10-K: Sky Quarry Reports Steep Revenue Decline, Going Concern Doubt Amid Operational Setbacks

Sky Quarry Inc. reported a 47% drop in net sales and a significant increase in gross loss for 2025, raising substantial doubt about its ability to continue as a going concern, despite efforts to secure financing and advance recycling technology.

Summary

• Net sales decreased 47% to $12.49 million in 2025 from $23.36 million in 2024.
• Gross loss increased 122% to $3.10 million in 2025 from $1.40 million in 2024.
• Net loss decreased 17% to $12.20 million in 2025 from $14.73 million in 2024.
• Recurring losses from operations and a net capital deficiency raise substantial doubt about the company's ability to continue as a going concern.
• The Eagle Springs Refinery experienced a shutdown in Q4 2025 for boiler repair, negatively impacting Q3/Q4 2025 and Q1 2026 financial results, with operations expected to resume by end of Q2 2026.
• The company has $7.62 million in past-due debt and is making reduced payments to certain lenders, risking default and foreclosure on Foreland's assets.
• A 1-for-8 reverse stock split was effective March 15, 2026, to regain Nasdaq minimum bid price compliance, which was achieved on March 30, 2026.
• A lawsuit was filed by KF Business Ventures, LP on March 4, 2026, seeking $2.2 million in principal, interest, and fees, and foreclosure on collateral.
• The PR Spring facility retrofit requires an estimated $3.5 million to $4.0 million in capital funding and is expected to be completed within 12 months after funding is obtained.
• The company sold 419,874 shares through an ATM offering, generating net proceeds of $1.31 million through March 31, 2026.
• Identified a material weakness in internal control over financial reporting due to a shortage of accounting resources and lack of segregation of duties.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this filing with significant concern due to substantial financial deterioration, ongoing operational issues at the refinery, and explicit doubt about the company's ability to continue as a going concern, despite some long-term strategic initiatives.

Positives

• Net loss decreased by 17% to $12.20 million in 2025 from $14.73 million in 2024, primarily due to a significant decrease in interest expense from debt conversion to equity and paydowns.
• Regained compliance with Nasdaq Capital Market minimum bid price requirement on March 30, 2026, following a 1-for-8 reverse stock split.
• The ECOSolv technology demonstrated oil separation rates of up to 95% and solvent recovery of up to 99% in bench testing, offering potential for sustainable refined crude products from waste asphalt shingles and oil-saturated sands.
• Foreland Refinery Corp. is identified as having a competitive advantage as the only licensed operating refinery in Nevada, benefiting from a lack of national pipeline infrastructure.
• The company's adaptable business model for waste asphalt shingle recycling aims to optimize margins by collecting tipping fees ($45-$150 per ton) with low processing costs (approx. $25 per ton).
• The U.S. oil refining and sales market is characterized by record-level crude production (13.6 million b/d in 2025) and stable refining operations, supported by federally funded infrastructure projects.
• The waste asphalt shingle market is substantial (15.1 million tons annually, 96% landfilled) and growing, with increasing adoption of recycled asphalt shingles (RAS) in road infrastructure projects.
• The PR Spring oil sands deposit is accessible through outcroppings or shallow depths, creating an opportunity for commercial development using surface mining techniques.

Negatives

• Net sales decreased by $10.87 million (47%) to $12.49 million in 2025 from $23.36 million in 2024.
• Gross loss increased by $1.70 million (122%) to $3.10 million in 2025 from $1.40 million in 2024.
• Cost of goods sold as a percentage of net sales increased to 125% in 2025 from 106% in 2024, indicating worsening efficiency.
• Operating expenses as a percentage of net sales increased to 49.2% in 2025 from 26.2% in 2024.
• Incurred losses from operations of $9.25 million in 2025 and $7.52 million in 2024, raising substantial doubt about the ability to continue as a going concern.
• Cash on hand was only $35,370 as of December 31, 2025, with a negative operating cash flow of $3.27 million for the year.
• Approximately $7.62 million of outstanding debt is currently past due, and the company is making reduced payments, risking default and foreclosure on Foreland's assets.
• A lawsuit was filed by KF Business Ventures, LP on March 4, 2026, seeking $2.2 million in principal, interest, and fees, and foreclosure on collateral, which could materially adversely affect operations.
• The Eagle Springs Refinery experienced an unscheduled shutdown in Q4 2025 for boiler repair, negatively impacting financial results for Q3/Q4 2025 and Q1 2026.
• The PR Spring facility retrofit requires an additional $3.5 million to $4.0 million in capital funding, and completion is dependent on obtaining this funding.
• The ECOSolv technology has never been used on a commercial scale, posing a risk that the waste asphalt shingle business plan may fail if it does not perform as expected.
• Identified a material weakness in internal control over financial reporting due to a shortage of resources in the accounting department and lack of appropriate segregation of duties.
• The company has a limited operating history for the Eagle Springs Refinery (since Sept 2022) and a history of losses.
• High customer concentration risk, with three customers accounting for 31%, 33%, and 24% of net sales in 2025.
• High supplier concentration risk, with one vendor accounting for 17% of crude oil supply in 2025.
• The company does not yet have a market for the anticipated recycled products from the PR Spring Facility and lacks supply agreements for waste asphalt shingles.
• The company does not have any proven oil reserves at the PR Spring Facility.

