreements remain outstanding and two 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.
16
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
17
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
During the period ended March 31, 2024, the Company refinanced 3 agreements with Libertas. Management determined that the transaction should be accounted for as a debt extinguishment. Accordingly, the Company recognized a loss on extinguishment related to loan origination fees of $
As of March 31, 2025, the Company had the following unamortized debt discounts related to the Libertas agreements:
Lender |
| Date Issue | Gross | Unamortized |
Libertas #4 |
| October 25, 2023 | $ | $ |
Libertas #5 |
| January 11, 2024 | ||
Libertas #6 |
| January 18, 2024 | ||
Libertas #7 |
| February 19, 2024 | ||
Libertas #8 |
| May 16, 2024 | ||
|
|
| $ | $ |
14.CONVERTIBLE DEBENTURES
Lender |
| Maturity Date | Interest Rate | Principal Due March 31, 2025 | Principal Due |
Private Lender C |
| November 24, 2026 | 9% | $ | $ |
18
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
15.INCOME TAXES
As of March 31, 2025, 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 not be realized and that a valuation allowance is necessary as of March 31, 2025. Accordingly, the Company has recorded a full valuation allowance of in the U.S. The Company has evaluated all of the negative and positive evidence as of March 31, 2025, 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 owns at least 5% of a corporation’s stock within a specified testing period. Similar rules may apply under state tax laws.
As of March 31, 2025, and December 31, 2024, 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 March 31, 2025 and December 31, 2024, 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 the three months ended March 31, 2025 and 2024, totaled
17.EQUITY
During the three months ended March 31, 2025, the Company issued
19
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
payable and conversion of debt, amounting to $
During the three months ended March 31, 2024, the Company issued
During the three months ended March 31, 2024, the Company issued 79,000 shares of series B preferred stock, respectively, for acceptance of share subscriptions amounting to $
For the three months ended March 31, 2025, the Company incurred equity issuance costs of $
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 September 29, 2021, the SEC qualified an offering of securities submitted by the Company under Regulation A (the “2021 Reg A Offering”). Under the 2021 Reg A Offering, the Company proposed to sell up to 5 million units (“Units”) at a price of $3.75 per Unit (as adjusted for the Company’s 1 for 3 reverse split completed in April 2024). Each Unit was comprised of one share of common stock (an “Offering Share”) and one warrant to purchase an additional share (an “Offering Warrant”) at an exercise price of $7.50 per share for a period of three years from the date of issuance of the warrant. The Company reserved from treasury a maximum of 5,000,000 Shares issuable under the 2021 Reg A Offering, assuming full subscription, and a maximum of
The table below sets forth the shares reserved as of March 31, 2025, 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 issued under the Reg A Offering | |
Shares issuable on exercise of outstanding Brokers Warrants issued under the Reg A Offering | |
Reservation for conversion of maximum issuable common shares | |
Shares issuable on exercise of outstanding Brokers Warrants issued under the Reg A Offering | |
Reservation for convertible note | |
TOTAL SHARES RESERVED FOR ISSUANCE |
20
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
As of March 31, 2025, the Company had issued and outstanding a total of
As of March 31, 2025 and December 31, 2024, the Company has share purchase warrants issued and outstanding of
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
18.STOCK OPTION PLAN
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 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 1,666,666 (as adjusted for the 1 for 3 reverse split) to
The table below sets forth share options outstanding as of March 31, 2025.
