Executive Summary / Key Takeaways

• Sky Quarry Inc. (NASDAQ:SKYQ) is an integrated energy and environmental remediation company pursuing a dual strategy: operating its Foreland heavy crude oil refinery and developing its proprietary ECOSolv technology for waste asphalt shingle recycling and oil sands remediation.
• The company faces significant financial headwinds, including an accumulated deficit of $29.51 million, negative operating cash flows for the first half of 2025, and substantial high-interest debt, leading to a "going concern" warning from management.
• SKYQ's core differentiator is its ECOSolv technology, a closed-loop solvent-based process achieving up to 99% solvent recovery and 95% oil separation in bench tests, positioning it uniquely in the waste-to-energy and environmental remediation sectors.
• Strategic initiatives, such as scaling the Foreland Refinery to an annualized peak of 800,000 barrels and the PR Spring facility's permit application (projecting 10 million barrels over 15 years), are critical for future revenue generation and achieving profitability.
• Recent capital raising efforts, including a $8.12 million common stock purchase agreement with Varie Asset Management and a $1.00 million secured note at 30% interest, highlight the urgent need for financing to support operations and growth amidst a challenging competitive landscape dominated by larger, more diversified players.

The Dual Mandate: Refining Today, Remediating Tomorrow

Sky Quarry Inc. is an integrated energy solutions company with a compelling, albeit challenging, mission: to transform waste into valuable resources while operating a conventional heavy crude oil refinery. Incorporated in 2019 and rebranded in 2020, SKYQ was designed as a holding company to acquire and integrate businesses that align with its vision of sustainable resource recovery. This strategy has led to the formation of two distinct, yet complementary, operational pillars: the Foreland Refining Corporation and the development-stage 2020 Resources LLC, home to its innovative environmental remediation technology.

The company's overarching "waste-to-energy" mission aims to repurpose millions of tons of asphalt shingle waste, diverting them from landfills to promote resource efficiency and reduce environmental impact. This strategic focus aligns with growing global demand for sustainable practices and regional energy security, particularly as its Foreland Refinery serves as Nevada's only operating refinery, playing a role in stabilizing fuel supply across the Western U.S. However, realizing this ambitious vision requires overcoming significant operational and financial hurdles, positioning SKYQ as a high-potential, high-risk investment.

Technological Edge: The ECOSolv Advantage

At the heart of Sky Quarry's long-term strategy lies its proprietary ECOSolv technology. This innovative, solvent-based process is designed to separate oil from oily sands and other oil-bearing solids, including waste asphalt shingles. The tangible benefits of ECOSolv are compelling: it operates as a closed-loop distillation and evaporation circuit, enabling up to 99% of the solvent to be recovered for continuous reuse. Crucially, this process requires no water, a significant advantage in water-scarce regions and a key environmental differentiator.

Bench testing of the ECOSolv system has demonstrated impressive oil separation rates of up to 95% from samples of both mined crushed ore and ground asphalt shingles. This efficiency is a critical component of SKYQ's competitive moat, offering a potentially lower-cost and more environmentally friendly method for resource recovery compared to traditional extraction or disposal methods. For investors, this technology represents the potential for higher margins through reduced material waste and operational costs, along with enhanced market positioning in the burgeoning green energy and circular economy sectors. The successful commercialization of ECOSolv at the PR Spring facility is therefore paramount to the company's long-term value creation.

Operational Engines: Foreland Refining and PR Spring Development

Sky Quarry's current revenue generation primarily stems from its Foreland Refining Corporation, acquired in September 2022. This acquisition was immediately accretive to revenues and cash flow, providing a foundational base for growth. The Eagle Springs Refinery in Nevada refines heavy crude oil into essential petroleum products, including diesel, liquid asphalt, vacuum gas oil (VGO), and naphtha.

Recent performance in this segment, however, reflects significant challenges. For the three months ended June 30, 2025, net sales increased to $4.54 million from $3.38 million in the prior year period. Yet, for the six months ended June 30, 2025, net sales decreased to $10.87 million from $14.33 million year-over-year. This decline was primarily attributed to disruptions from a refinery outage and refurbishment in May and June 2024, which hampered the company's ability to regain supply streams. Additionally, a drop in WTI crude oil pricing from $87.00 to $68.00 per barrel between April 2024 and June 2025 further compressed product pricing. Management noted that fixed cost allocations across significantly lower production volumes contributed to an increased cost of goods sold as a percentage of net sales, reaching 108% for the first half of 2025 compared to 99% in the same period of 2024. Production was further limited in late June 2025 due to crude supplier disruptions and maintenance delays, with resumption anticipated in August 2025.