Risks

• Recurring losses from operations raise substantial doubt regarding the ability to continue as a going concern.
• Outstanding debt is past due, and reduced payments to lenders could result in default and foreclosure on Foreland's assets.
• Limited operating history and a history of losses, with the Eagle Springs Refinery only operating since September 30, 2022.
• Dependence on several significant customers; loss of one or more could adversely affect results.
• Dependence on several principal suppliers for crude oil; disruption could adversely affect business.
• Future success is dependent on the continued service of the management team, and no key person life insurance is maintained.
• Issuance of common stock as compensation could have an adverse and dilutive effect on shareholders.
• Financing arrangements contain covenants that could limit the ability to engage in certain transactions.
• Acquisition opportunities may not achieve anticipated positive results.
• Environmental and regulatory compliance may impose substantial costs and liabilities.
• Exposure to third-party liability and environmental liability in business operations.
• Reliance on technology (ECOSolv) that could become ineffective or obsolete, and has not been used on a commercial scale.
• Overall decline in the health of the economy and factors impacting consumer spending (recession, governmental instability, weather, natural disasters) may reduce demand.
• Exposure to rising inflation rates, negatively affecting results and ability to invest.
• Failure to maintain effective disclosure controls and internal control over financial reporting, or failure to remediate existing material weaknesses.
• Engaged in transactions with related parties, which could present conflicts of interest.
• Financial results may fluctuate due to maintenance requirements and facility outages.
• Disruptions or breaches of IT systems (cyber-attacks) could cause data loss, operational inefficiency, revenue loss, or significant costs.
• Incorrect estimates or judgments relating to critical accounting policies could adversely affect results.
• The nature of waste asphalt shingle recycling operations involves various risks, including marketability of products and government regulations.
• The viability of asphalt shingle recycling is exposed to fluctuating prices for end-products (asphalt cement, shingle granules, sand aggregate, limestone, fiberglass).
• Speculative nature of asphalt shingle recycling means the business may not succeed, especially if feedstock supply is insufficient.
• The market for asphalt cement, shingle granules, sand aggregate, limestone and/or fiberglass may be highly competitive, forcing curtailment of business plan.
• Unknown and potentially substantial decommissioning costs could divert resources.
• Difficulty marketing or distributing recycled products could harm financial condition.
• No market yet for anticipated recycled products from PR Spring Facility and no supply agreements for waste asphalt shingles.
• No proven oil reserves at the bitumen leases at the PR Spring Facility.
• The price of oil has historically been volatile, affecting financial condition and results.
• Oil sands development involves many risks (explosions, fires, spills, pollution).
• Volatility in crude oil and wholesale diesel prices affect business.
• Difficulties in operating an oil refinery (remote location, equipment failure, cybersecurity threats).
• Significant decrease in demand for diesel and gasoline due to alternative fuels or fuel efficiency could materially affect revenues.
• U.S. regulatory environment for vehicle emissions and fuel economy creates uncertainty for petroleum-based fuels demand.
• Seasonal trends in the industries (late spring/summer higher demand) may cause operating costs and cash flow to fluctuate.
• Stringent environmental laws and regulations may expose the company to significant costs and liabilities.
• A climate-related decrease in demand for crude oil could negatively affect the business.
• Negative impacts to the global economy, capital markets, or geopolitical conditions (economic uncertainty, armed conflicts, terrorism, political unrest, health epidemics) could materially adversely affect business.
• Inability to maintain Nasdaq listing, or delisting, could impair ability to buy/sell common stock and raise capital.
• Market price of stock may be highly volatile, leading to loss of investment.
• An active, liquid trading market for common stock may not be sustained.
• No cash dividends expected for the foreseeable future; investors must rely on stock sales for return.
• Lack of research reports from securities industry analysts could negatively affect market price and trading volume.
• Future issuances of common stock or convertible securities, or expiration of lock-up agreements, could cause stock price decline and dilution.
• Future issuances of debt securities (senior to common stock) or preferred stock (senior for dividends/liquidating distributions) may adversely affect common stock return.
• Expectation to raise additional capital through equity/debt offerings to support working capital and operating losses.
• If shares become subject to penny stock rules, it would be more difficult to trade.
• Less rigorous ongoing public reporting requirements as an emerging growth company and smaller reporting company could make securities less attractive.

