8-K: Sky Quarry Secures $175K Note, Appoints Interim CEO

Sky Quarry Inc. announced a $175,000 convertible note and warrant issuance to Varie Asset Management LLC, alongside the termination of its CEO and appointment of an interim successor.

Summary

• Issued a convertible promissory note for $175,000 to Varie Asset Management LLC on August 29, 2025.
• The convertible note matures on August 29, 2027, bears an interest rate of 12% per annum (increasing to 14% upon an event of default), and is convertible into common stock at $0.48 per share, with a floor price of $0.40.
• Issued a warrant to Varie Asset Management LLC to purchase up to 70,000 shares of common stock at an exercise price of $0.48 per share, exercisable for 24 months from August 29, 2025.
• Terminated Mr. Sealocks' employment as Chief Executive Officer for cause on August 28, 2025.
• Appointed Marcus Laun, the Company's President, Interim CFO, Executive VP, and Director, as Interim Chief Executive Officer on August 28, 2025.

Sentiment

Score: 3

Explanation: The filing indicates significant negative events, including the termination of the CEO for cause and the issuance of high-interest convertible debt with potential for dilution. While capital was raised, the terms suggest financial distress or high risk, outweighing the positive of securing funds.

Positives

• Secured $175,000 in financing through a convertible note, providing immediate capital.
• The warrant issuance provides additional potential capital if exercised.
• Appointment of an interim CEO (Marcus Laun) ensures leadership continuity following the termination of the previous CEO.

Negatives

• The termination of the previous CEO 'for cause' suggests significant internal issues or performance problems.
• The 12% annual interest rate on the convertible note is relatively high, indicating a higher cost of capital.
• The issuance of convertible debt and warrants could lead to significant dilution for existing shareholders if converted/exercised.
• The floor price of $0.40 for conversion suggests potential downside protection for the noteholder but also implies a low valuation.

Risks

• Dilution Risk: Conversion of the promissory note and exercise of the warrant will increase the number of outstanding common shares, diluting existing shareholders.
• High Cost of Capital: The 12% interest rate (14% upon default) on the convertible note is substantial, increasing the company's debt servicing costs.
• Management Instability: The termination of the CEO for cause and the appointment of an interim CEO indicate potential instability in leadership, which could impact operations and investor confidence.
• Default Risk: Various events of default are outlined in the convertible note, which could trigger immediate repayment or forced equity issuance at a discounted price (90% of conversion price).
• Beneficial Ownership Limitation: The 9.99% beneficial ownership limitation for the noteholder could restrict full conversion if the company's stock price drops significantly, potentially leaving debt outstanding.
• Prepayment Penalty: A 1% prepayment penalty applies if the note is repaid within 12 months, adding to the cost of early repayment.

Future Outlook

The filing does not provide explicit forward-looking statements or guidance regarding future financial performance or strategic direction, beyond the terms of the financing and the immediate management changes.

Management Comments

• Marcus Laun, as President, signed the Form 8-K, the Convertible Promissory Note, and the Warrant Agreement on behalf of Sky Quarry Inc.

Industry Context

The high interest rate on the convertible note (12%) and the relatively low conversion/exercise price ($0.48) suggest that Sky Quarry Inc. may be facing challenges in securing more favorable financing terms, potentially reflecting a higher risk profile or limited access to traditional capital markets. The management change, particularly a CEO termination for cause, could signal internal operational or governance issues, which might be viewed negatively by the market compared to industry peers with stable leadership.

Comparison to Industry Standards

• The 12% annual interest rate on the convertible note is significantly higher than typical corporate debt for established companies, which often range from 3-8% depending on credit rating and market conditions. For instance, a company with a strong credit rating might secure debt at prime rate plus 1-3%, whereas Sky Quarry's rate is indicative of a distressed or high-risk borrower.
• The conversion price of $0.48 per share, with a floor of $0.40, is also low, suggesting a valuation that might be below industry averages for companies with strong growth prospects.
• The termination of a CEO for cause is a severe corporate governance event, often leading to significant stock price declines, unlike routine executive transitions seen in more stable companies like Apple or Microsoft, which typically involve planned successions.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders: Potential for significant dilution from the conversion of the note and exercise of warrants. The CEO termination for cause could negatively impact investor confidence and share price.
• Creditors (Varie Asset Management LLC): Becomes a significant creditor and potential equity holder with favorable conversion terms and a high interest rate.
• Employees: The termination of the CEO could create uncertainty within the company.

Next Steps

• The company will continue to operate under the leadership of Interim CEO Marcus Laun.
• The convertible note will accrue interest and mature on August 29, 2027, or be converted into common stock by the holder.
• The warrant will be exercisable for 24 months from August 29, 2025.
• The shares to be issued from the note and warrant will be included in an amendment to the Form S-1/A Registration Statement filed on August 26, 2025.

Key Dates

Recommendation

The termination of the CEO for cause signals severe internal issues and governance instability, which typically leads to a significant loss of investor confidence. The financing secured, while providing capital, comes at a very high cost (12% interest) and involves substantial potential dilution through convertible notes and warrants at a low conversion price. These factors collectively point to a company in distress, making the stock a high-risk investment with significant downside potential. A seasoned investor would likely view these events as strong indicators to exit or avoid the stock.

Keywords

Sky Quarry Inc., SKYQ, Convertible Note, Warrant, CEO Termination, Interim CEO, Capital Raise, Debt Financing, Corporate Governance, SEC Filing, Form 8-K, Varie Asset Management