10-Q: Sky Quarry Inc. Reports Q1 2025 Results: Sales Decline Amid Refinery Challenges, Net Loss Widens

Sky Quarry Inc.'s Q1 2025 results reveal a decrease in net sales due to refinery disruptions and a wider net loss compared to Q1 2024.

Summary

• Sky Quarry Inc. reported a net loss of $3,333,694 for the three months ended March 31, 2025, compared to a net loss of $2,462,545 for the same period in 2024.
• Net sales decreased to $6,332,967 from $10,952,330 year-over-year, primarily due to challenges in regaining supply volumes after a refinery outage in 2024 and a decline in WTI pricing.
• Cost of goods sold was $7,059,059, down from $10,382,881 in the prior year, but gross margin turned negative at -$726,092.
• Operating expenses increased to $1,937,485 from $1,609,356, driven by higher professional fees and executive compensation.
• The company's financial statements include a note indicating significant doubt about its ability to continue as a going concern, with an accumulated deficit of $27,301,783 as of March 31, 2025.
• The company is pursuing opportunities to reduce debt service through refinancing or repayment of existing obligations, establish strategic partnerships, and raise capital through equity or debt offerings.
• As of March 31, 2025, cash on hand was $213,000, and the monthly cash flow burn rate was $654,408.
• The company is focused on increasing revenues by securing greater volumes of crude oil for its Foreland refinery and retrofitting the PR Spring Facility to recycle waste asphalt shingles.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to declining sales, widening losses, a negative gross margin, and a going concern warning. While the company is pursuing strategies to improve its financial position, the overall sentiment is pessimistic.

Positives

• Cost of goods sold decreased by $3,323,822, from $10,382,881 to $7,059,059.
• The company is actively pursuing strategies to improve its financial position, including refinancing debt and raising capital.
• The company is working to increase production capacity at the refinery.
• The company is working to retrofit the PR Spring Facility to recycle waste asphalt shingles.

Negatives

• Net sales decreased significantly due to refinery disruptions and lower WTI pricing.
• The company reported a widening net loss compared to the same period last year.
• Gross margin turned negative, indicating that the cost of goods sold exceeded net sales.
• Operating expenses increased, driven by higher professional fees and executive compensation.
• The company's financial statements include a going concern note, indicating significant doubt about its ability to continue as a going concern.
• Cash on hand is low, and the company has a high monthly cash flow burn rate.

Risks

• The company's ability to continue as a going concern is uncertain due to its accumulated deficit and negative cash flows.
• The company may not be successful in its efforts to refinance debt, raise capital, or improve its financial performance.
• The company's operations are subject to risks related to refinery disruptions, fluctuations in commodity prices, and regulatory changes.
• The company's success depends on its ability to successfully retrofit the PR Spring Facility and develop modular asphalt shingle recycling facilities.

Future Outlook

The company aims to increase revenues by securing greater volumes of crude oil for its Foreland refinery and retrofitting the PR Spring Facility to recycle waste asphalt shingles. The company is pursuing opportunities to reduce debt service through refinancing or repayment of existing obligations, establish strategic partnerships, and raise capital through equity or debt offerings.

Management Comments

• Management is committed to securing the necessary resources to ensure the company can meet its financial obligations and continue executing its long-term objectives.

Industry Context

Sky Quarry operates in the oil production, refining, and environmental remediation sectors. The company's focus on recycling waste asphalt shingles and remediating oil-saturated soils aligns with growing environmental concerns and the need for sustainable practices in the energy industry. The company's financial performance is affected by fluctuations in commodity prices, regulatory changes, and competition from other companies in the industry.

Comparison to Industry Standards

• It's difficult to directly compare Sky Quarry's results to industry standards due to its unique business model, which combines oil refining with environmental remediation.
• However, the company's financial performance can be compared to other small-cap oil refiners and environmental services companies.
• For example, small-cap oil refiners typically have gross margins in the range of 10-20%, while Sky Quarry's gross margin was negative in Q1 2025.
• Environmental services companies typically have operating margins in the range of 5-15%, while Sky Quarry's operating margin was negative in Q1 2025.
• The company's high debt levels and going concern status are also concerning compared to industry peers.

Related Party Transactions

• On September 16, 2020, the Company issued a promissory note to JPMorgan, in the amount of $450,000.
• JPMorgan is a related party as a significant shareholder holding directly and indirectly, as of March 31, 2025, 2,249,882 common shares (11.20%), and 25,000 common share purchase warrants.
• For the three months ended March 31, 2025, the Company paid sitting and committee fees of $69,000.

Stakeholder Impact

• Shareholders face the risk of further dilution if the company issues additional equity.
• Employees may be affected by cost-cutting measures or restructuring if the company's financial situation does not improve.
• Customers may be affected by changes in product availability or pricing if the company's operations are disrupted.
• Suppliers and creditors face the risk of non-payment if the company is unable to meet its financial obligations.

Next Steps

• The company plans to increase revenues by securing greater volumes of crude oil for its Foreland refinery.
• The company intends to retrofit the PR Spring Facility to recycle waste asphalt shingles.
• The company will pursue opportunities to reduce debt service through refinancing or repayment of existing obligations.
• The company will establish strategic partnerships.
• The company will raise capital through equity or debt offerings, or a combination of these actions.

Key Dates

Keywords

financial results, refinery, net loss, net sales, going concern, Sky Quarry, Q1 2025, debt, capital, oil