Future Outlook

Management anticipates future revenue growth driven by purchasing more crude oil and generating higher production volumes at the Eagle Springs Refinery. The PR Spring facility is expected to be commercialized, unlocking value from previous investments and local hydrocarbon resources. The company aims to improve gross profit by increasing revenues, lowering fixed operational costs, and increasing efficiencies through higher production volumes. Efforts are underway to reduce debt service through refinancing or repayment, establish strategic partnerships, and raise capital through equity or debt offerings. The U.S. Energy Information Administration projects a structural decline in domestic motor gasoline consumption, forecasting approximately 5% lower demand in 2026 and 2027 compared to 2019 levels, driven by ongoing efficiency improvements and continued EV market penetration, which could impact petroleum demand.

Management Comments

• "Management believes purchasing more crude and generating higher production volumes at the refinery will be a driver for anticipated future revenue growth."
• "Management believes net profits will be achieved from increased revenues with purchasing more crude generating higher production volumes, improving gross margins from improving costs of goods as a percentage of sales, as well as improving general and administrative expenses as a percentage of sales by increasing revenues, reduced repairs and maintenance and maintenance fuel one-time costs as a result of the 2024 and 2025 refurbishment program."
• "Management believes that this one-time loss related to the warrant liability measurement should be evaluated separately from ongoing operations when assessing our financial performance."
• "Management continues to evaluate alternatives to optimize the capital structure and reduce reliance on higher-cost debt instruments moving forward."
• "Management remains committed to securing the necessary resources to ensure that we can meet our financial obligations and continue executing our long-term objectives."
• "The board believes by creating a separate full-time position for its Chairman, it adds governance and oversite to the daily operations and interface for the board."

Industry Context

StockSavvy.ai notes that while the U.S. oil refining and sales market has seen record crude oil production and stable refinery utilization rates in 2024 and 2025, supported by infrastructure spending, Sky Quarry's Eagle Springs Refinery experienced significant operational setbacks and declining sales. The broader industry context for asphalt shingle recycling shows a growing market with increasing adoption of recycled materials in road infrastructure, aligning with Sky Quarry's strategic focus on its ECOSolv technology and PR Spring facility. However, the company's early stage in this segment and unproven commercial scale for its technology contrast with the established trends in the mature refining sector. The shift in U.S. regulatory environment regarding vehicle emissions and fuel economy, moving away from aggressive EV mandates, could offer some near-term relief for petroleum demand, but the long-term projection of declining gasoline consumption still poses a structural challenge for traditional refiners like Foreland.

Comparison to Industry Standards

• Sky Quarry's Eagle Springs Refinery is noted as the only licensed operating refinery in Nevada, providing a regional competitive advantage due to limited pipeline infrastructure. This is a unique position compared to larger, integrated refiners operating in more pipeline-dense regions.
• The U.S. crude oil production reached record highs of approximately 13.4 million b/d in August 2024 and an estimated 13.6 million b/d for 2025, with projections remaining near record levels for 2026. Sky Quarry's refinery, with a nameplate capacity of 80,000 barrels per month (approx. 2,667 b/d) and anticipated 45,000 barrels per month (approx. 1,500 b/d) in 2026, operates at a significantly smaller scale compared to major U.S. refineries which can process hundreds of thousands of barrels per day.
• The waste asphalt shingle market is substantial, with 15.1 million tons generated annually and over 96% ending in landfills. Industry reports from NAPA indicate a 75.2% rise in reclaimed asphalt pavement (RAP) usage since 2009 and a 7% increase in recycled asphalt shingle (RAS) usage in 2022 over 2021. Sky Quarry's ECOSolv technology, with bench-tested 95% oil separation and 99% solvent recovery, positions it to capitalize on this growing trend, potentially exceeding typical recycling efficiencies if scaled commercially.
• The company's estimated tipping fees of $45-$150 per ton for waste asphalt shingles, with a processing cost of $25 per ton, suggest a strong potential margin compared to average U.S. tipping fees which ranged from $43 to $83 per ton in 2022-2023, indicating a competitive advantage in waste management.
• The company's recurring losses and "going concern" doubt contrast sharply with the financial stability typically seen in established, profitable industry players, highlighting significant financial distress.

Management Changes

Corporate Governance

Legal Proceedings

• On March 4, 2026, KF Business Ventures, LP filed a lawsuit against Sky Quarry Inc., Foreland Refining Corp., and 2020 Resources LLC in Utah state court.
• The lawsuit alleges breach of an Advisory Agreement (seeking $126,000 in cash and 41,096 shares of common stock) and two Secured Promissory Notes (seeking $2,200,000 in principal plus 30% annual interest).
• KF Business seeks judicial foreclosure on collateral, including two natural gas turbine power generators and various assets of 2020 Resources LLC (accounts, equipment, inventory, intellectual property).
• The company intends to vigorously defend against these claims, but an unfavorable outcome could have a material adverse effect on business, financial condition, results of operations, and cash flows.

