[10-Q] Sky Quarry Inc. Quarterly Earnings Report
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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 August 11, 2025, there were
SKY QUARRY INC.
FORM 10 -Q QUARTERLY REPORT
FOR THE QUARTER ENDED JUNE 30, 2025
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION |
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Item 1. | Financial Statements | 1 |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 32 |
Item 3. | Quantitative and Qualitative Disclosure About Market Risks | 41 |
Item 4. | Controls and Procedures | 41 |
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PART II – OTHER INFORMATION |
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Item 1. | Legal Proceedings | 42 |
Item 1A. | Risk Factors | 42 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42 |
Item 3. | Defaults Upon Senior Securities | 42 |
Item 4. | Mine Safety Disclosures | 42 |
Item 5. | Other Information | 42 |
Item 6. | Exhibits | 43 |
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SIGNATURES | 44 | |
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 June 30, 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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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 June 30, 2025 and 2024
Three Months Ended June 30, 2025 |
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| Six Months Ended June30, 2025 |
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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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Gain (loss) on extinguishment of debt |
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Gain (loss) on warrant valuation | ( |
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Other income (expense) | ( |
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Gain (loss) 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 loss |
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Exchange loss on translation of foreign operations | ( |
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Net loss and comprehensive loss | $( |
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Loss per common share |
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Basic and diluted | $( |
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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 June 30, 2025
| 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 | ( | ( | ||||
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Common shares issued for non-cash consideration | ||||||
Debt converted to common shares | ||||||
Share based compensation | ||||||
Stock warrants issued | ||||||
Other comprehensive loss | ( | ( | ||||
Net loss | ( | ( | ||||
Balance June 30, 2025 | $ | $ | $( | $( | $ |
See accompanying Notes to Condensed Consolidated Financial Statements
4
Sky Quarry Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
For the Periods Ended June 30, 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, 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 | ( | ( | ||||||
Preferred share subscription, less offering costs | ||||||||
Common share subscription, less offering costs | ||||||||
Share based compensation | ||||||||
Stock warrants issued | ||||||||
Common stock issued on warrant exercise | ||||||||
Other comprehensive loss | ||||||||
Net loss | ( | ( | ||||||
Balance June 30, 2024 | $ | $ | $ | $( | $( | $ |
See accompanying Notes to Condensed Consolidated Financial Statements.
5
Sky Quarry Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 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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Loss (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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Payment of debt issuance costs |
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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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Common stock offering costs |
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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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See accompanying Notes to Condensed Consolidated Financial Statements
6
Sky Quarry Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2025 and 2024
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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
7
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1.NATURE OF OPERATIONS
Sky Quarry Inc. and its subsidiaries (“Sky Quarry”, “SQI” or the “Company”) 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 June 30, 2025 and December 31, 2024, the results of operations for the three and six months ended June 30, 2025 and 2024, and the cash flows for the six months ended June 30, 2025 and 2024. The results of operations for the three and six months ended June 30, 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 June 30, 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 June 30, 2025, the Company has an accumulated deficit of $
8
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
negative cash flows 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 June 30, 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 |
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Raw crude |
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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.
9
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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June 30, 2025 |
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Accumulated Amortization |
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June 30, 2025 and December 31, 2024 |
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Carrying Amounts |
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June 30, 2025 and December 31, 2024 |
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During the six months ended June 30, 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.
10
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
6.PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is comprised of the following:
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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:
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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 June 30, 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 June 30, 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
11
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Company has no proved reserves, and there have been no significant changes in reserves during the reporting period. The capitalized costs related to these oil and gas assets amount to $
PR Springs has not commenced active extraction of reserves. Consequently, the Company is not required to provide reserve quantities or future cash flow disclosures in accordance with ASC 935-235-50-2. Based on our analysis of the asset group, we have determined that no impairment is necessary as of the reporting date. The carrying amounts of the development-stage extraction facility and related oil and gas properties are fully supported by projected future cash flows, which are derived from reasonable and supportable assumptions regarding commodity prices, expected production rates, and operating costs once the assets are operational. Additionally, no significant adverse changes in the economic environment, regulatory landscape, or project costs have occurred to suggest that the recoverable amount of these assets is less than their carrying value. As such, the assets continue to meet the criteria for capitalization, and no impairment loss has been recognized in accordance with ASC 360-10-35. Further, under ASC 932-360-35-19, the impairment analysis specifically considers the recoverability of costs capitalized for oil and gas properties in the development phase. As these costs are expected to be recoverable through future production, no impairment charge was required as of June 30, 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 and 2 as of June 30, 2025 and 2024, respectively. The weighted average discount rate as of June, 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.
