10-Q: Sky Quarry Inc. Q1 2026 Financials Show Drastic Revenue Drop

Sky Quarry Inc. reported a significant decline in net sales for Q1 2026 due to refinery operational issues, while continuing to manage substantial liabilities and pursue capital raises.

Summary

• Sky Quarry Inc. reported a substantial decrease in net sales for the first quarter of 2026, with sales of $383 compared to $6,332,967 in the same period of 2025.
• The significant drop in revenue is attributed to operational challenges and an outage at the Eagle Springs refinery, which required extensive repairs.
• Cost of goods sold also decreased significantly to $389,601 from $7,059,059, resulting in a gross margin loss of $389,218 for Q1 2026.
• Operating expenses were reduced to $1,215,446 from $1,937,485, largely due to decreased general and administrative costs.
• The company reported a net loss of $2,320,245 for Q1 2026, or $(0.65) per share, an improvement from a net loss of $3,333,694, or $(1.25) per share, in Q1 2025.
• Total assets remained relatively stable at $19,312,103 as of March 31, 2026, compared to $19,214,821 as of December 31, 2025.
• Total liabilities increased to $17,314,288 from $16,027,854, primarily due to increases in accounts payable, related-party payables, and warrant liabilities.
• The company continues to face going concern uncertainties, with a plan to raise additional capital through debt, equity, or warrant exercises.
• The company completed a 1-for-8 reverse stock split effective March 15, 2026.
• The company is evaluating a potential transaction involving the acquisition of digital infrastructure assets.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this filing as highly negative due to the catastrophic drop in revenue, significant increase in liabilities, ongoing legal battles, and persistent going concern issues, despite some cost-cutting measures and capital raising efforts.

Positives

• Net loss improved to $2,320,245 in Q1 2026 from $3,333,694 in Q1 2025.
• Loss per share improved to $(0.65) in Q1 2026 from $(1.25) in Q1 2025.
• General and administrative expenses decreased by 37% to $1,213,236 in Q1 2026 from $1,935,457 in Q1 2025.
• Cash on hand increased by $31,458 to $66,828 as of March 31, 2026, compared to December 31, 2025.
• The company successfully raised $747,975 in net proceeds through its ATM Program as of March 31, 2026.
• The company entered into an exclusivity agreement for a potential acquisition of digital infrastructure assets.

Negatives

• Net sales plummeted by 100% to $383 in Q1 2026 from $6,332,967 in Q1 2025 due to refinery operational issues.
• Gross margin was a loss of $389,218 in Q1 2026, compared to a loss of $726,092 in Q1 2025.
• Total liabilities increased by $1,286,434 to $17,314,288 as of March 31, 2026.
• Accounts payable and accrued expenses increased by $777,065 to $5,323,129.
• Related-party payables increased by $372,212 to $372,212, indicating new related-party obligations.
• Warrant liabilities increased by $75,342 to $172,828.
• The company has significant accumulated deficit of $38,486,733 as of March 31, 2026.
• The company has negative cash flows from operations of $588,631 for Q1 2026.
• The company has substantial debt obligations, with several loans past due.
• The company is subject to a lawsuit from KF Business Ventures seeking approximately $2.2 million in principal plus interest and fees.
• The company is subject to a lawsuit from its former CFO, Darryl Delwo, seeking damages of at least $875,012.35 per cause of action.

Risks

• The company has significant accumulated deficit and negative cash flows from operations, raising substantial doubt about its ability to continue as a going concern.
• The company requires additional financing through debt, equity, or warrant exercises to fund future capital expenditures, retire debt, and support operations.
• The Eagle Springs refinery experienced an outage due to boiler repair, impacting Q3 and Q4 2025 and Q1 2026 financial results, with operations expected to resume by the end of Q2 2026.
• The company is involved in multiple legal proceedings, including a lawsuit from KF Business Ventures and a claim from its former CFO, which could have a material adverse effect on its financial condition.
• The company's ability to utilize net operating loss carryforwards may be limited due to potential ownership changes.
• The company's evaluation of a potential transaction involving digital infrastructure assets is ongoing, with no definitive agreement reached, and the counterparty may consider other parties.
• The company's oil and gas properties are in the development stage and not yet operational, with no proved reserves identified.
• The company's ability to secure feedstock for its refinery operations is critical and has been disrupted in the past.