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 5, 2023 | October 14, 2028 | Equally over 3 years commencing on first anniversary of grant date | ||
November 1, 2023 | October 31, 2028 | 31,112 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 months ended March 31, 2025 and 2024, the Company recorded share-based compensation expense of $
21
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
As of March 31, 2025, the Company had $
The following sets forth the outstanding common share options and related activity for the period ended March 31, 2025:
|
| Number of Options | Weighted Average Exercise Price Per Share |
Outstanding as of December 31, 2024 |
| $ | |
Granted |
| ||
Exercised |
| - | - |
Forfeited |
| ||
Outstanding as of March 31, 2025 |
| $ |
19.RELATED PARTY TRANSACTIONS
Related party transactions in these consolidated financial statements are as follows:
On September 16, 2020, the Company issued a promissory note to JPMorgan, in the amount of $
On June 21, 2021, stockholders of the Company unanimously consented to terminate a Stockholders Agreement entered into by all of the stockholders and the Company on September 24, 2020, and approved a governance agreement (the “JPM Agreement”) between the Company and JPMorgan, which grants to JPMorgan the following rights:
·a consent right with respect to certain business transaction matters, including: (a) material changes to the nature of the Company’s business, (b) a grant of certain stock options or restricted stock, (c) the Company’s entry into certain employment or compensation agreements, (d) the incurrence by the Company of more than $500,000 of debt, (e) the Company’s entry into a related party agreement, (f) a sale transaction, (g) a loan by the Company in excess of $500,000, (h) settlement of a lawsuit or other dispute in excess of $500,000 or (i) any investment by the Company in excess of $500,000;
·Board of Director observation rights;
·the right to receive certain quarterly and annual financial statements of the Company; and
·certain inspection rights so long as JPMorgan owns at least 10% of the Company’s outstanding shares of common stock.
For the three months ended March 31, 2025, the Company paid sitting and committee fees of $
22
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
20.DISAGGREGATED REVENUE
Revenue consisted of the following refined product types sold domestically in the Southwest USA region for the three months ended March 31:
|
| 2025 | 2024 |
Diesel |
| $ | $ |
Liquid Asphalt |
| ||
VGO |
| ||
Naphtha |
| ||
Other |
| ||
|
| $ | $ |
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 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 the three months ended March 31:
| 2025 | 2024 | |
Crude Oil |
| $ | $ |
Fuels and chemicals |
| ||
Freight out |
| ||
Freight in |
| ||
Salary and wages |
| ||
Depreciation and amortization |
| ||
Repairs and maintenance |
| ||
Automobile |
| ||
Other |
| ( | |
| $ | $ |
General and administrative expenses consisted of the following for the three months ended March 31:
| 2025 | 2024 | |
Professional fees |
| $ | $ |
Executive compensation |
| ||
Insurance |
| ||
Travel |
| ||
Lease and utilities |
| ||
Other |
| ||
Bank charges |
| ||
Licenses |
| ||
Auto |
| ||
| $ | $ |
23
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Professional fees included the following for the three months ended March 31:
| 2025 | 2024 | |
Advertising and marketing |
| $ | $ |
Business development |
| ||
Auditor |
| ||
Membership and subscriptions |
| ||
Other |
| ||
Tax |
| ||
Investor relations |
| ||
Environmental |
| ||
Legal |
| ( | |
| $ | $ |
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, Vacuum Gas Oil (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.
The Company’s chief operating decision maker is the 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 Spring 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 2025.
24
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following presents selected financial information with respect to our single reportable segment for the three months ended March 31:
|
| 2025 |
|
|
| 2024 | |
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 expense |
|
| ( |
|
|
| ( |
Loss on extinguishment of debt |
|
| ( |
|
|
| ( |
Gain on Warrant Valuation |
|
|
|
|
| ||
Other income (expense) |
|
|
|
|
| ( | |
Gain on sale of assets |
|
|
|
|
| ||
Other expense, net |
|
| ( |
|
|
| ( |
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
| ( |
|
|
| ( |
|
|
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|
|
|
|
Provision for income taxes |
|
|
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|
| ||
|
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Net loss |
|
| ( |
|
|
| ( |
|
|
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|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
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|
|
Exchange gain (loss) on translation of foreign operations |
|
|
|
|
| ( | |
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Net loss and comprehensive loss |
|
| $( |
|
|
| $( |
|
|
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|
|
Loss per common share |
|
|
|
|
|
|
|
Basic and diluted |
|
| $( |
|
|
| $( |
Weighted average shares outstanding |
|
|
|
|
|
|
|
Basic and diluted |
|
|
|
|
|
The segmented assets as of March 31, 2025 are as follows:
| Foreland Refining | 2020 Resource LLC | Total |
Total assets | $ | $ | $ |
The segmented assets as of March 31, 2024 are as follows:
| Foreland Refining | 2020 Resource LLC | Total |
Total assets | $ | $ | $ |
25
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
23.COMMITMENTS AND CONTINGENCIES
As of March 31, 2025, 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 | 2054-12-31 | $ | |
Right-of-Way Grant N-42414 | 2044-12-31 | ||
|
|
| $ |
24.SUBSEQUENT EVENTS
Management performed a review and determined that, except as disclosed elsewhere herein and below, no material events occurred subsequent to March 31, 2025 through May 14, 2025, the date of presentation of these financial statements.