12
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table reconciles the undiscounted future cash flows for the next five years and thereafter to the operating lease liabilities recorded within the condensed consolidated balance sheet as of June 30, 2025:
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2025 (Remainder) | $ |
2026 | |
Total lease payments | |
Less: amounts representing interest | ( |
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 18.50 and 19.50 as of June 30, 2025 and 2024, respectively. The weighted average discount rate as of June 30, 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 lease payments are 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 June 30, 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 $
13
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
10.ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
|
| June 30, 2025 | December 31, 2024 |
Trade accounts payable |
| $ | $ |
Accrued expenses |
| ||
Accrued vacation |
| ||
Sales tax payable |
| ||
|
| $ | $ |
11.WARRANT LIABILITY
The details of warrant liability transactions for the six months ended June 30, 2025 and December 31, 2024, are as follows:
|
|
| June 30, 2025 |
| December 31, 2024 |
Beginning balance |
| $ | | $ | |
Fair value upon issuance of warrants |
|
| |
| |
Change in fair value |
|
| ( |
| ( |
Ending balance |
| $ | | $ | |
On August 27, 2024, as consideration for the reduction of weekly payments to certain lenders during the Company’s Reg A Offering, the Company issued common stock, warrants to purchase (“Purchase Warrant”) up to an aggregate of 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 $
During the three and six months ended June 30, 2025, the Company recognized change in fair value of the warrant liability of $
14
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
All changes in the fair value of the warrant liabilities are recognized as a change in fair value of warrant liability in the Company’s consolidated statements of operations until they are either exercised or expire.
The warrant liabilities for the Common Warrants were valued using a Black Scholes pricing model with the following weighted average assumptions:
|
| June 30, 2025 | December 31, 2024 |
Stock price |
| $ | $ |
Risk-free interest rate |
| ||
Expected volatility |
| ||
Expected life (in years) |
| ||
Expected dividend yield |
| - | - |
Fair value of warrants |
| $ | $ |
12.LINES OF CREDIT
| June 30, 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.
15
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
13.DEBT
Debt consisted of the following:
Lender / Merchant | Maturity Date |
Effective Interest Rate | Principal Balance June 30, 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% | ||
ACMO USOS LLC | March 15, 2021 | 15% | ||
Private Lender E | May 22, 2027 | 12% | - | |
Libertas #4 | September 12, 2024 | 68% | ||
USA SBA | March 1, 2026 | 1% | ||
Libertas #8 | March 6, 2025 | 68% | ||
|
|
| ||
Less: Unamortized debt issuance costs |
| ( | ( | |
|
|
| $ | $ |
As of June 30, 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:
16
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
17
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
18
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
LIABILITY FOR SALE OF FUTURE REVENUES
As of June 30, 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.
19
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
During the period ended June 30, 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 $
20
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
As of June 30, 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 June 30, 2025 | Principal Due |
Private Lender C |
| November 24, 2026 | 9% | $ | $ |
Private Lender D |
| July 16, 2025 | 9% | ||
|
|
|
| $ | $ |
21
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
15.INCOME TAXES
As of June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 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 six months ended June 30, 2025 and 2024, totaled
22
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
17.EQUITY
During the six months ended June 30, 2025, the Company issued
During the six months ended June 30, 2024, the Company issued
During the six months ended June 30, 2024, the Company issued 123,200 shares of series B preferred stock, respectively for acceptance of share subscriptions amounting to $
For the six months ended June 30, 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
23
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The table below sets forth the shares reserved as of June 30, 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 |
On June 14, 2024, the Company entered into an engagement agreement with Digital Offering, LLC to provide broker-dealer services in connection with the 2024 Reg A Offering. Under the terms of the engagement letter, the Company will issue a warrant to purchase one share of the Company’s common stock (an “Agent Warrant”) equal to 2.30% of the total Shares sold to investors under the offering at an exercise price of $7.50 per share and subject to transfer, lock-up and exercise restrictions as set forth in Rule 5110 of the Financial Industry Regulatory Authority, Inc (“FINRA”), as applicable. The 2024 Reg A Offering closed on October 9, 2024, and
