8-K: Sky Quarry Settles $491K Debt with Equity Issuance

Sky Quarry Inc. has settled a $491,384 debt with LendSpark Corporation by issuing common stock, including an initial 699,977 shares and an additional 70,000 shares for fees.

Summary

• Sky Quarry Inc. (SKYQ) entered into a settlement agreement with LendSpark Corporation (LendSpark) on December 1, 2025, to resolve $491,384.00 in outstanding and past due liabilities owed by its wholly-owned subsidiary, Foreland Refining Corporation.
• On December 11, 2025, the Company issued 699,977 shares of its common stock to LendSpark as part of the settlement.
• LendSpark is entitled to an additional 699,977 shares of common stock to fully settle the remaining amounts due.
• An additional 70,000 shares of common stock were issued to LendSpark to cover fees incurred in connection with the settlement.
• All shares were issued as freely trading securities pursuant to Section 3(a)(10) of the Securities Act, following a fairness hearing and court order.
• The agreement includes a 'leak out' provision limiting LendSpark's daily resale of shares to 20% of the Company's daily trading volume.
• As of November 20, 2025, Sky Quarry had 2,000,000,000 authorized shares, with approximately 24,776,381 shares issued and outstanding.

Sentiment

Score: 3

Explanation: The settlement resolves a past-due liability, which is a positive, but it comes at the cost of significant shareholder dilution and indicates prior financial distress. The broad indemnification clauses also present a potential future liability. The 'leak out' provision offers some mitigation but doesn't eliminate the dilution or the potential for stock price pressure.

Positives

• Resolution of $491,384.00 in outstanding and past due liabilities, which were in default, without using cash.
• The issuance of shares under Section 3(a)(10) of the Securities Act allows for freely trading securities, which is beneficial for the creditor.
• The 'leak out' provision limits LendSpark's daily resale to 20% of daily trading volume, potentially mitigating immediate downward pressure on the stock price.

Negatives

• Significant dilution for existing shareholders due to the issuance of 699,977 initial shares, an additional 699,977 shares, and 70,000 fee shares, totaling 1,469,954 new shares.
• The liabilities were 'in default or past due,' indicating prior financial distress.
• The Company is responsible for all Transfer Agent costs for the conversion of settlement shares.
• The agreement includes broad indemnification clauses where Sky Quarry indemnifies LendSpark for various claims, including potential Section 5 Securities Act violations, which could expose the Company to future legal costs.

Risks

• Dilution Risk: The issuance of a substantial number of new common shares (1,469,954 shares) will dilute the ownership interests of existing shareholders.
• Stock Price Volatility: LendSpark's future sales of these freely trading shares, even with the 'leak out' provision, could exert downward pressure on the stock price.
• Operational Default Risk: The agreement outlines several default conditions, including failure to deliver shares, court order not entered within 90 days, failure to comply with covenants, bankruptcy, trading halts, or delinquent SEC filings. A default could lead to the agreement being voided and the original debt returning.
• Legal and Regulatory Compliance Risk: The Company must ensure compliance with all SEC filings and disclosures related to the transaction.
• Financial Health Risk: The existence of 'default or past due' liabilities suggests underlying financial challenges for the Company or its subsidiary.
• Indemnification Exposure: The Company's broad indemnification of LendSpark for claims, including potential Section 5 Securities Act violations, creates a contingent liability and potential legal expense.

Future Outlook

The filing primarily addresses a past liability settlement and does not provide explicit forward-looking statements or guidance on future financial performance, operational plans, or revenue projections. It outlines the process for future share issuances to LendSpark and the conditions for the settlement's completion.

Management Comments

• Executive officers and directors have studied and fully understand the nature of the transaction contemplated by this Agreement and recognize that they have a potential dilutive effect.
• The board of directors of the Company has concluded in its good faith business judgment that such transaction is in the best interests of the Company.
• The Company specifically acknowledges that its obligation to issue the Settlement Shares and Settlement Fee Shares is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.
• The Board of Directors of the Company has further given its consent for the conversion of shares of stock pursuant to this agreement.

