S-1/A: Sky Quarry Files S-1/A for $8.1M Equity Line, Debt Conversion

Sky Quarry Inc. filed an S-1/A registration statement to register 14.5 million shares for resale by Varie Asset Management, LLC, including shares from convertible notes, warrants, and a new $8.125 million equity purchase agreement.

Summary

• Registered 14,517,227 shares of common stock for resale by Varie Asset Management, LLC.
• Shares include those issuable upon conversion of three 12% convertible promissory notes (May, July, August 2025) totaling $450,000 in principal.
• Shares also include those issuable upon exercise of three warrants (May, July, August 2025) for an aggregate of 180,000 shares.
• A Purchase Agreement with Varie Asset Management, LLC allows Sky Quarry to sell up to $8,125,000 of common stock over 24 months, with 13,654,230 shares registered for this purpose.
• Sky Quarry will not receive proceeds from the resale of shares by Varie Asset Management, LLC, but may receive up to $138,750 from warrant exercises and up to $8,125,000 from sales under the Purchase Agreement.
• Proceeds from the Purchase Agreement are intended for general corporate and working capital purposes, with amounts exceeding $1,000,000 allocated 25% to debt repayment and the remainder to working capital.
• The company is an 'emerging growth company' and has elected to use the extended transition period for new accounting standards.
• Sky Quarry is currently not in compliance with Nasdaq's minimum bid price requirement ($1.00 per share) and has until September 28, 2025, to regain compliance.
• The closing price of common stock on Nasdaq on September 10, 2025, was $0.559.

Sentiment

Score: 3

Explanation: The filing outlines a significant potential capital raise which is positive for liquidity, but this is heavily overshadowed by severe dilution risk, a high-cost debt structure, and immediate Nasdaq delisting concerns due to a low share price. The company's core technology is promising but still in development stage, and current financial health indicators are weak.

Positives

• Secured a potential funding source of up to $8,125,000 through the Purchase Agreement with Varie Asset Management, LLC, providing flexibility for future capital needs.
• The Purchase Agreement allows the company to control the timing and amount of sales, and can be terminated without fee or penalty.
• The company is actively working on retrofitting its oil sands remediation facility in PR Spring, Utah, within the next twelve months to recycle waste asphalt shingles and produce oil and asphalt paving aggregate.
• Developed ECOSolv technology for separating oil from oily sands and asphalt shingles, demonstrating up to 95% oil separation rates in bench testing.
• The ECOSolv process is a closed-loop system, recovering up to 99% of the solvent and requiring no water, highlighting environmental benefits.

Negatives

• Significant dilution risk for existing stockholders due to the potential issuance of up to 14,517,227 shares, representing a substantial percentage of outstanding shares (e.g., 36.0% at $0.62/share for the full $8.125M).
• The company is not in compliance with Nasdaq's minimum bid price requirement ($1.00 per share) and faces potential delisting if compliance is not regained by September 28, 2025.
• Delisting from Nasdaq would materially impair stockholders' ability to trade common stock and could negatively impact market price and future capital raising.
• The company has substantial outstanding debt obligations, including $4,074,687 to Libertas Funding, LLC as of September 9, 2025, with an effective interest rate of 31% per annum.
• The conversion prices for the convertible notes ($1.25, $0.63, $0.48) and warrant exercise prices ($1.25, $0.63, $0.48) are significantly higher than the current market price of $0.559 (as of Sept 10, 2025), indicating a substantial decline in stock value since issuance.
• The company's ability to access the full $8,125,000 under the Purchase Agreement is subject to certain restrictions, including minimum stock price and volume requirements, which may limit funding if the stock price remains low.

Risks

• The sale or issuance of common stock to the Selling Stockholder may cause substantial dilution to existing stockholders.
• Sales of shares by the Selling Stockholder, or the perception of such sales, could cause the price of common stock to decrease.
• The company may require additional financing to sustain operations, and the terms of subsequent financings could adversely impact stockholders.
• There is no assurance that the company will be able to access all or any of the $8,125,000 under the Purchase Agreement due to restrictions like minimum stock price and volume.
• Failure to maintain Nasdaq listing due to non-compliance with the minimum bid price requirement could impair trading and capital raising.
• Management has broad discretion over the use of net proceeds from the sale of shares of common stock to the Selling Stockholder, which may not align with investor expectations or yield favorable returns.
• The company is an 'emerging growth company' and has elected to use an extended transition period for complying with new or revised accounting standards, which may make its financial statements not comparable to other companies.

Future Outlook

Sky Quarry Inc. intends to finish retrofitting its oil sands remediation facility in PR Spring, Utah, within the next twelve months to recycle waste asphalt shingles and produce oil and asphalt paving aggregate. The company also plans to continue developing regional modular asphalt shingle recycling facilities. It expects to use net proceeds from the Purchase Agreement for general corporate and working capital purposes, with a portion allocated to debt repayment.