As of June 30, 2025, the Company had a total of
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
24
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The table below sets forth share options outstanding as of June 30, 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 six months ended June 30, 2025 and 2024, the Company recorded share-based compensation expense of $
As of June 30, 2025, the Company had $
The following sets forth the outstanding common share options and related activity for the period ended June 30, 2025:
|
| Number of Options | Weighted Average Exercise Price Per Share |
Outstanding as of December 31, 2024 |
| $ | |
Granted |
| ||
Exercised |
| - | - |
Forfeited |
| ||
Outstanding as of June 30, 2025 |
| $ |
25
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 and six months ended June 30, 2025, the Company paid sitting and committee fees of $
During the three and six months ended June 30, 2025, the Company granted shares of its common stock to non-employee directors. These directors are considered related parties under ASC 850 due to their governance positions with the Company. On May 22, 2025, the Company issued an aggregate of
26
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 and six months ended June 30:
| Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 |
| Six Months Ended June 30, 2025 | Six Months Ended June 30, 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 and six months ended June 30:
Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 |
| Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 |
| |
Crude Oil | $ | $ |
| $ | $ |
|
Fuels and chemicals |
|
| ||||
Freight out |
|
| ||||
Freight in |
|
| ||||
Salary and wages |
|
| ||||
Depreciation and amortization |
|
| ||||
Repairs and maintenance |
|
| ||||
Other |
|
| ||||
$ | $ |
| $ | $ |
|
General and administrative expenses consisted of the following for the three and six months ended June 30:
Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 |
| Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 |
| |
Professional fees | $ | $ |
| $ | $ |
|
Executive compensation |
|
| ||||
Insurance |
|
| ||||
Travel |
|
| ||||
Lease and utilities |
|
| ||||
Other |
|
| ||||
Bank charges |
|
| ||||
Licenses |
|
| ||||
Auto |
|
| ||||
| $ | $ |
| $ | $ |
|
27
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Professional fees included the following for the three and six months ended June 30:
Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |
Business development | $ | $( | $ | $ |
Auditor | ||||
Legal | ||||
Membership and subscriptions | ||||
Tax | ||||
Environmental | ||||
Investor relations | ||||
Other | ||||
$ | $ | $ | $ |
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 team. 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.
28
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 and six months ended June 30:
Three Months Ended June 30, 2025 |
|
| Three Months Ended June 30, 2024 |
| Six Months Ended June30, 2025 |
|
|
| Six Months Ended June 30, 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 | ( |
|
| ( |
| ( |
|
|
| ( |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes | |
|
| |
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net loss | ( |
|
| ( |
| ( |
|
|
| ( |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
Exchange loss on translation of foreign operations | ( |
|
| |
| ( |
|
|
| ( |
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss | $ ( |
|
| $ ( |
| $ ( |
|
|
| $ ( |
|
|
|
|
|
|
|
|
|
|
|
Loss per common share |
|
|
|
|
|
|
|
|
|
|
Basic and diluted | $ ( |
|
| $ ( |
| $ ( |
|
|
| $ ( |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
Basic and diluted | |
|
| |
| |
|
|
| |
The segmented assets as of June 30, 2025 are as follows:
| Foreland Refining | 2020 Resource LLC | Total |
Total assets | $ | $ | $ |
The segmented assets as of June 30, 2024 are as follows:
| Foreland Refining | 2020 Resource LLC | Total |
Total assets | $ | $ | $ |
29
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
23.COMMITMENTS AND CONTINGENCIES
As of June 30, 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 June 30, 2025 through August 14, 2025, the date of presentation of these financial statements.
On July 9, 2025, the Company, entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with Varie Asset Management LLC, a Nevada limited liability company (“Varie”), pursuant to which Varie has committed to purchase up to $8.125 million of the Company’s common stock, $0.0001 par value per share (the “Common Stock”).
Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Varie, and Varie is obligated to purchase, up to $8.125 million of Common Stock. Sales of Common Stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s sole discretion, over the 24-month period commencing after the satisfaction of certain conditions set forth in the Purchase Agreement, including that a registration statement covering the resale of the shares of Common Stock that may be issued under the Purchase Agreement, which the Company agreed to file with the Securities and Exchange Commission (the “SEC”) pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus in connection therewith is filed (such date on which all of such conditions are satisfied, the “Commencement Date”).