Related Party Transactions

• The company has a governance agreement with JPMorgan Chase Funding Inc. (JPM), a significant shareholder (8.70% common shares), granting JPM consent rights on certain business matters, board observation rights, and financial statement access.
• Paid sitting and committee fees of $335,881 to members of the board of directors for the year ended December 31, 2025.
• Marcus Laun (Interim CEO, Interim CFO, Executive VP, Director) is party to an employment agreement with an annual base salary of $225,000 and severance benefits.
• Matthew Flemming (Executive Chairman, Director) is party to an employment agreement with an annual salary of $250,000, eligible for a $60,000 bonus upon recapitalization, and severance benefits.

Stakeholder Impact

• Shareholders: Face significant dilution risk from ongoing and future equity offerings (ATM offering, preferred stock offering, debt conversions). The 1-for-8 reverse stock split, while restoring Nasdaq compliance, often leads to increased volatility and negative investor perception. The "going concern" doubt and substantial losses pose a risk of losing all or part of their investment.
• Creditors: Those with past-due debt (e.g., Libertas Funding LLC, LendSpark, Private Lender A, ACMO USOS LLC) face uncertainty regarding full repayment, with some accepting reduced payments. KF Business Ventures, LP has initiated a lawsuit seeking foreclosure on collateral.
• Employees: The company's financial instability and "going concern" doubt could impact job security and future compensation. Executive compensation includes stock awards, which are subject to market volatility.
• Customers: Potential disruptions in supply from the Eagle Springs Refinery due to maintenance or financial issues could impact customers. High customer concentration means a loss of a major customer would severely impact the company.
• Suppliers: High supplier concentration means disruptions or changes in relationships could adversely affect the company's ability to source crude oil and other inputs.

Next Steps

• Procure feedstock for the Eagle Springs Refinery to resume operations by the end of Q2 2026.
• Obtain $3.5 million to $4.0 million in capital funding to complete the retrofit of the PR Spring facility.
• Finish retrofitting the PR Spring facility within 12 months of obtaining necessary funding, including commissioning and startup.
• Continue to develop regional model asphalt shingle recycling facilities.
• Increase production output of the Eagle Springs Refinery to a higher capacity (anticipated 45,000 barrels per month during 2026).
• Acquire more crude feedstock from regional suppliers and operate in longer uninterrupted production cycles at the refinery.
• Commercialize the PR Spring facility to produce asphalt paving aggregate and low-sulfur heavy oil.
• Develop a modular asphalt shingle recycling facility design to grind and mill shingle feedstock.
• Engage in ongoing verbal negotiations with creditors to resolve overdue debts and restructure payment terms.
• Implement a remediation plan to address material weaknesses in internal control over financial reporting, including identifying appropriate internal and outsourced accounting staff and creating additional internal procedures for segregation of duties.
• Vigorously defend against the lawsuit filed by KF Business Ventures, LP.
• Continue to sell shares through the ATM Offering (up to $4.7 million aggregate sales price).
• Foreland Refining Corporation intends to continue selling shares of its Series A 10% Redeemable Preferred Stock.
• Actively search for candidates to permanently fill the Chief Financial Officer position.

Key Dates

Recommendation

Sky Quarry Inc. faces severe financial distress, evidenced by a 47% decline in net sales, a 122% increase in gross loss, and explicit 'going concern' doubt from its auditors. The company has over $7.6 million in past-due debt, is making reduced payments to lenders, and is subject to a significant lawsuit seeking foreclosure on key assets. Operational issues, including an unscheduled refinery shutdown, have negatively impacted recent and projected financial results. While strategic initiatives like the ECOSolv technology and PR Spring facility offer long-term potential, they are development-stage, require substantial additional funding, and are unproven at commercial scale. The recent reverse stock split and ATM offering provide temporary liquidity but do not address the fundamental profitability and solvency challenges. The material weakness in internal controls further exacerbates concerns about financial reliability. Given the high risk of default, potential delisting (despite temporary compliance), and significant operational and financial uncertainties, a 'strong sell' recommendation is warranted for investors to mitigate further losses.

Keywords

Oil Refining, Asphalt Recycling, ECOSolv Technology, Waste Asphalt Shingles, Crude Oil, Refinery Operations, PR Spring Facility, Nasdaq Compliance, Going Concern, Debt Default, Environmental Remediation, Energy Sector, Sustainable Materials, Financial Losses, Capital Raise