Management Comments

• We are an oil production, refining, and 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, providing sustainable refined crude products.
• We expect the recycling and production of oil from asphalt shingles 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.
• 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 has demonstrated oil separation rates of up to 95% in bench testing using samples of both mined crushed ore and ground asphalt shingles.
• Currently, we intend to finish retrofitting our oil sands remediation facility located in PR Spring in eastern Utah in the next twelve months 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.

Industry Context

Sky Quarry operates in the environmental remediation and oil production sectors, specifically targeting waste asphalt shingle recycling and oil sands remediation. Its ECOSolv technology aims to address waste disposal and reduce reliance on virgin crude oil, aligning with broader industry trends towards sustainability and circular economy principles. The modular design for recycling facilities suggests a strategy for scalable deployment in areas with high waste generation, potentially positioning the company as an innovator in sustainable resource recovery within the construction and energy industries.

Comparison to Industry Standards

• The ECOSolv technology's reported oil separation rate of up to 95% in bench testing is a strong indicator of efficiency, though commercial-scale performance and cost-effectiveness compared to established recycling or extraction methods would require further evaluation.
• The company's focus on waste asphalt shingle recycling and oil sands remediation positions it in a niche within the broader environmental services and energy sectors, where direct comparable public companies with identical business models are rare.
• The high effective interest rate of 31% on debt with Libertas Funding, LLC is significantly above typical corporate borrowing rates for established companies, indicating higher perceived risk or limited access to conventional financing.
• The Nasdaq minimum bid price non-compliance is a common challenge for smaller, development-stage companies, contrasting with larger, more stable industry players that consistently meet listing requirements.

Related Party Transactions

• Varie Asset Management, LLC is the Selling Stockholder and has entered into multiple agreements with the company: three convertible notes, three warrants, a Purchase Agreement for future equity sales, and a Registration Rights Agreement.
• KF Business Ventures, LP has a secured promissory note for $1,200,000, a five-year warrant for 1,200,000 shares, and an advisory agreement involving monthly share issuance.
• Bengt Eriksson has an outstanding promissory note and received shares for interest payments.
• Foreland Refining Corporation (a subsidiary) has multiple agreements of sale of future receivables with Libertas Funding, LLC.
• Foreland Refining Corporation also has business loan and security agreements with Lendspark Corporation.

Stakeholder Impact

• Shareholders: Significant potential for dilution from the issuance of up to 14.5 million shares. Existing shareholders' economic and voting interests will be reduced. The risk of Nasdaq delisting could severely impact liquidity and market value of their investment.
• Creditors (Varie Asset Management, LLC): Will receive shares upon conversion of notes and exercise of warrants, and can purchase additional shares, potentially allowing them to recoup their investment or profit from future stock appreciation.
• Creditors (Libertas Funding, LLC, Lendspark, KF Ventures, Bengt Eriksson): The company's plan to use capital raise proceeds for debt repayment could positively impact these creditors. However, the high interest rates and ongoing need for financing indicate potential risk.
• Employees/Management: The capital raise provides funding for operations, which could support continued employment and strategic initiatives. Management's discretion over proceeds is broad.
• Customers/Suppliers: Continued operations and development of the ECOSolv technology could benefit future customers (for refined products) and suppliers (for equipment/materials).

Next Steps

• Regain compliance with Nasdaq's minimum bid price requirement by September 28, 2025.
• Continue retrofitting the oil sands remediation facility in PR Spring, Utah, within the next twelve months.
• Develop regional model asphalt shingle recycling facilities.
• File further amendments to the registration statement as necessary to delay its effective date or to become effective.
• Potentially issue additional commitment shares and sell shares to the Selling Stockholder under the Purchase Agreement over the next 24 months.
• Make semi-annual interest payments on convertible notes starting December 31, 2025.

Key Dates

Recommendation

The company faces immediate and severe challenges, including non-compliance with Nasdaq's minimum bid price requirement and a looming delisting deadline. The current stock price is significantly below the minimum required, and also below the conversion/exercise prices of several recently issued convertible notes and warrants, indicating substantial value erosion. While a potential $8.125 million equity line exists, it comes with significant dilution risk (up to 36% at current prices) and is subject to minimum price conditions, which may limit access if the stock continues to decline. The company also carries high-cost debt (31% effective interest rate). These factors collectively point to a highly speculative investment with substantial downside risk and a strong likelihood of further share price depreciation.

Keywords

Sky Quarry Inc., SKYQ, SEC Filing, S-1/A, Convertible Notes, Warrants, Equity Line, Capital Raise, Stock Dilution, Nasdaq Listing, Environmental Remediation, Asphalt Recycling, ECOSolv Technology, Oil Production, Waste Management, Financial Reporting, Investment Risk