After the Commencement Date, under the Purchase Agreement, the Company may direct Varie to purchase up to 40,000 shares of Common Stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 60,000 shares, provided that the closing sale price of the Common Stock is not below $0.80 on the purchase date; (ii) the Regular Purchase may be increased to up to 80,000 shares, provided that the closing sale price of the Common Stock is not below $1.00 on the purchase date; and (iii) the Regular Purchase may be increased to up to 100,000 shares, provided that the closing sale price of the Common Stock is not below $2.00 on the purchase date (all of which share and dollar amounts shall be appropriately proportionately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction as provided in the Purchase Agreement). In each case, Varie’s maximum commitment in any single Regular Purchase may not exceed $300,000. The purchase price per share (“Purchase Price”) means, with respect to any Regular Purchase made, ninety-seven percent (97%) of the lower of: (i) the lowest sale price on the applicable purchase date for such Regular Purchase and (ii) the arithmetic average of the three (3) lowest closing sale prices for the Common Stock during the ten (10) consecutive business days ending on the business day immediately preceding such purchase date for such Regular Purchase (in each case, to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar
30
Sky Quarry Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
transaction that occurs on or after the date of the Purchase Agreement). Notwithstanding the foregoing, the Purchase Price shall not be less than $0.62 per share.
Varie has no right to require the Company to sell any shares of Common Stock to Varie, but Varie is obligated to make purchases as the Company directs, subject to certain conditions. In all instances, the Company may not sell shares of its Common Stock to Varie under the Purchase Agreement if it would result in Varie beneficially owning more than 9.99% of its Common Stock. There are no upper limits on the price per share that Varie must pay for shares of Common Stock.
As consideration for its commitment to purchase shares of Common Stock under the Purchase Agreement, the Company issued to Varie 366,260 shares of Common Stock and may issue to Varie up to an additional 183,131 shares of Common Stock (the “Additional Commitment Shares”) in connection with additional purchases of Common Stock by Varie and in an amount of Additional Commitment Shares as calculated pursuant to the Purchase Agreement.
The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty.
Actual sales of shares of Common Stock to Varie will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. Varie has covenanted not to cause or engage in, in any manner whatsoever, any direct or indirect short selling or hedging of the Common Stock.
The Company has agreed to pay Varie $12,000 per month commencing on the Commencement Date and continuing during the term of the Purchase Agreement, provided Regular Purchases may be made during any such month.
On July 24, 2025, Foreland issued a secured promissory note in the principal amount of $1,000,000 (“Note”) to KF Business Ventures, LP (“KFBV”). In connection with the issuance of the Note, the Company will issue: (i) five hundred thousand (500,000) shares of common stock to KFBV, and (ii) warrants to purchase up to 2,000,000 shares of common stock at an exercise price of $0.70 per share for a period of five years from the note issuance date as an additional incentive to enter into the Note with Foreland. The Note bears interest at a rate of thirty percent (30%) per annum and matures on November 24, 2025. As security for the Note, the wholly-owned subsidiary, 2020 Resources LLC (“2020 Resources”), entered into a security agreement (“Security Agreement”) with KFBV on July 24, 2025 and the Company and 2020 Resources entered into a guaranty agreement (“Guaranty Agreement”) with KFBV Additionally, the Company agreed to extend the term of all previous warrants issued to KFBV until July 24, 2029.
On August 4, 2025, Darryl Delwo resigned as Chief Financial Officer of the Company. On August 12, 2025, Marcus Laun, our Executive VP and a director of the Company, was appointed to serve as President and Interim Chief Financial Officer of the Company until his earlier resignation or removal therefrom.
31
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
32
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 up to 99% of the solvent being recoverable for continuous reuse and requires no water. The solvent has demonstrated oil separation rates of up to 95% in bench testing using samples of both mined crushed ore and ground asphalt shingles.
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.
33
Our Financial Condition and Going Concern Issues
As a result of our financial condition, we have included in our condensed consolidated financial statements as of June 30, 2025 and December 31, 2024, and for the three and six months ended June 30, 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 June 30, 2025, we have incurred accumulated net losses of $35,054,876. To address our going concern, we aim to increase revenues by securing greater volumes of crude oil for our Foreland refinery, which should enhance our contribution margin. Additionally, we are pursuing opportunities to reduce debt service through refinancing or repayment of existing obligations, establish strategic partnerships, and raise capital through equity or debt offerings, or a combination of these actions. Given our current revenue and cash usage levels, we have pressing working capital needs that necessitate raising funds through equity or debt issuance, coupled with efforts to boost revenue and control operating expenses. However, there is no guarantee that we will be able to raise sufficient capital, grow revenues, and generate the cash flow needed to meet our operating expenses and capital requirements effectively.
