Sky Quarry Inc.: Form 10-Q for the period ended Mar 31, 2026

Overview

We operate a regional refinery (the Eagle Springs Refinery) producing diesel, VGO, naphtha and liquid paving asphalt from crude oil suppliers in the Uintah basin near Nevada and Utah. In addition to our goal of growing the refinery, we have a separate division in the development-stage (P.R. Springs) formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated sands and soils, providing sustainable refined crude products. We anticipate several benefits from the recycling and production of oil from asphalt shingles reducing the dependence on landfills for the disposal of waste and reducing dependence on foreign oil.

We have developed a process for separating oil from oily sands and other oil-bearing solids utilizing a proprietary solvent, which we refer to as our ECOSolv technology or the ECOSolv process. The solvent is used in a closed-loop distillation and evaporation circuit which results in up to 99% of the solvent being recoverable for continuous reuse and requires no water. The solvent has demonstrated oil separation rates of up to 95% in bench testing using samples of both mined crushed ore and ground asphalt shingles. Bench testing was conducted in house, and through unaffiliated third parties which were completed in May and August 2022.

Currently, we intend to finish retrofitting our oil sands remediation facility located in PR Spring in eastern Utah in the 2027 calendar year when the necessary funding is obtained to recycle waste asphalt shingles using our ECOSolv technology, to produce and sell oil as well as asphalt paving aggregate mined from our bitumen deposit.

We intend to continue to develop regional model asphalt shingle recycling facilities, which can be deployed in areas with high concentrations of waste asphalt shingles and near asphalt shingle manufacturing centers. Our design contemplates a modular, scalable, purpose-built facility capable of remediating waste asphalt shingles and separation into their base components of bitumen / asphalt cement, shingle granules, sand aggregate, limestone and fiberglass.

The Company has a single segment reporting approach given all revenues are generated from Foreland Refining products. The Company anticipates the possibility of segmental reporting in the future in connection with alternative revenue streams and cost centers.

Reverse Stock Split

We filed a Certificate of Amendment to our Certificate of Incorporation with the State of Delaware on March 5, 2026, to affect a one-for-eight (1-for-8) reverse stock split (the “Reverse Stock Split”) of our shares of common stock, par value $0.0001 (the “Common Stock”). The Reverse Stock Split was effective on March 15, 2026, at 11:59 PM Eastern Time.

All historical share and per-share amounts reflected throughout the consolidated financial statements and our discussions herein in this Item 2 have been adjusted to reflect the Reverse Stock Split.

ATM Program

On April 22, 2026, the Company replaced Cantor Fitzgerald & Co. with Muriel Siebert & Co., LLC (“Siebert” or the “Agent”) as the principal and/or the sole designated sales agent and updated the size of the program to up to $12,600,000. As of March 31, 2026, the Company issued 426,143 shares of common stock through its previous ATM sales agent, Cantor Fitzgerald & Co., generating net proceeds of $747,975.

Exclusivity Agreement

In March 2026, the Company entered into an exclusivity agreement (the “Exclusivity Agreement”) with a counterparty in connection with the Company’s evaluation of a potential transaction involving the acquisition of digital infrastructure assets (the “Potential Transaction”). No definitive terms have been agreed upon, and the Company has not entered into any definitive agreement with respect to the Potential Transaction.

Plant Outages and Maintenance

Our facilities require ongoing maintenance and from time-to-time certain repairs, improvements and retrofitting, which may require us to temporarily shut down or operate at a diminished capacity. Our Eagle Springs refinery operated by Foreland Refinery Corporation experienced a shut down during the fourth quarter of 2025 in connection with a boiler repair. Currently, repairs have been completed, and the refinery is being prepared to resume operations, subject to the procurement of feedstock. The unscheduled repairs and outages at Foreland’s Eagle Springs Refinery have had a negative impact on our final financial results for the third and fourth quarters of 2025, and financial results for the first quarter of 2026. Currently, we expect the facility to be operational by the end of the second quarter of 2026.

