SKYQ

Sky Quarry Inc. (SKYQ) - Q2 2025 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2025. Sky Quarry Inc. is an oil production, refining, and development-stage environmental remediation company. Its primary operations include the Foreland Refining Corporation (refining heavy crude oil into diesel, asphalt, and other products) and the development of the PR Spring facility in Utah for recycling waste asphalt shingles and extracting oil from bitumen sands. The company is classified as a smaller reporting company and an emerging growth company.

Key Financial Metrics

Note: Gross margin is negative due to Cost of Goods Sold exceeding Net Sales.

Material Changes vs. Prior Period

• Revenue: Net sales increased 35% quarter-over-quarter (Q2 2025 vs. Q2 2024) to $4.54M, driven by a 305% increase in Liquid Asphalt sales. However, year-to-date (YTD) sales decreased 24% compared to the prior year due to refinery outages and lower WTI crude prices ($68/bbl vs. $87/bbl in April 2024).
• Profitability: The company reported a negative gross margin of $(116,968) for the quarter, an improvement from the $(485,589) loss in Q2 2024. However, YTD gross margin turned negative at $(843,060) compared to a positive $83,860 in the prior year.
• Operating Expenses: General and administrative expenses increased 67% QoQ to $1.62M, primarily due to higher executive compensation (new directors) and professional fees related to public company compliance.
• Interest Expense: Interest expense decreased significantly to $318,708 for the quarter from $2.1M in Q2 2024, though it remains a material burden.
• Liquidity: Cash on hand decreased to $173,795 from $385,116 at year-end 2024. Net cash used in operating activities for the six months was $729,401.

Guidance, Outlook, Risks, and Unusual Items

• Going Concern: The filing includes a "Going Concern" warning. Management states there is significant doubt about the company's ability to continue as a going concern without additional financing due to an accumulated deficit of $29.5M and insufficient operating cash flows to meet obligations.
• Production Disruptions: Production was limited in late June 2025 due to crude supplier disruptions and maintenance delays. Management expects production to resume in August 2025.
• Debt Structure: The company carries high-interest debt, including past-due amounts owed to Libertas Funding ($4.25M) and LendSpark ($1.03M). Effective interest rates on certain notes range from 58% to 68%.
• Subsequent Events (Financing):
  • July 9, 2025: Entered a Purchase Agreement with Varie Asset Management LLC to sell up to $8.125M of common stock over 24 months.
  • July 24, 2025: Issued a $1M secured promissory note to KF Business Ventures at 30% interest, accompanied by stock and warrant issuance.
• Management Changes: Darryl Delwo resigned as CFO on August 4, 2025. Marcus Laun was appointed President and Interim CFO on August 12, 2025.
• Controls: Management concluded that disclosure controls and procedures were not effective as of June 30, 2025.

Investor Verification Checklist

• Debt Maturity & Default Risk: Verify the status of the $5.27M in past-due debt (Libertas and LendSpark) and the risk of foreclosure or acceleration.
• Refinery Operations: Confirm the resumption of full production at the Foreland Refinery in August 2025 and the impact on Q3 revenue.
• Capital Raise Execution: Monitor the effectiveness of the new $8.125M equity line with Varie Asset Management and the $1M note from KFBV in stabilizing liquidity.
• Cost of Goods Sold: Analyze the sustainability of negative gross margins and the company's ability to secure crude oil supply at prices that allow for a positive contribution margin.
• Internal Controls: Assess the remediation plan for the ineffective disclosure controls and procedures identified in the filing.