On April 16, 2025, the Company entered into a Note Purchase Agreement with Lucas Ventures LLC pursuant to which Lucas Ventures purchased a $100,000 portion of the LendSpark Corporation Business Loan and Security Agreement dated April 30, 2024. The Company issued a replacement convertible note to Lucas Ventures in the principal amount of $100,000 that bears interest at a rate of 5% per annum and has a maturity date of July 16, 2025.
On April 23, 2025, the Company issued 40,300 shares of common stock to MZHCI LLC in full settlement of $40,300 in outstanding invoices.
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, 2024, filed with the Securities and Exchange Commission (the “SEC”) on April 21, 2025.
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.
Reverse Stock Split
We filed a Certificate of Amendment to our Certificate of Incorporation with the State of Delaware on April 9, 2024 (the “Effective Split Date”) to effect a one-for-three (1-for-3) (the “Split Ratio”) reverse stock split of our shares of common stock (the “Reverse Stock Split”), without changing the par value, rights, terms, conditions, and limitations of such shares of common stock. No fractional shares were issued in connection with the Reverse Stock Split, and any of our stockholders that were entitled to receive a fractional share as a result of the Reverse Stock Split instead received one additional share of our common stock in lieu of the fractional share. The Reverse Stock Split did not in itself affect any stockholder’s ownership percentage of our common stock, except to the extent that any fractional share was rounded up to the nearest whole share. The number of shares of common stock subject to the exercise of outstanding options, warrants and convertible securities was also reduced by the Split Ratio as of the Effective Split Date and their
27
respective exercise prices were increased by the Split Ratio. Neither the authorized shares of capital stock nor the par value per share of our common stock was affected by the Reverse Stock Split.
All historical share and per-share amounts reflected throughout the consolidated financial statements have been adjusted to reflect the Reverse Stock Split.
Overview
We are an oil production, refining, and a development-stage environmental remediation company formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated sands and soils. The recycling of asphalt shingles is expected to reduce the dependence on landfills for the removal of waste and to also reduce dependence on foreign and domestic virgin crude oil extraction for industrial uses.
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 over 99% of the solvent being recoverable for continuous reuse and requires no water. The solvent has demonstrated oil separation rates of over 95% in bench testing using samples of both mined crushed ore and ground asphalt shingles.
We intend to retrofit the PR Spring Facility, located in southeast Utah (as defined below) 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 also plan to develop modular asphalt shingle recycling facilities (the “ASR Facility”) which can be deployed in cities with high concentrations of waste asphalt shingles and near asphalt shingle manufacturing centers.
Corporate History
We were incorporated in Delaware on June 4, 2019, as “Recoteq, Inc.” On April 22, 2020, we changed our name to “Sky Quarry Inc.” Sky Quarry is a holding company and has no operations. The purpose of the holding company is to maintain ownership over our subsidiaries, create management efficiencies and establish an organizational structure to facilitate the potential acquisition of other businesses within or complementary to our industry.
On September 16, 2020, we acquired 2020 Resources LLC. The assets of 2020 Resources include an oil sands remediation facility (the “PR Spring facility”) and a 100% interest in asphalt bitumen leases covering approximately 5,930 acres in the PR Spring region in Utah. On September 16, 2020, we also acquired 2020 Resources (Canada) Ltd, an entity which is currently inactive.
On September 30, 2022, we acquired Foreland Refining Corporation, which is engaged in the refining of heavy crude oil into diesel and other petroleum products (naphtha, vacuum gas oil, and paving asphalt liquids) at its Eagle Springs Refinery located near Ely, Nevada. The acquisition of Foreland was immediately accretive to our revenues and cash flow and provides a strong base for growth. We believe the acquisition is a strategic fit and will form an important role in the future enabling us to vertically integrate the production and refining of oil from waste materials to energy in a sustainable and efficient manner.