Our Financial Condition and Going Concern Issues

As a result of our financial condition, we have included in our condensed consolidated financial statements as of March 31, 2026 and December 31, 2025, and for the three months ended March 31, 2026 and 2025, a note indicating that there is significant doubt about the Company’s ability to continue as a going concern. The opinion on the December 31, 2025 audited financial statements from our independent registered public accounting firm for those statements also includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. From inception (June 4, 2019) through March 31, 2026, we have incurred accumulated net losses of $38,486,733. To address our going concern, we aim to increase revenues by securing greater volumes of crude oil for our Foreland refinery, which should enhance our contribution margin. Additionally, we are pursuing opportunities to reduce debt service through refinancing or repayment of existing obligations, establish strategic partnerships, and raise capital through equity or debt offerings, or a combination of these actions. Given our current revenue and cash usage levels, we have pressing working capital needs that necessitate raising funds through equity or debt issuance, coupled with efforts to boost revenue and control operating expenses. However, there is no guarantee that we will be able to raise sufficient capital, grow revenues, and generate the cash flow needed to meet our operating expenses and capital requirements effectively.

Special Notes Regarding Smaller Reporting Company Status

We are filing this report as a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). As a result of being a smaller reporting company, we are allowed and have elected to omit certain information from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate.

Results of Operations for the Three Months ended March 31, 2026 and 2025

Introduction

This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three months ended March 31, 2026 and 2025, respectively. We have derived this data from our unaudited interim condensed consolidated financial statements included in this Quarterly Report.

We had net sales of $383 for the three months ended March 31, 2026, compared to $6,332,967 for the three months ended March 31, 2025. Our cost of goods sold for the three months ended March 31, 2026, were $389,601, compared to $7,059,059 for the three months ended March 31, 2025. Cost of goods sold does not change directly with sales due to certain fixed cost allocations across significantly lower production barrels. The significant decrease in our sales were the direct result of the company’s challenges associated with the outage of our Eagle Springs refinery.

Our operating expenses were $1,215,446 for the three months ended March 31, 2026, compared to $1,937,485 for the three months ended March 31, 2025. Our operating expenses consisted of general and administrative and depreciation and amortization.

Net Sales and Net Loss

Our net sales, costs of goods sold, gross profit, operating expenses, other income (expense) and net loss for the three months ended March 31, 2026 and 2025, were as follows:

Net Sales

The following table shows net sales by category for the three months ended March 31, 2026 and 2025:

We had net sales of $383 for the three months ended March 31, 2026, compared to $6,332,967 for the three months ended March 31, 2025, a decrease of $6,332,584. Beginning in late June 2025, the Company’s production was limited due to crude supplier disruptions and delays in completing certain maintenance activities. The lack of refinery operational revenue during the first quarter of 2026 was the result of refinery repairs that were concluded subsequent to the end of the period. Restart challenges and reconnecting refinery feedstock supply will be the primary focus of the Company in the subsequent quarter to generate revenues from operations. The Company expects production to resume in June of 2026.

Additionally, feedstock pricing, based partly on WTI market pricing rose from approximately $57 per barrel on January 1, 2026 to $101 per barrel by March 31, 2026, roughly a 77% increase according to the US Energy Information Agency (EIA). Currently, we believe regional market dynamics may be reflected in the second half of 2026 in crack spreads or refinery margins, based on industry peers’ publicly available comments.

Cost of Goods Sold

The following table shows cost of goods sold by category for the three months ended March 31, 2026 and 2025:

Our cost of goods sold for the three months ended March 31, 2026 was $389,601 compared to $7,059,059 for the three months ended March 31, 2025, a decrease of $6,669,458. Gross margin loss for the three months ended March 31, 2026 was $389,218, compared to $726,092 for the three months ended March 31, 2025, a decrease of $336,874 for the comparative period. The decline in cost of sales for the three months ended March 31, 2026 presented compared to the prior periods was primarily due to the decline in net sales described above.

Cost of goods sold as a percentage of net sales was 101,723% for the three months ended March 31, 2026, compared to 112% for the three months ended March 31, 2025. We believe this comparison is not meaningful as the refinery was not operational during the first quarter of 2026 as described above.

General and Administrative

The following table shows general and administrative expenses by category for the three months ended March 31, 2026 and 2025:

Our general and administrative expenses decreased by $722,221 for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to a decrease of $124,897 in executive compensation attributable to a smaller Board of Directors with lower fees expensed in the current year. The decreased in general and administrative costs for the three months ended March 31, 2026 compared to 2025 were also due to a $511,968 decrease in professional fees, primarily consisting of decreases in advertising and marketing, and business development.