Special Notes Regarding Smaller Reporting Company Status
We are filing this report as a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). As a result of being a smaller reporting company, we are allowed and have elected to omit certain information from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate.
Results of Operations for the Three and Six Months Ended June 30, 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 and six months ended June 30, 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 $4,541,472 and $10,874,439 for the three and six months ended June 30, 2025, compared to $3,375,244 and $14,327,574 for the three and six months ended June 30, 2024. Our net sales were $10,874,439 for the six months ended June 30, 2025, compared to $14,327,574 for the six months ended June 30, 2024. Our cost of goods sold for the three months ended June 30, 2025, were $4,658,440, compared to $3,860,833 for the three months ended June 30, 2024. Year to date cost of goods sold of $11,717,499 for the six months ended June 30, 2025, compared to $14,243,714 for the six months ended June 30, 2024. Cost of goods sold does not change directly with sales due to certain fix cost allocations across significantly lower production barrels. 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 $68 per barrel on June 30, 2025, which corresponded with reduced pricing in the end sales products.
Our operating expenses were $1,623,612 for the three months ended June 30, 2025, compared to $971,851 for the three months ended June 30, 2024. Year to date operating expenses were $3,559,466 for the six months ended June 30, 2025, compared to $2,579,207 for the six
34
months ended June 30, 2024. Our operating expenses consisted of General and Administrative, non-cash charges associated with Share-Based Payments, Depreciation and Amortization, and Foreign Exchange rate changes with the Canadian Dollar.
Net Sales and Net Income (Loss)
Our net sales, costs of goods sold, gross profit, operating expenses, other income (expense) and net loss for the three months and six months ended June 30, 2025 and 2024, were as follows:
| Three Months Ended June 30, 2025 |
|
| Three Months Ended June 30, 2024 |
| Six Months Ended June30, 2025 |
|
|
| Six Months Ended June 30, 2024 |
Net sales | $ 4,541,472 |
|
| $ 3,375,244 |
| $ 10,874,439 |
|
|
| $ 14,327,574 |
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold | 4,658,440 |
|
| 3,860,833 |
| 11,717,499 |
|
|
| 14,243,714 |
Gross margin | (116,968) |
|
| (485,589) |
| (843,060) |
|
|
| 83,860 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
General and administrative | 1,620,696 |
|
| 971,378 |
| 3,554,522 |
|
|
| 2,579,262 |
Depreciation and amortization | 4,078 |
|
| 1,476 |
| 4,944 |
|
|
| 2,945 |
Total operating expenses | 1,623,612 |
|
| 972,851 |
| 3,559,466 |
|
|
| 2,582,207 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations | (1,740,580) |
|
| (1,458,440) |
| (4,402,526) |
|
|
| (2,498,347) |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
Interest expense | (318,708) |
|
| (2,105,821) |
| (1,191,176) |
|
|
| (3,414,266) |
Gain (loss) on extinguishment of debt | 29,093 |
|
| - |
| (56,660) |
|
|
| (108,887) |
Gain (loss) on warrant valuation | (174,354) |
|
| - |
| 100,626 |
|
|
| - |
Other income (expense) | (4,101) |
|
| 26,858 |
| 3,472 |
|
|
| 21,552 |
Gain (loss) on sale of assets | - |
|
| (25,075) |
| 3,920 |
|
|
| (25,075) |
Other expense, net | (468,070) |
|
| (2,104,038) |
| (1,139,818) |
|
|
| (3,526,676) |
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes | (2,208,650) |
|
| (3,562,478) |
| (5,542,344) |
|
|
| (6,025,023) |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes | - |
|
| - |
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
Net loss | (2,208,650) |
|
| (3,562,478) |
| (5,542,344) |
|
|
| (6,025,023) |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
Exchange loss on translation of foreign operations | (2,097) |
|
| - |
| (1,675) |
|
|
| (8,134) |
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss | $ (2,210,747) |
|
| $ (3,562,478) |
| $ (5,544,019) |
|
|
| $ (6,033,157) |
|
|
|
|
|
|
|
|
|
|
|
Loss per common share |
|
|
|
|
|
|
|
|
|
|
Basic and diluted | $ (0.10) |
|
| $ (0.21) |
| $ (0.25) |
|
|
| $ (0.36) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
Basic and diluted | 22,110,161 |
|
| 16,981,412 |
| 22,110,161 |
|
|
| 16,981,412 |
35
Net Sales
The following table shows net sales by category for the three and six month periods ended June 30, 2025 and 2024:
| Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 |
Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 |
Change | |
Diesel | $1,755,938 | $1,524,299 | 15% | $3,608,873 | $5,318,870 | (32%) | |
Liquid Asphalt | 1,400,990 | 346,076 | 305% | 4,125,288 | 3,631,543 | 14% | |
VGO | 1,306,615 | 961,429 | 89% | 2,931,119 | 3,474,668 | (16%) | |
Naphtha | 75,996 | 264,457 | (71%) | 196,482 | 1,340,594 | (85%) | |
Other | 1,933 | 548,983 | (100%) | 12,677 | 561,889 | (98%) | |
| $4,541,472 | $3,375,244 | 35% | $10,874,439 | $14,327,574 | (24%) | |
We had net sales of $4,541,472 for the three months ended June 30, 2025, compared to $3,375,244 for the three months ended June 30, 2024, an increase of $1,166,228. Year to date net sales of $10,874,439 for the six months ended June 30, 2025, compared to $14,327,574 for the three months ended June 30, 2024, a decrease of $3,453,135. The decline in net sales for the second quarter of 2025 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 $68 per barrel on June 30, 2025, which corresponded with reduced pricing in the end sales products.
