8-K: Sky Quarry Subsidiary Raises $416K in Preferred Stock

Sky Quarry Inc.'s subsidiary, Foreland Refining Corporation, completed an initial sale of 4,167 shares of Series A 10% Redeemable Preferred Stock, raising $416,700, and plans to continue the offering up to $1.235 million.

Summary

• Foreland Refining Corporation, a wholly-owned subsidiary of Sky Quarry Inc., commenced an offering of its Series A 10% Redeemable Preferred Stock (Preferred Stock) in July 2025 under Regulation C (Reg CF Offering).
• As of October 1, 2025, Foreland completed the sale of 4,167 shares of Preferred Stock, generating aggregate proceeds of $416,700.
• The Reg CF Offering aims to sell up to $1,235,000 of Preferred Stock at a price of $100.00 per share.
• The Preferred Stock carries an annual dividend payment of ten percent (10%), accruing from the date of issuance and paid within fifteen (15) days of each calendar year-end.
• It is senior preferred equity of Foreland, non-convertible into common stock, and has no voting rights.
• Holders of the Preferred Stock will receive a royalty of $0.75 per barrel of crude oil refined and sold by Foreland while the Preferred Stock is outstanding, prorated for amounts less than $1 million of Preferred Stock.
• The total annual return to Preferred Stock holders, inclusive of the 10% Preferred Dividend and Royalty Payment, is capped at twenty-five percent (25%).
• The Preferred Stock will be automatically redeemed by Foreland five (5) years after issuance at its liquidation preference.
• Foreland has the option to redeem the Preferred Stock early at a premium: 110% of liquidation preference within 0-36 months, 105% within 36-48 months, and 103% within 48 months to the Automatic Redemption Date.

Sentiment

Score: 6

Explanation: The capital raise is a positive step for the subsidiary's funding, but the high cost of capital (10% dividend plus royalty capped at 25%) and redemption premiums introduce significant future obligations and potential dilution for common shareholders, balancing the overall sentiment.

Positives

• Foreland Refining Corporation successfully raised $416,700 through its initial Reg CF Offering, providing capital for its operations.
• The offering provides an attractive investment opportunity for preferred shareholders with a 10% annual dividend and a royalty payment tied to crude oil refining volume, capped at a 25% annual return.
• The ability for Foreland to redeem the Preferred Stock early offers flexibility in managing its capital structure, albeit with a premium.

Negatives

• The 10% annual dividend and royalty payments represent a significant fixed cost of capital for Foreland, potentially impacting future profitability and cash flow available to common shareholders.
• The maximum 25% annual return for preferred shareholders, while capped, is a high cost of capital compared to traditional debt financing.
• Early redemption premiums (103% to 110% of liquidation preference) could result in additional costs for Foreland if it chooses to redeem the Preferred Stock before the automatic redemption date.

Risks

• Foreland's ability to generate sufficient cash flow from its crude oil refining operations to consistently cover the 10% Preferred Dividends and Royalty Payments.
• Fluctuations in crude oil prices and refining margins could impact Foreland's profitability and its capacity to meet its obligations to preferred shareholders.
• The obligation to redeem the Preferred Stock at liquidation preference (plus potential premiums for early redemption) represents a future financial commitment that Foreland must be prepared to meet.

Future Outlook

Foreland Refining Corporation intends to continue selling shares of its Series A 10% Redeemable Preferred Stock pursuant to the terms of the Reg CF Offering, aiming to raise up to $1,235,000 in total.

Industry Context

The capital raise by Foreland Refining Corporation, a subsidiary focused on crude oil refining, highlights the ongoing need for capital in the energy sector, particularly for infrastructure and operational expansion. Utilizing a Regulation CF offering allows smaller companies to access capital from a broader base of investors, which can be crucial for specialized operations like refining. The structured preferred stock with a fixed dividend and royalty payment reflects a common approach to attract investors seeking yield and exposure to commodity-linked revenues, while managing the risk profile for the issuer.

Comparison to Industry Standards

• NA

Stakeholder Impact

• **Shareholders (Sky Quarry Inc. common stock):** Potential for future earnings dilution due to the high fixed cost of capital (10% dividend and royalty payments) that Foreland must pay to preferred shareholders. However, the capital raise could fund growth initiatives that ultimately benefit common shareholders.
• **Preferred Stock Investors (Foreland Refining Corporation):** Will receive a fixed 10% annual dividend and a royalty payment tied to production, offering a potentially attractive return on investment, capped at 25% annually. They also benefit from senior preferred equity status and redemption options.

Next Steps

• Foreland Refining Corporation intends to continue selling shares of its Series A 10% Redeemable Preferred Stock pursuant to the terms of the Reg CF Offering until the maximum target of $1,235,000 is reached.

Key Dates

Recommendation

The capital raise provides necessary funding for the subsidiary, which is a positive for operational continuity and potential growth. However, the terms of the preferred stock, including a 10% dividend and a royalty payment capped at a 25% annual return, represent a high cost of capital. This could significantly impact future earnings and cash flow available to common shareholders, creating a substantial financial obligation for Foreland. While the funding is beneficial, the long-term implications of these terms warrant a cautious 'hold' recommendation until the impact on Sky Quarry's overall financial health and common equity value becomes clearer.

Keywords

Sky Quarry, Foreland Refining, Preferred Stock, Capital Raise, Regulation CF, Oil Refining, Dividends, Royalty Payments, SEC Filing, 8-K