Other Income (Expense)

Other expense was $715,581 for the three months ended March 31, 2026, compared to $670,117 for the three months ended March 31, 2025, a decrease of $45,464. In the three months ended March 31, 2026, other income (expense) consisted of interest expense $333,989, loss on extinguishment of debt $269,396, loss on warrant valuation $75,342, and other expense $36,854. In the three months ended March 31, 2025, other income (expense) consisted of interest expense $901,561, loss on extinguishment of debt $56,660, offset by gain on warrant valuation $274,980, other income $7,477, and gain on disposal of assets $5,647.

The warrant liability is revalued at each reporting date based on changes in the underlying factors influencing the fair value of the warrants, such as the Company’s stock price, volatility, and other market conditions. The Company’s management believes that the non-cash gain recognized in the current period from the remeasurement of warrant liabilities is not reflective of ongoing operating performance. During the period, the Company incurred significant interest expense related to its term debt. This interest expense is primarily due to the high financing costs associated with the term notes, which were utilized to support ongoing working capital needs and operational expenses. These notes, characterized by higher interest rates relative to traditional debt instruments, have resulted in a notable impact on our financial performance for the quarter. This increase in interest expense reflects the financial obligations of maintaining liquidity and funding operations, particularly during a phase of substantial investment in refinery refurbishment and related activities. The Company continues to evaluate its capital structure to optimize costs and enhance financial stability, considering refinancing options and alternative capital sources where feasible.

Net Loss

Net loss was $2,320,245 or a loss of $(0.65) per share, for the three months ended March 31, 2026, compared to net loss of $3,333,694 or $(1.25) per share, for the three months ended March 31, 2025.

Our net loss compared to the previous periods’ net loss was primarily driven by a reduction in total production of the refinery attributable to the outage which resulted in reduced revenues during the period.

Liquidity and Capital Resources

Introduction

We had negative operating cash flows for the three months ended March 31, 2026. Our cash on hand as of March 31, 2026, was $66,828. While we had negative net cash from operations for the three months ended March 31, 2026, our monthly cash flow burn rate for the three months ended March 31, 2026, was $196,210. In connection with the Foreland Refinery acquisition and PR Spring facility retrofit program, we believe we will continue to have material capital expenditures and face long term cash needs. While we anticipate that these needs will be satisfied through the issuance of our debt and/or equity securities until such time as our cash flows from operations will satisfy our cash needs, we cannot provide any assurances of such.

Our cash, current assets, total assets, current liabilities, and total liabilities as of March 31, 2026 and December 31, 2025, respectively, are as follows:

Our cash increased by $31,458 as of March 31, 2026, as compared to December 31, 2025. Our total current assets decreased by $61,721 primarily because of a decrease in inventory of $23,453, and prepaids of $65,038.

Our total assets increased by $97,282 due to the changes in property, plant and equipment of $178,523, and cash $31,458.

Our current liabilities as of March 31, 2026 as compared to December 31, 2025, increased by $1,275,910 and our total liabilities increased by $1,286,434, both primarily as a result of an increase in accounts payable of $777,065, related-party payables of $372,212, notes payable of $10,524, lines of credit of $95,401, and warrant liability of $75,342.

The 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 March 31, 2026, the subsidiary had raised $513,300 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.

ATM Program

We continue to maintain an ATM Program. On January 12, 2026, we entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor, pursuant to which we, from time to time, may offer and sell shares (the “ATM Shares”) of our common stock, through or to Cantor, acting as principal and/or sales agent, having an aggregate sales price of up to $4,700,000.

On April 22, 2026, the Company entered into that certain Amended and Restated Sales Agreement (the “A&R Sales Agreement”) with Siebert, pursuant to which Siebert replaced Cantor as the principal and/or the sole designated sales agent. The material terms and conditions of the Sales Agreement otherwise remain unchanged.

On April 22, 2026, in connection with its ATM Program, the Company filed a prospectus supplement with the SEC, updating the aggregate sales price to up to $12,600,000, pursuant to the A&R Sales Agreement. As of March 31, 2026, the Company issued 426,143 shares of common stock through Cantor under the ATM Program, generating net proceeds of $747,975.