28
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 March 31, 2025 and December 31, 2024, and for the three months ended March 31, 2025 and 2024, 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, 2024 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 March 31, 2025, we have incurred accumulated net losses of $27,301,783. 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 Months Ended March 31, 2025 and 2024
Introduction
This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three months ended March 31, 2025 and 2024, respectively. We have derived this data from our unaudited interim condensed consolidated financial statements included in this Quarterly Report.
We had net sales of $6,332,967 for the three months ended March 31, 2025, compared to $10,952,330 for the three months ended March 31, 2024. Our cost of goods sold for the three months ended March 31, 2025 were $7,059,059, compared to $10,382,881 for the three months ended March 31, 2024. The significant decrease in our sales were the direct result of the company’s challenges associated with regaining supply streams disrupted in May and June 2024 as a result of the Foreland Refinery outage, disruption and refurbishment in 2024. Additionally, WTI pricing fell from $87 per barrel on April 5, 2024, to $71 per barrel on March 31, 2025, which corresponded with reduced pricing in the end products.
Our operating expenses were $1,937,485 for the three months ended March 31, 2025, compared to $1,609,356 for the three months ended March 31, 2024. Our operating expenses consisted of General and Administrative, non-cash charges associated with Share-Based Payments, Depreciation and Amortization, and Foreign Exchange.
Our net income (loss) was ($3,333,694) for the three months ended March 31, 2025, compared to ($2,462,545) for the three months ended March 31, 2024.
29
Net Sales and Net Income (Loss)
Our net sales, costs of good sold, gross profit, operating expenses, other income (expense) and net income (loss) for the three months ended March 31, 2025 and 2024, were as follows:
|
|
| 2025 |
|
|
| 2024 |
Net sales |
|
| $6,332,967 |
|
|
| $10,952,330 |
|
|
|
|
|
|
|
|
Cost of goods sold |
|
| 7,059,059 |
|
|
| 10,382,881 |
Gross margin |
|
| (726,092) |
|
|
| 569,449 |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
General and administrative |
|
| 1,935,457 |
|
|
| 1,607,884 |
Depreciation and amortization |
|
| 2,028 |
|
|
| 1,472 |
Total operating expenses |
|
| 1,937,485 |
|
|
| 1,609,356 |
|
|
|
|
|
|
|
|
Loss from operations |
|
| (2,663,577) |
|
|
| (1,039,907) |
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
Interest expense |
|
| (901,561) |
|
|
| (1,308,445) |
Loss on extinguishment of debt |
|
| (56,660) |
|
|
| (108,887) |
Gain on Warrant Valuation |
|
| 274,980 |
|
|
| - |
Other income (expense) |
|
| 7,477 |
|
|
| (5,306) |
Gain on sale of assets |
|
| 5,647 |
|
|
| - |
Other expense, net |
|
| (670,117) |
|
|
| (1,422,638) |
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
| (3,333,694) |
|
|
| (2,462,545) |
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
Net loss |
|
| (3,333,694) |
|
|
| (2,462,545) |
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
Exchange gain (loss) on translation of foreign operations |
|
| 422 |
|
|
| (8,134) |
|
|
|
|
|
|
|
|
Net loss and comprehensive loss |
|
| $(3,333,272) |
|
|
| $(2,470,679) |
|
|
|
|
|
|
|
|
Loss per common share |
|
|
|
|
|
|
|
Basic and diluted |
|
| $(0.16) |
|
|
| $(0.15) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
Basic and diluted |
|
| 21,260,924 |
|
|
| 16,334,862 |
30
Net Sales
We had net sales of $6,332,967 for the three months ended March 31, 2025, compared to $10,952,330 for the three months ended March 31, 2024, a decrease of $4,619,363. The decline in net sales for the first quarter 2025 present compared to the prior period was primarily due to the company’s challenges associated with regaining supply volumes previously disrupted in May and June 2024 as a result of the Foreland Refinery outage, disruption and refurbishment in 2024. Additionally, WTI pricing fell from $87 per barrel on April 5, 2024, to $71 per barrel on March 31, 2025, which corresponded with reduced pricing in the end products.