Industry Context

This settlement, involving the issuance of equity to resolve a past-due debt, suggests that Sky Quarry Inc. may be facing liquidity challenges or prefers to conserve cash. In the broader industry, companies often resort to equity-for-debt swaps during periods of financial strain or when seeking to optimize their balance sheets without incurring further cash outflows. The use of Section 3(a)(10) exemption is a common mechanism for such settlements, allowing for the issuance of freely tradable shares under court supervision, which can be attractive to creditors.

Comparison to Industry Standards

• The use of equity to settle a past-due debt is a common practice for companies facing cash flow constraints, particularly in industries where access to traditional debt financing might be limited or expensive.
• The 'leak out' provision, limiting daily sales to 20% of trading volume, is a standard mechanism often included in such agreements to mitigate immediate market impact, similar to arrangements seen in PIPE (Private Investment in Public Equity) deals or other large equity placements.
• The indemnification clauses, while broad, are not uncommon in complex settlement agreements, aiming to protect the creditor from unforeseen liabilities arising from the transaction itself.
• The dilution of existing shareholders, while significant in this case (over 1.4 million shares on a base of ~24.7 million outstanding), is a typical consequence of equity-based debt settlements and is often weighed against the alternative of bankruptcy or further cash drain.

Corporate Governance

Legal Proceedings

• The filing details a settlement agreement resolving 'bona fide outstanding liabilities' of not less than $491,384.00, which were 'in default or past due.' This implies a prior dispute or potential legal action that led to the settlement.
• The agreement requires the Company and LendSpark to 'expeditiously submit the terms and conditions of this Agreement to the Court for a hearing on the fairness of such terms and conditions.' This indicates an ongoing judicial process to finalize the settlement.
• The Florida Circuit Court of the Twelfth Judicial Circuit will reserve jurisdiction for purposes of contempt and enforcement of the Settlement Agreement.

Stakeholder Impact

• Shareholders: Significant dilution of ownership interests due to the issuance of over 1.4 million new common shares. Potential for downward pressure on stock price from future sales by LendSpark.
• Creditors (LendSpark Corporation): Receives freely trading common stock to settle a past-due debt, converting a defaulted liability into equity. Benefits from indemnification clauses.
• Company (Sky Quarry Inc.): Resolves a significant past-due liability without cash outflow, but incurs substantial dilution and potential future legal liabilities through indemnification.
• Management/Board: Approved a dilutive transaction, acknowledging its impact, to resolve a financial obligation.

Next Steps

• The Company and LendSpark Corporation must expeditiously submit the terms and conditions of the Settlement Agreement to the Florida Circuit Court for a fairness hearing.
• The agreement becomes binding only upon entry of a court order approving the terms and the issuance of settlement shares.
• Following the court order, the Company must issue and deliver the Settlement Shares and Settlement Fee Shares to LendSpark Corporation.
• The Company must transmit an irrevocable and unconditional instruction to its stock transfer agent to issue the shares.
• The Company is required to file a Form 8-K with the SEC disclosing the settlement after the court order is signed.
• The Company must ensure it maintains sufficient authorized and reserved shares to fulfill its obligations under the agreement.

Key Dates

Recommendation

The settlement of a past-due liability is a positive step for Sky Quarry, addressing a financial overhang without immediate cash expenditure. However, the significant dilution from the equity issuance and the underlying indication of prior financial distress are notable concerns. The 'leak out' provision offers some protection against immediate stock price collapse, but the long-term impact of dilution and potential future sales by LendSpark needs to be monitored. Given the mixed signals, a 'hold' recommendation is appropriate, advising investors to observe how the company manages its operations post-settlement and whether it can demonstrate improved financial health and growth to absorb the dilution.

Keywords

Sky Quarry Inc., SKYQ, LendSpark Corporation, Settlement Agreement, Equity Issuance, Debt Settlement, Common Stock, SEC Filing, 8-K, Dilution, Corporate Governance, Financial Liabilities, Unregistered Securities, Section 3(a)(10)