10-Q: Sky Quarry Inc. Reports Q2 2026 Results Amidst Refinery Downtime

Sky Quarry Inc. disclosed significant revenue decline and net losses for Q2 2026 due to prolonged refinery outages, while also highlighting efforts to secure additional financing and resume operations.

Summary

• Sky Quarry Inc. reported zero net sales for the three months ended June 30, 2026, compared to $4.54 million in the prior year period, and $383 for the six months ended June 30, 2026, down from $10.87 million in the prior year.
• The company experienced a net loss of $4.06 million for the three months ended June 30, 2026, and $6.38 million for the six months ended June 30, 2026.
• The Eagle Springs Refinery experienced a shutdown in Q4 2025 and H1 2026 due to boiler repairs, with operations expected to resume by the end of Q3 2026.
• The company raised $12.54 million in net proceeds through its ATM program during the six months ended June 30, 2026.
• Significant legal proceedings are ongoing, including a whistleblower retaliation complaint and a lawsuit from KF Business Ventures, LP for alleged breach of contract and non-payment of significant debt.
• The company continues to face going concern uncertainties due to accumulated deficits and negative operating cash flows.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this filing as highly negative due to the significant operational disruptions, substantial net losses, and ongoing going concern uncertainties, despite recent capital infusions.

Positives

• The company successfully raised $12.54 million in net proceeds through its At-the-Market (ATM) equity offering program during the first six months of 2026.
• Repairs to the Eagle Springs refinery have been completed, and initial feedstock has been procured, with operations expected to restart.
• The company has a plan to mitigate going concern uncertainties, including generating margin contribution from resumed refinery operations, refinancing debt, and utilizing equity offering proceeds.
• The PR Springs facility development is ongoing, representing a future growth opportunity.

Negatives

• Net sales for the three months ended June 30, 2026, were $0, a 100% decrease from $4.54 million in the prior year period.
• Net sales for the six months ended June 30, 2026, were $383, a 100% decrease from $10.87 million in the prior year period.
• The company reported a net loss of $4.06 million for the three months ended June 30, 2026, and $6.38 million for the six months ended June 30, 2026.
• The Eagle Springs refinery was shut down for repairs throughout the first half of 2026, resulting in no operational revenue.
• The company has an accumulated deficit of $42.54 million as of June 30, 2026.
• There are significant legal proceedings, including a $2.2 million claim from KF Business Ventures, LP.
• The company's disclosure controls and procedures were found to be not effective.

Risks

• The company has material uncertainties related to events and conditions that may cast significant doubt upon its ability to continue as a going concern.
• Without additional financing, the company does not have sufficient operating cash flows to pay for its expenditures and settle its obligations as they mature.
• The outcome of pending or future litigation, including the KF Business Ventures proceedings and other claims, could have a material adverse effect.
• Commodity price volatility, including fluctuations in the price of crude oil, diesel, and other refined products, poses a risk.
• Risks related to the development and commercialization of its ECOSolv technology and the PR Springs facility.
• The company's ability to service or refinance its existing indebtedness.
• The company's ability to resume and sustain refinery operations at its Eagle Springs Refinery, including the availability of crude oil feedstock.
• The company's ability to maintain compliance with Nasdaq listing requirements.

Future Outlook

The company expects production to resume in September 2026, with the PR Springs facility development planned for completion in the summer of 2027, contingent on obtaining necessary funding. Management believes its plans, including resuming refinery operations, refinancing debt, and raising capital, will allow it to continue as a going concern, but there is no assurance of success.

Management Comments

• Management is aware of material uncertainties related to events and conditions that may cast significant doubt upon the Company's ability to continue as a going concern.
• 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 and second quarters of 2026.
• Management believes that the implementation of its plans will allow the Company to continue as a going concern.
• Management remains committed to securing the necessary resources to ensure the Company can meet its financial obligations and continue executing its long-term objectives.

Industry Context

StockSavvy.ai notes that the refinery shutdown and subsequent revenue loss for Sky Quarry Inc. highlight the operational risks inherent in the refining sector, particularly for smaller, independent operators who may have less financial flexibility to manage extended maintenance periods or feedstock disruptions. The company's focus on ECOSolv technology and asphalt shingle recycling indicates a strategic pivot towards potentially more sustainable and niche markets, which could offer differentiation but also carries development and commercialization risks.

Comparison to Industry Standards

• The company's net sales of $0 for the quarter and $383 for the six months are significantly below industry averages for operational refineries, which typically generate millions in revenue per quarter.
• The substantial net loss of $4.06 million for the quarter and $6.38 million for the six months is a critical concern, especially when compared to profitable peers in the refining sector.
• The company's reliance on ATM equity offerings for capital raises is a common strategy for companies in financial distress or with high growth potential but limited traditional financing options, contrasting with larger, established players who may utilize debt markets more extensively.
• The high interest rates on some of the company's debt (e.g., 30% and 68% on certain notes) are significantly higher than typical industry benchmarks for secured or unsecured corporate debt, indicating a higher risk profile perceived by lenders.

Corporate Governance

Legal Proceedings

• David Sealock, former CEO, filed a whistleblower retaliation complaint with the U.S. Department of Labor (OSHA) under Section 806 of the Sarbanes-Oxley Act.
• Darryl Delwo, former CFO, filed a complaint in California Superior Court alleging breach of contract and other claims, seeking damages of not less than $875,012.35 per cause of action.
• KF Business Ventures, LP filed a complaint in Utah state court alleging breach of contract and seeking repayment of approximately $2.2 million in principal, plus interest, unpaid advisory fees, and foreclosure on collateral.

Related Party Transactions

• The Company paid a one-time bonus of $9,375 to its interim CEO, Marcus Laun, in Q2 2026, and a performance bonus of $100,000 in July 2026.
• The Company paid a one-time bonus of $10,416 to its executive Chairman, Matthew Flemming, in Q2 2026, and a performance bonus of $125,000 in July 2026.
• The Company paid $175,000 to each of its three independent directors (Alex Monje, Robert Byrne, and Omar Hussien) in July 2026 for board services.

Stakeholder Impact

• Shareholders: Continued dilution from ATM program, potential for further losses, and ongoing going concern risk impacting share value.
• Creditors: Risk of default on debt obligations, as evidenced by the KF Business Ventures lawsuit and past due debt.
• Employees: Uncertainty regarding company's future operations and potential impact on employment.
• Suppliers: Potential for delayed payments or disruptions due to the company's liquidity challenges.

Next Steps

• Resume operations at the Eagle Springs Refinery by the end of Q3 2026.
• Complete retrofitting of the PR Springs facility in 2027, subject to funding.
• Continue to raise capital through equity or debt offerings to meet financial obligations and fund operations.
• Refinance current debt with longer-term debt to decrease monthly service obligations.
• Vigorously defend against ongoing legal claims.

Key Dates

Recommendation

The company is facing severe operational challenges with zero revenue in the current quarter, significant net losses, and a clear going concern warning. The ongoing legal battles, substantial debt, and the need for continuous capital raises, coupled with ineffective disclosure controls, present a highly unfavorable risk profile. While the refinery repairs are complete, the path to profitability and operational stability remains uncertain and fraught with significant risks.

Keywords

refinery operations, going concern, net loss, capital raise, legal proceedings, ATM program, debt obligations, Eagle Springs Refinery