Cost of Goods Sold
Our cost of goods sold for the three months ended March 31, 2025 was $7,059,059 compared to $10,382,881 for the three months March 31, 2024, a decrease of $3,323,822. Gross profit for the three months ended March 31, 2025 was a negative $726,092, compared to $569,449 for the three months ended March 31, 2024, a decrease of $1,295,541 for the comparative period. The decline in cost of sales for the first quarter 2025 presented compared to the prior periods was primarily due to the decline in net sales described above and the contribution margin covering more fixed costs within cost of goods sold.
Cost of goods sold as a percentage of net sales was 112% for the three months ended March 31, 2025, compared to 95% for the three months ended March 31, 2024. The increased cost as a percentage of revenues was due to the company continuing to regain supply streams as a result of the refurbishment of the Foreland refinery in 2024, the reduction in WTI pricing and the net change on inventory revaluation of $1,065,846.
General and Administrative
Our general and administrative expenses were $1,935,457 for the three months ended March 31, 2025, compared to $1,607,884 for the three months ended March 31, 2024, an increase of $327,573. In the three months ended March 31, 2025, general and administrative expenses consisted mainly of professional fees of $964,516, executive compensation of $633,630, insurance of $162,775, travel of $68,710, lease and utilities of $57,404, other of $23,720, bank charges of $18,217, licenses of $5,422, and automobile of $1,063. In the three months ended March 31, 2024, general and administrative expenses consisted mainly of executive compensation of $575,532, professional fees of $502,346, insurance of $172,316, bank charges of $110,145, other of $129,238, travel of $62,883, lease and utilities $28,951, automobile of $23,999, and licenses of $2,474. In the three months ended March 31, 2025, increase over the three months ended March 31, 2024, is due increase in business development and advertising and marketing activities.
Other Income (Expense)
Other expense was $670,117 for the three months ended March 31, 2025, compared to $1,422,638 for the three months ended March 31, 2024, a decrease of $752,521. In the three months ended March 31, 2025, other income (expense) consisted of interest expense, net of interest income $901,561, loss on extinguishment of debt $56,660, offset by gain on warrant valuation $274,980, gain on sale of assets $5,647 and other income $7,477. In the three months ended March 31, 2024, other income (expense) consisted of interest expense, net of interest income of $1,308,445, loss on extinguishment of debt of $108,887 and loss on other expense of $5,306. 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
31
remeasurement of warrant liabilities is not reflective of ongoing operating performance. As this item did not occur in the prior-year quarter, it should be evaluated separately when comparing financial results across periods. 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 terms, 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 Income (Loss)
Net loss was $3,333,694 or a loss of $0.16 per share, for the three months ended March 31, 2025, respectively compared to net loss of $2,462,545 or $0.15 per share, for the three months ended March 31, 2024.
Our net loss compared to the previous periods net loss was primarily driven by reduced net sales as a result of the reduction in sales as the company continues to regain supply streams.
Liquidity and Capital Resources
Introduction
We had negative operating cash flows for the three months ended March 31, 2025. Our cash on hand as of March 31, 2025, was $213,000. While we had negative net cash from operations for the three months ended March 31, 2025, our monthly cash flow burn rate for the three months ended March 31, 2025, was $654,408. In connection with the Foreland Refinery acquisition and PR Spring 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 March 31, 2025 and December 31, 2024, respectively, are as follows:
| March 31, |
| December 31, |
| Increase/ | |
| 2025 |
| 2024 |
| (Decrease) | |
|
|
|
|
|
| |
Cash | $213,000 |
| $385,116 |
| $(172,116) | |
Total Current Assets | 4,715,965 |
| 4,997,373 |
| (281,408) | |
Total Assets | 24,590,613 |
| 26,947,243 |
| (2,356,630) | |
Total Current Liabilities | 12,008,538 |
| 12,398,672 |
| (390,134) | |
Total Liabilities | 15,011,168 |
| 15,448,746 |
| (437,578) | |
Our cash decreased by $172,116 as of March 31, 2025, as compared to December 31, 2024. Our total current assets decreased by $281,408 primarily because of a decrease in inventory of $1,045,857, offset by increases in accounts receivable of $634,262 and prepaid expenses of $302,303.
32
Our total assets decreased by $2,356,630 due to the changes in current assets as well as decreases in restricted cash of $2,130,946, property, plant and equipment of $217,536, and right-of-use assets of $24,129, offset by an increase in oil and gas properties of $297,389.