Beginning in late June 2025, the Company’s production was limited due to crude supplier disruptions and delays in completing certain maintenance activities. The Company expects production to resume in August 2025.
Cost of Goods Sold
The following table shows cost of goods sold by category for the three and six month periods ended June 30, 2025 and 2024:
| Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 |
Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 |
Change | ||
Crude oil | $2,729,208 | $2,444,374 | 12% | $7,513,308 | $10,900,398 | (31%) | ||
Fuels and chemicals | 379,887 | 185,059 | 105% | 811,733 | 16,273 | 4,888% | ||
Freight out | 435,180 | 297,492 | 46% | 1,189,269 | 1,556,476 | (24%) | ||
Freight in | 361,331 | 172,557 | 109% | 823,715 | 584,410 | 41% | ||
Salary and wages | 338,683 | 341,327 | (1%) | 629,641 | 656,781 | (4%) | ||
Depreciation and amortization | 311,372 | 304,227 | 2% | 552,510 | 236,944 | 133% | ||
Repairs and maintenance | 91,011 | 80,876 | 13% | 159,641 | 207,731 | (23%) | ||
Automobile | - | - | - | - | - | - | ||
Other | 11,768 | 34,921 | (66%) | 37,682 | 84,701 | (56%) | ||
| $4,658,440 | $3,860,833 | 21% | $11,717,499 | $14,243,714 | (18%) | ||
Our cost of goods sold for the three months ended June 30, 2025 was $4,659,001 compared to $3,860,833 for the three months June 30, 2024, an increase of $798,168. Our year to date cost of goods sold for the six months ended June 30, 2025, was $11,717,499 compared to $14,243,714 for the six months June 30, 2024, a decrease of $2,526,207. Gross profit for the three months ended
36
June 30, 2025 was a negative $117,529, compared to negative $485,589 for the three months ended June 30, 2024, a decrease of $368,060 for the comparative period. Our gross profit for the six months ended June 30, 2025, was a negative $843,060, compared to $83,860 for the six months ended June 30, 2024, a decrease of $926,920 for the comparative period. The decline in cost of sales for the six months ended June 30, 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 103% for the three months ended June 30, 2025, compared to 114% for the three months ended June 30, 2024. Our year to date cost of goods sold as a percentage of net sales was 108% for the six months ended June 30, 2025, compared to 99% for the six months ended June 30, 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.