Looking ahead, management has outlined a "Path to Full Production" for Foreland, targeting a sustained production rate of up to 800,000 barrels per year. This plan includes monthly milestones of 45,000, 60,000, 80,000, and 100,000 barrels, with peak annualized rates expected to vary seasonally. Key initiatives involve optimizing crude oil procurement, implementing advanced process controls, and investing in targeted infrastructure upgrades. The refinery also intends to expand its capabilities to process recycled heavy oil, eventually sourced from the PR Spring facility.

The 2020 Resources LLC PR Spring facility in Utah represents Sky Quarry's development-stage environmental remediation segment and is currently not generating revenues. As of June 30, 2025, the company had capitalized $8.89 million in oil and gas properties related to this facility, which is still under construction and not yet depreciating. SKYQ has applied for a Waste Management Recycling Permit in Utah to launch an integrated oil sands extraction and waste asphalt shingle recycling facility at PR Spring. This facility is projected to recover approximately 10 million barrels over a 15-year period, based on an operating capacity of 2,000 barrels per day. This permit, if approved, would accelerate ECOSolv commercialization, enable new revenue streams from tipping fees for third-party waste asphalt shingles, and expand the product portfolio to include asphaltic sand and other construction materials.

Further demonstrating its commitment to expanding this segment, Sky Quarry signed a non-binding Letter of Intent (LOI) with R & R Solutions Inc., New Mexico's only permitted asphalt shingle recycler. This collaboration aims to deploy SKYQ’s proprietary equipment to process an estimated 100,000 tons of asphalt shingle waste annually, potentially yielding the equivalent of up to 150,000 barrels of oil when fully refined. This strategy leverages existing infrastructure to reduce capital intensity and improve supply chain logistics for recovered oil products, which management believes will drive stronger margins and long-term value.

Financial Performance: A Challenged Path to Profitability

Sky Quarry's financial statements reveal a company in a critical phase, balancing ambitious growth plans with significant liquidity constraints. As of June 30, 2025, the company reported an accumulated deficit of $29.51 million. While the three months ended June 30, 2025, saw positive cash flows from operations, the six-month period ended June 30, 2025, recorded negative operating cash flows of $729,401. This ongoing cash burn, coupled with an annual net loss of -$14.73 million (TTM) and a net loss of -$2.21 million for Q2 2025, underscores the "going concern" warning included in its financial statements.

Profitability metrics highlight the operational challenges. The company's TTM Gross Profit Margin stands at -13.64%, Operating Profit Margin at -47.27%, and Net Profit Margin at -71.28%. These figures reflect the impact of refinery disruptions, lower production volumes, and fixed cost allocations, which have prevented the company from achieving consistent profitability. High interest expenses, totaling $1.19 million for the six months ended June 30, 2025, further weigh on the bottom line, stemming from high-interest term debt used to support working capital and operational expenses during this investment phase.

To address its pressing working capital needs and fund future capital expenditures, Sky Quarry is actively seeking additional financing. Recent efforts include a purchase agreement with Varie Asset Management LLC, committing Varie to purchase up to $8.12 million of common stock over 24 months, subject to certain conditions and a floor price of $0.62 per share. Additionally, Foreland issued a secured promissory note for $1.00 million to KF Business Ventures, LP, bearing a substantial 30% annual interest rate and maturing in November 2025. These financing activities, while crucial for liquidity, also indicate the high cost of capital for the company.

Competitive Arena: Niche Player in a Giant's Game

Sky Quarry operates in a competitive landscape characterized by the presence of large, diversified players in oilfield services, environmental remediation, and waste management. While Foreland Refining holds a unique position as "Nevada’s only operating refinery," providing regional energy security, SKYQ's overall market share is modest compared to industry giants.

Comparing SKYQ's financial health to major competitors like Halliburton (HAL), Clean Harbors (CLH), and Waste Management (WM) reveals significant disparities. For instance, SKYQ's TTM Gross Profit Margin of -13.64% pales in comparison to HAL's 0.19%, CLH's 0.31%, and WM's 0.29%. Similarly, SKYQ's negative operating and net profit margins stand in stark contrast to the positive margins of its larger rivals. These established players benefit from global scale, extensive R&D capabilities, diversified service portfolios, and robust logistics networks, translating into stronger cash flow generation and greater financial resilience.