Our current liabilities as of March 31, 2025 as compared to December 31, 2024, decreased by $390,134 and our total liabilities decreased by $437,578, both primarily as a result of an increase in lines of credit of $1,067,400, current portion of operating lease of $43,353, offset by decreases in accounts payable and accrued expenses of $812,705, current maturities of notes payable of $413,707, warrant liability of $274,980, and operating lease liability of $43,353, and finance lease liability of $506.
In order 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.
Cash Requirements
Our cash on hand as of March 31, 2025, was $213,000. 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.
Sources and Uses of Cash
Operating Activities
Our net cash used in operating activities for the three months ended March 31, 2025, were $1,963,224, as compared to cash used of $1,224,548 for the three months ended March 31, 2024. Our net cash used in operating activities for the three months ended March 31, 2025, consisted of a net loss of $3,333,694, increase in working capital of $483,631, less share based compensation of $78,880, depreciation and amortization of $242,004, amortization of debt issuance costs of $765,793, amortization of right-of-use asset of $24,129, loss on extinguishment of debt of $56,660, and gain on revaluation of warrant liability of $274,980, and gain on sale of assets of $5,647. Our net cash used in operating activities for the three months ended March 31, 2024, consisted of a net loss of $2,462,545, decrease in working capital of $493,779, less share-based compensation of $270,176, depreciation and amortization of $164,534, amortization of debt issuance costs of $1,166,227, amortization of right-of-use asset of $21,952, and loss on extinguishment of debt of $108,887.
Investing Activities
Our cash flow used in investing activities for the three months ended March 31, 2025 and 2024, was $316,210 and $427,666, respectively, a decrease of $111,456. Our investing activities during the three months ended March 31, 2025, consisted of a net increase from proceeds of sale of assets of $14,060, payments for exploration and evaluation assets of $297,389, and payments for property, plant and equipment of $44,174. Our investing activities during the three months
33
ended March 31, 2024, consisted of payments for exploration and evaluation assets of $144,963, and payments for property, plant and equipment of $282,702.
Financing Activities
Our net cash provided by (used in) financing activities for the three months ended March 31, 2025 and 2024, was $(24,050) and $1,707,755, respectively, a decrease of $1,731,805. Our cash flows from financing activities during the three months ended March 31, 2025, consisted of proceeds of lines of credit of $5,339,736, proceeds from notes payable of $143,237, offset by payments on lines of credit of $4,272,336, payments on notes payable of $1,231,214, and payments of financing lease of $3,473. Our cash flows from financing activities during the three months ended March 31, 2024, consisted of proceeds of lines of credit of $10,641,448, proceeds from notes payable of $9,820,288, and issuance of preferred stock of $197,500, and issuance of common stock of $19,492, offset by payments on lines of credit of $11,638,704, payments on notes payable of $5,300,608, debt discount on note payable of $1,970,936, payments on financing lease of $19,851 and preferred stock offering costs of $40,874.
34
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 at of March 31, 2025, 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 March 31, 2025, 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 March 31, 2025, 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 March 31, 2025, 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 our 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.
35
PART II – OTHER INFORMATION
ITEM 1 Legal Proceedings
There are no updates to the disclosure of legal proceedings in our Offering Circular filed as part of our Offering Statement.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 1A Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
During the three months period ended March 31, 2025, we issued an aggregate of 1,050,824 shares of our common stock pursuant to section 4(2) of the Securities Act of 1933, as amended. The Company did not receive any proceeds from the issuance of its shares of common stock as such issuances were made in exchange for services rendered to various parties, as well as for the payment of interest on outstanding promissory notes.
ITEM 3 Defaults Upon Senior Securities
There have been no events which are required to be reported under this Item.
ITEM 4 Mine Safety Disclosures
Not applicable.
ITEM 5 Other Information
None.
36
ITEM 6 Exhibits
(a)Exhibits
Exhibit No. | Description |
|
|
31.1* | |
|
|
31.2* | |
|
|
32.1* | |
|
|
32.2* | |
|
|
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 |
|
|
37
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: May 15, 2025 | /s/David Sealock |
| By:David Sealock |
| Its:Chief Executive Officer |
38