Cash Requirements

Our cash on hand as of March 31, 2026, was $66,828. The Company will continue to require additional cash to meet ongoing operational and capital needs. Despite the company’s efforts to increase production capacity at the refinery, as well as ongoing maintenance and refurbishment activities, and the high interest payments, we are not yet generating sufficient cash flow to cover operational costs. The need for cash is driven by both ongoing operating expenses, and costs of indebtedness. We anticipate that these needs will be satisfied through the issuance of debt or the sale of our equity securities, or a combination thereof, until such time as improvements to our cash flows from operations will satisfy our cash flow needs. Management remains committed to securing the necessary resources to ensure the Company can meet its financial obligations and continue executing its long-term objectives. There is no assurance, however, that we will be successful in these efforts.

Sources and Uses of Cash

Operating Activities

Our net cash used in operating activities for the three months ended March 31, 2026 and 2025, was $588,631 and $1,963,224, respectively. Our net cash used in operating activities for the three months ended March 31, 2026, consisted of a net loss of $2,320,245, favorable working capital changes of $1,374,593, adjusted for share based compensation of $87,454, depreciation and amortization of $264,857, amortization of debt issuance costs of $101,649, amortization of right-of-use asset of $20,943, loss on extinguishment of debt of $269,396, and loss on revaluation of warrant liability of $75,342. Our net cash used in operating activities for the three months, ended March 31, 2025 consisted of a net loss of $3,333,694, less unfavorable changes in working capital of $738,676, share-based compensation of $78,880, depreciation and amortization of $242,004, amortization of right-of-use asset of $24,129, amortization of debt issuance costs of $765,793, loss on extinguishment of debt of $56,660.

Investing Activities

Our cash flow used in investing activities for the three months ended March 31, 2026 and 2025, was $443,380 and $316,210, respectively, an increase of $127,170. Our investing activities during the three months ended March 31, 2026, consisted of a net increase from proceeds of sale of assets of $0, and payments for oil and gas properties of $0, and property, plant and equipment of $443,380. Our investing activities during the three months ended March 31, 2025, consisted of a net increase from property, plant and equipment of $297,389, purchase of oil and gas development assets of $32,881 and an increase from proceeds of sale of assets of $14,060.

Financing Activities

Our net cash provided by (used in) financing activities for the three months ended March 31, 2026 and 2025, was $1,064,894 and ($24,050), respectively, a decrease of $1,088,944. Our cash flows from financing activities during the three months ended March 31, 2026, consisted of proceeds of lines of credit of $97,720, proceeds from notes payable of $227,830, proceeds from common stock $747,975, offset by payments on lines of credit of $2,319, payments on notes payable of $6,312. Our cash flows from financing activities during the three months ended March 31, 2025, consisted of proceeds of lines of credit of $5,339,736, and proceeds from notes payable of $143,237, offset by payments on lines of credit of $4,272,336, and payments on notes payable of $1,231,214, and payments on finance lease of $3,473.

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 March 31, 2026, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of March 31, 2026, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of March 31, 2026, were not effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2026, that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures provide our management with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within the Company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

There has been no material change in the Company's risk factors that were described in the Company’s Annual Report, except as described below.

Risks Related to our Business

While we have entered the Exclusivity Agreement, the Company has not entered into any definitive agreement with respect to the Potential Transaction, and there can be no guarantee that that we will recognize the anticipated benefits of the Potential Transaction if consummated.

In March 2026, the Company entered into an exclusivity agreement (the “Exclusivity Agreement”) with a counterparty in connection with the Company’s evaluation of a potential transaction involving the acquisition of digital infrastructure assets (the “Potential Transaction”). No definitive terms have been agreed upon, and the Company has not entered into any definitive agreement with respect to the Potential Transaction.

There can be no assurance that discussions will result in the execution of a definitive agreement or the consummation of the Potential Transaction, or any similar transaction. Furthermore, pursuant to the Exclusivity Agreement, the counterparty is permitted to consider alternative parties for a Potential Transaction. There can be no assurance that the counterparty will not enter into a definitive agreement with a party other than the Company in connection with the Potential Transaction. Nor can there be any assurance that, in the event the Company consummates the Potential Transaction, it will be on terms favorable to our stockholders or be otherwise accretive to stockholder value or that it will be completed in the time frame or in the manner anticipated.