SKYQ's competitive advantages primarily stem from its specialized, eco-friendly approach and proprietary ECOSolv technology. This technology offers a qualitatively more efficient and environmentally sound solution for specific remediation and recycling tasks, potentially leading to stronger customer loyalty for green projects and superior margins in niche segments. This differentiation could allow SKYQ to carve out a valuable position, particularly as environmental regulations tighten and demand for sustainable solutions grows. However, SKYQ's smaller scale and reliance on specialized materials for its remediation processes present vulnerabilities, potentially leading to higher operating costs and supply chain dependencies compared to its more diversified competitors. The high capital requirements and stringent regulatory approvals in these industries also act as significant barriers to entry, protecting the market positions of established players while simultaneously limiting SKYQ's growth against rivals with deeper pockets.

Strategic Outlook & Growth Catalysts

Sky Quarry's management is actively pursuing several strategic initiatives to drive growth and improve its financial position. The "Path to Full Production" at the Foreland Refinery, aiming for 800,000 barrels annually, is a critical step towards enhancing contribution margins and stabilizing revenue. The anticipated resumption of production in August 2025, following recent disruptions, is a key near-term operational milestone.

The development of the PR Spring facility, with its projected 10 million barrels of recovery over 15 years, represents a significant long-term growth catalyst. The successful approval of its Waste Management Recycling Permit is essential to unlock new revenue streams from tipping fees and expand its product offerings. Partnerships, such as the LOI with R & R Solutions, are designed to accelerate market deployment of ECOSolv, reduce capital intensity, and improve supply chain logistics for recovered oil products.

Beyond its core operations, Sky Quarry is exploring innovative avenues for value creation. The company announced a strategic digital asset initiative, aiming to establish a digital asset treasury and explore how this strategy can complement its existing business model. This was followed by a Memorandum of Understanding (MOU) with Continuum Network to explore the real-world tokenization of commodities, signaling an intent to tap into emerging blockchain-enabled markets. These initiatives, while nascent, demonstrate a forward-thinking approach to capital allocation and market engagement. The recent appointment of Marcus Laun as President and Interim Chief Financial Officer also signals a focus on strengthening financial leadership to navigate the company's complex financial landscape.

Key Risks and Headwinds

Despite its strategic ambitions, Sky Quarry faces substantial risks that could materially impact its investment thesis. The most pressing is the going concern uncertainty, driven by an accumulated deficit and insufficient operating cash flows. The company's ability to secure additional financing through debt, equity, or warrant exercises is paramount to fund operations, capital expenditures, and retire maturing debt obligations. There is no guarantee these efforts will be successful.

Operational disruptions at the Foreland Refinery, as experienced in 2024 and late June 2025, pose a continuous threat to revenue and profitability. Regaining and maintaining consistent crude supply streams is critical. Furthermore, the company is exposed to commodity price volatility, as evidenced by the recent decline in WTI crude prices, which directly impacts its end sales products.

The high cost of indebtedness, including past due debt of $4.25 million to Libertas Funding LLC and $1.03 million to LendSpark, along with new high-interest notes, places a significant burden on financial performance. While management does not anticipate adverse operational impact unless foreclosure proceedings commence, this debt structure creates considerable financial pressure. Finally, the conclusion by the company's principal executive and financial officers that disclosure controls and procedures were not effective as of June 30, 2025, highlights internal control weaknesses that could lead to reporting inaccuracies or delays.

Conclusion

Sky Quarry Inc. presents a compelling, yet speculative, investment narrative centered on its dual strategy of conventional heavy crude refining and pioneering waste-to-energy environmental remediation. The company's proprietary ECOSolv technology offers a genuine differentiator, promising efficient, water-free oil recovery from waste asphalt shingles and oil sands. This technological edge, coupled with strategic initiatives to scale its Foreland Refinery and commercialize the PR Spring facility, forms the core of its long-term value proposition in a world increasingly prioritizing sustainable resource management.

However, the path to realizing this potential is fraught with significant financial and operational challenges. The immediate future hinges on SKYQ's ability to secure substantial capital, stabilize its refining operations, and successfully bring its PR Spring facility online. While the company's ambition to reclaim value from waste and contribute to regional energy security is clear, investors must carefully weigh the transformative potential of its technology and strategic roadmap against the very real and immediate liquidity pressures and operational execution risks. The successful navigation of these headwinds will ultimately determine whether Sky Quarry can transition from a development-stage promise to a profitable, sustainable energy solutions provider.