Future Outlook

The company expects production to resume in June 2026. Management plans to mitigate going concern uncertainties by generating margin contribution from refinery operations, closely monitoring operating expenses, refinancing debt, and utilizing its ATM offering for equity proceeds. The company is also evaluating a potential acquisition of digital infrastructure assets.

Management Comments

• The unscheduled repairs and outages at Forelands 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 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.
• We continue to evaluate our capital structure to optimize costs and enhance financial stability, considering refinancing options and alternative capital sources where feasible.
• Management believes that the implementation of its plans will allow the Company to continue as a going concern.

Industry Context

StockSavvy.ai notes that Sky Quarry Inc.'s Q1 2026 results reflect significant operational challenges within the refining sector, exacerbated by a refinery outage. The drastic drop in net sales and increased liabilities highlight the capital-intensive and volatile nature of this industry. The company's efforts to diversify into digital infrastructure, while potentially strategic, add another layer of complexity to its turnaround efforts.

Comparison to Industry Standards

• The company's net sales of $383 for Q1 2026 are exceptionally low compared to industry peers in the refining sector, which typically report multi-million dollar revenues per quarter.
• The significant increase in feedstock pricing (WTI crude oil rising 77% from January to March 2026) is a common challenge for refiners, impacting margins if not passed on to customers.
• The company's gross margin percentage of 101,723% for Q1 2026 is not meaningful due to the refinery being non-operational, unlike typical refiners who aim for positive and sustainable gross margins.
• The company's substantial debt load and ongoing need for capital are more pronounced than many established refining companies, which generally have more stable access to financing.

Legal Proceedings

• Darryl Delwo, former CFO, filed a complaint alleging breach of contract, breach of good faith and fair dealing, and tortious interference, seeking damages of at least $875,012.35 per cause of action.
• KF Business Ventures, LP filed a complaint alleging breach of contract and seeking repayment of approximately $2,200,000 in principal, plus interest, fees, and foreclosure on collateral.
• The company intends to vigorously defend against the claims in both legal actions.

Related Party Transactions

• The company received $150,000 in cash proceeds from a director during Q1 2026.
• The company owed a director $234,112 as of March 31, 2026, included in related-party accounts payable.
• During April 2026, the company received $60,648 in cash proceeds from a director, which was converted into a short-term note payable.

Stakeholder Impact

• Shareholders: The significant revenue decline, increased liabilities, and ongoing legal issues negatively impact shareholder value and increase investment risk.
• Creditors: The company's past-due debt and ongoing need for capital may raise concerns about repayment ability.
• Employees: Continued operational disruptions and financial uncertainty could impact job security and morale.
• Suppliers: The company's financial condition may affect its ability to meet payment obligations to suppliers.

Next Steps

• Resume operations at the Eagle Springs refinery by the end of Q2 2026.
• Continue to raise capital through debt, equity, or warrant exercises.
• Evaluate the potential transaction involving digital infrastructure assets.
• Continue to monitor and manage operating expenses.
• Explore refinancing options for existing debt.

Key Dates

Recommendation

The company's Q1 2026 results show a severe operational and financial downturn, characterized by a near-total collapse in revenue due to refinery issues, a significant increase in liabilities, and ongoing, substantial legal challenges. The persistent going concern issues and the company's reliance on continuous capital raises, coupled with the lack of clear operational recovery visibility beyond Q2 2026, present an extremely high-risk investment profile. While cost reductions and capital raising efforts are noted, they are insufficient to offset the fundamental operational and financial distress.

Keywords

Sky Quarry Inc., Form 10-Q, Quarterly Report, Refinery Operations, Eagle Springs Refinery, Oil and Gas, Asphalt Shingle Recycling, Environmental Remediation, Financial Statements, Net Sales, Net Loss, Going Concern, Capital Raise, Reverse Stock Split, Legal Proceedings, Debt, Warrants