General and Administrative
The following table shows general and administrative expenses by category for the three and six month periods ended June 30, 2025 and 2024:
| Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 |
Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 |
Change | ||
Executive compensation | $773,061 | $592,555 | 30% | $1,406,691 | $1,251,030 | 12% | ||
Professional fees | 498,987 | 9,383 | 5218% | 1,464,073 | 537,678 | 172% | ||
Insurance | 160,918 | 163,854 | (2)% | 323,693 | 336,170 | (4%) | ||
Lease and utilities | 55,335 | 56,834 | (3) | 114,610 | 63,964 | 79% | ||
Other | 35,534 | 14,402 | 147% | 58,886 | 56,569 | 4% | ||
Travel | 46,744 | 68,613 | (32%) | 104,148 | 131,496 | (21%) | ||
Bank charges | 1,501 | 14,492 | (90%) | 6,924 | 124,637 | (94%) | ||
Licenses | 14,102 | 20,210 | (30%) | 15,165 | 22,684 | (33%) | ||
Automobile | 34,514 | 31,035 | 11% | 58,234 | 55,034 | (6%) | ||
| $1,620,696 | $971,378 | 67% | $3,554,424 | $2,579,262 | 38% | ||
Our general and administrative expenses increased during the three months ended June 30, 2025 compared to the three months ended June 30, 2024 primarily due to an increase of $181,000 in executive compensation primarily from new additional directors added and their related directors fees expense, and increased professional fees of approximately $490,000 associated with the Company going public late in fiscal 2024. the increased selling general and administrative costs for the six months ended June 30, 2025 compared to 2024 were also due to a $926,000 increase in professional fees from the Company’s public offering occurring late in 2024 and ongoing public company costs, and an increase in executive compensation of $156,000 from added directors fees associated with going public and the requirement of additional board members.
Other Income (Expense)
Other expense was $468,070 for the three months ended June 30, 2025, compared to $2,104,038 for the three months ended June 30, 2024, a decrease of $1,635,968. In the three months ended June 30, 2025, other income (expense) consisted of interest expense, net of interest expense $318,708, gain on extinguishment of debt $29,093, loss on warrant valuation $174,354, and other expense $4,100. In the three months ended June 30, 2024, other income (expense) consisted of
37
interest expense, net of interest income of $2,105,821, loss on sale of assets of $25,075, offset by other income $26,858. Other expense was $1,139,818 for the six months ended June 30, 2025, compared to $3,526,676 for the six months ended June 30, 2024, a decrease of $2,386,858. In the six months ended June 30, 2025, other income (expense) consisted of interest expense, net of interest income $1,191,176, loss on extinguishment of debt of $56,660, offset by gain on warrant valuation $100,626, gain on sale of assets of $3,920, and other income $3,472. In the six months ended June 30, 2024, other income (expense) consisted of interest expense, net of interest income of $3,414,266, loss on extinguishment of debt of $108,887, loss on sale of assets of $25,075, offset by other income $21,552. The warrant liability is revalued at each reporting date based on changes in the underlying factors influencing the fair value of the warrants, such as the Company’s stock price, volatility, and other market conditions. The Company’s management believes that the non-cash gain recognized in the current period from the remeasurement of warrant liabilities is not reflective of ongoing operating performance. 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 Loss
Net loss was $2,208,650 or a loss of $0.10 per share, for the three months ended June 30, 2025, compared to net loss of $3,562,478 or $0.22 per share, for the three months ended June 30, 2024. Net loss was $5,542,344 or a loss of $0.27 per share, for the six months ended June 30, 2025, compared to net loss of $6,025,023 or $0.37 per share, for the six months ended June 30, 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 six months ended June 30, 2025, but positive cash flows from operations for the three months ended June 30, 2025. Our cash on hand as of June 30, 2025, was $173,795. While we had negative net cash from operations for the six months ended June 30, 2025, our monthly cash flow burn rate for the six months ended June 30, 2025, was $389,884. 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.
38
Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2025 and December 31, 2024, respectively, are as follows:
| June 30, |
| December 31, |
|
| |
| 2025 |
| 2024 |
| Decrease | |
Cash | $173,795 |
| $385,116 |
| $(211,321) | |
Total Current Assets | 3,199,332 |
| 4,997,373 |
| (1,798,041) | |
Total Assets | 22,800,561 |
| 26,947,243 |
| (4,146,682) | |
Total Current Liabilities | 11,723,448 |
| 12,398,672 |
| (675,224) | |
Total Liabilities | 14,935,079 |
| 15,448,746 |
| (513,667) | |
Our cash decreased by $211,321 as of June 30, 2025, as compared to December 31, 2024. Our total current assets decreased by $1,798,041 primarily because of a decrease in inventory of $1,149,885, and accounts receivable of $501,376, offset by increase in prepaid expenses of $64,541.
Our total assets decreased by $4,146,682 due to the changes in current assets as well as decreases in restricted cash of $2,127,981, property, plant and equipment of $524,791, and right-of-use assets of $48,842, offset by an increase in oil and gas properties of $352,973.
Our current liabilities as of June 30, 2025 as compared to December 31, 2024, decreased by $692,187 and our total liabilities decreased by $513,667, both primarily as a result of an increase in accounts payable of $182,323, current portion of operating lease of $39,402, current portion of finance lease of $844, notes payable of $244,409, and finance lease liability of $11,935, offset by decreases in lines of credit of $127,094, current maturities of notes payable of $687,036, warrant liability of $100,626, and operating lease liability of $77,824.
The decrease in cash and assets and increase in liabilities, noted above, are due to the losses described above.
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.
On June 27, 2025, the Company’s wholly owned subsidiary, Foreland Refining Corporation, launched a Regulation Crowdfunding (Reg CF) offering to raise up to $1.235 million to fund working capital and general corporate purposes. As of June 30, 2025, the subsidiary had raised $0 in commitments. Although the Reg CF is being conducted at the subsidiary level, the proceeds are expected to support business lines that may be consolidated into the Company’s operations. The offering is not expected to have a material near-term impact on the Company’s consolidated liquidity position.
Cash Requirements
Our cash on hand as of June 30, 2025, was $173,795. 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
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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 six months ended June 30, 2025, were $729,401, as compared to cash used of $2,602,375 for the six months ended June 30, 2024. Our net cash used in operating activities for the six months ended June 30, 2025, consisted of a net loss of $5,542,344, favorable working capital changes of $3,137,543, less share based compensation of $309,354, depreciation and amortization of $557,454, amortization of debt issuance costs of $807,636, amortization of right-of-use asset of $48,842, loss on extinguishment of debt of $56,660, and gain on revaluation of warrant liability of $100,626, and gain on sale of assets of $3,920. Our net cash used in operating activities for the six months ended June 30, 2024, consisted of a net loss of $6,025,023, favorable changes in working capital of $883,794 less share-based compensation of $459,968, depreciation and amortization of $369,521, amortization of right-of-use asset of $34,528, and loss on extinguishment of debt of $108,887.
Investing Activities
Our cash flow used in investing activities for the six months ended June 30, 2025 and 2024, was $381,296 and $1,371,716, respectively, a decrease of $990,420. Our investing activities during the six months ended June 30, 2025, consisted of a net increase from proceeds of sale of assets of $14,060, payments for exploration and evaluation assets of $352,973, and payments for property, plant and equipment of $42,383. Our investing activities during the six months ended June 30, 2024, consisted of payments for exploration and evaluation assets of $656,964, and payments for property, plant and equipment of $714,752.
Financing Activities
Our net cash provided by (used in) financing activities for the six months ended June 30, 2025 and 2024, was ($1,226,930) and $4,178,508, respectively, a decrease of $5,405,438. Our cash flows from financing activities during the six months ended June 30, 2025, consisted of proceeds of lines of credit of $8,338,455, proceeds from notes payable of $574,380, offset by payments on lines of credit of $8,465,550, payments on notes payable of $1,670,741, and payments of financing lease of $3,473. Our cash flows from financing activities during the six months ended June 30, 2024, consisted of proceeds of lines of credit of $16,377,043, proceeds from notes payable of $15,054,104, and issuance of preferred stock of $307,921, and issuance of common stock of $1,138,077, proceeds on issuance of stock warrants of $1,258,475, offset by payments on lines of credit of $18,426,517, payments on notes payable of $8,847,174, and payments on debt issuance cost of $1,043,187.
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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 June 30, 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 June 30, 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 June 30, 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 June 30, 2025, that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting. In August 2025, the Company’s chief financial officer resigned and Marcus Laun was appointed to serve as interim chief financial officer until his earlier resignation or removal therefrom, while the Company searches for a permanent chief financial officer to fill the position.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures provide our management with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within the Company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.
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PART II – OTHER INFORMATION
ITEM 1 Legal Proceedings
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, 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 six months period ended June 30, 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
On August 12, 2025, Marcus Laun, our Executive VP and a director of the Company, was appointed to serve as President and Interim Chief Financial Officer of the Company until his earlier resignation or removal therefrom.
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ITEM 6 Exhibits
(a)Exhibits
Exhibit No. | Description |
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31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. |
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31.2* | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. |
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32.1* | Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). |
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32.2* | Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). |
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101.INS | XBRL Instance Document |
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101.SCH | XBRL Schema Document |
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101.CAL | XBRL Calculation Linkbase Document |
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101.DEF | XBRL Definition Linkbase Document |
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101.LAB | XBRL Labels Linkbase Document |
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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 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Sky Quarry Inc. |
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Dated: August 14, 2025 | /s/David Sealock |
| By:David Sealock |
| Its:Chief Executive Officer |
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Source:
