SKY QUARRY INC. - Form 10-Q SEC filing

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2026

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number 001-42296

SKY QUARRY INC.

(Exact name of registrant as specified in its charter)

Delaware	84-1803091
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

707 W. 700 South, Suite 101
Woods Cross, UT	84087
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (424) 394-1090

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001	SKYQ	Nasdaq Capital Market

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the previous 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of August 12, 2026, there were 8,833,390 shares of common stock, $0.0001 par value, issued and outstanding.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (this “Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are intended to be covered by the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report, including statements that relate to, among others, our plans, objectives and expectations for our business, strategy, operations, financial condition, results of operations and liquidity included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and elsewhere in this Report, are forward-looking statements. Words such as “aim,” “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “if,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” and variations of such words and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

Forward-looking statements are not guarantees of future performance and are, by their very nature, uncertain and risky. Although Sky Quarry Inc.’s (“Sky Quarry,” the “Company,” “we,” “us” or “our”) management believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond the Company’s control. These risks and uncertainties include, without limitation: our ability to continue as a going concern and to obtain additional financing on acceptable terms; our ability to resume and sustain refinery operations at our Eagle Springs Refinery, including the availability of crude oil feedstock; commodity price volatility, including fluctuations in the price of crude oil, diesel, and other refined products; our ability to execute our ATM equity offering program and access capital markets; the outcome of pending or future litigation, including the KF Business Ventures proceedings and other claims; our ability to service or refinance our existing indebtedness; our ability to consummate the Potential Transaction involving digital infrastructure assets and realize its anticipated benefits; risks relating to the development and commercialization of our ECOSolv technology and the PR Springs facility; risks related to environmental compliance, permitting, and regulatory changes; international, national, and local economic and market conditions; our ability to attract and retain qualified personnel; our ability to maintain compliance with Nasdaq listing requirements; changes in interest rates, inflation, and the cost of capital; business disruptions, supply chain challenges, and geopolitical uncertainties; and other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission (the “SEC”), including the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2025 and this Report. Actual results may differ materially from those expressed or implied by these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this Report. Except as may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or circumstances after the date of this Report. You are urged to carefully review and consider the risks, uncertainties, and additional discussions related thereto in this Report and other filings we file from time to time with the SEC.

PART I – FINANCIAL INFORMATION

ITEM 1 Financial Statements

Sky Quarry Inc.

Condensed Consolidated Balance Sheets (Unaudited)

As of June 30, 2026 and December 31, 2025

		June 30,		December 31,
		2026		2025
ASSETS

Current assets:
Cash	$	`7,226,564`	$	`35,370`
Accounts receivable		`-`		`4,688`
Prepaid expenses and other assets		`1,697,322`		`609,257`
Inventory		`1,506,532`		`678,365`
Total current assets		`10,430,418`		`1,327,680`

Property, plant and equipment		`5,056,602`		`5,089,139`
Oil and gas properties		`8,783,450`		`8,783,450`
Restricted cash		`768,929`		`770,335`
Right-of-use-asset		`79,486`		`35,214`
Goodwill		`3,209,003`		`3,209,003`

Total assets	$	`28,327,888`	$	`19,214,821`

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	`4,155,113`	$	`4,546,064`
Operating lease liability		`23,366`		`36,278`
Warrant liabilities		`272,368`		`97,486`
Lines of credit		`1,614,049`		`1,453,737`
Current portion of notes payable		`7,970,508`		`8,987,208`
Total current liabilities		`14,035,404`		`15,120,773`

Notes payable, net of current portion		`2,474,212`		`907,081`
Operating lease liability, net of current portion		`56,199`		`-`
Total liabilities		`16,565,815`		`16,027,854`

Commitments and contingencies

SHAREHOLDERS’ EQUITY:
Common Stock $0.0001 par value: 2,000,000,000 shares authorized: 8,782,035 and 3,233,329 shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively		`3,509`		`2,586`
Additional paid in capital		`54,513,467`		`39,563,657`
Accumulated other comprehensive loss		`(212,794)`		`(212,788)`
Accumulated deficit		`(42,542,109)`		`(36,166,488)`
Total shareholders’ equity		`11,762,073`		`3,186,967`

Total liabilities and shareholders' equity	$	`28,327,888`	$	`19,214,821`

See accompanying Notes to Condensed Consolidated Financial Statements.

		Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
		June 30,		June 30,		June 30,		June 30,
		2026		2025		2026		2025
Net sales	$	-	$	4,541,472	$	383	$	10,874,439
Cost of goods sold		685,601		4,658,440		1,075,202		11,717,499
Gross margin		(685,601)		(116,968)		(1,074,819)		(843,060)

Operating expenses:
General and administrative		1,886,956		1,620,696		3,100,192		3,554,426
Depreciation and amortization		1,649		2,916		3,859		4,944
Total operating expenses		1,888,605		1,623,612		3,104,051		3,559,370

Loss from operations		(2,574,206)		(1,740,580)		(4,178,870)		(4,402,430)

Other income (expense):
Interest income or (expense)		(349,476)		(318,708)		(683,465)		(1,191,176)
Gain (loss) on extinguishment of debt		(1,015,345)		29,093		(1,284,741)		(56,660)
Gain or (loss) on warrant revaluation		(99,540)		(174,354)		(174,882)		100,626
Other income (expense)		(16,809)		(4,101)		(53,663)		3,376
Gain on disposal of assets		-		-		-		3,920
Other expense, net		(1,481,170)		(468,070)		(2,196,751)		(1,139,914)

Loss before provision for income taxes		(4,055,376)		(2,208,650)		(6,375,621)		(5,542,344)

Provision for income taxes		-		-		-		-

Net loss		(4,055,376)		(2,208,650)		(6,375,621)		(5,542,344)

Other Comprehensive Loss
Exchange loss on translation of foreign operations		(4)		(2,097)		(6)		(1,675)

Net loss and comprehensive loss		(4,055,380)		(2,210,747)		(6,375,627)		(5,544,019)

Loss per common share
Basic and diluted	$	(0.77)	$	(0.82)	$	(1.44)	$	(2.17)
Weighted average shares outstanding
Basic and diluted		5,257,807		2,698,677		4,412,662		2,552,812

Sky Quarry Inc.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

For the three and six months ended June 30, 2026 and 2025

	Common Stock Outstanding		Common Stock		Additional Paid-in-Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
Balance January 1, 2025	`2,378,401`	$	`1,903`	$	`35,674,391`	$	`(23,968,089)`	$	`(209,708)`	$	`11,498,497`
Common shares issued for non-cash consideration	`265,673`		`212`		`1,186,384`		`-`		`-`		`1,186,596`
Debt converted to common shares	`13,542`		`11`		`92,073`		`-`		`-`		`92,084`
Share based compensation	`-`		`-`		`78,880`		`-`		`-`		`78,880`
Stock warrants issued	`-`		`-`		`56,660`		`-`		`-`		`56,660`
Other comprehensive income	`-`		`-`		`-`		`-`		`422`		`422`
Net loss	`-`		`-`		`-`		`(3,333,694)`		`-`		`(3,333,694)`
Balance March 31, 2025	`2,657,616`		`2,126`		`37,088,388`		`(27,301,783)`		`(209,286)`		`9,579,445`
Common shares issued for non-cash consideration	`101,155`		`81`		`143,922`		`-`		`-`		`144,003`
Debt converted to common shares	`5,000`		`4`		`100,485`		`-`		`-`		`100,489`
Share based compensation	`-`		`-`		`230,474`		`-`		`-`		`230,474`
Stock warrants issued	`-`		`-`		`21,818`		`-`		`-`		`21,818`
Other comprehensive loss	`-`		`-`		`-`		`-`		`(2,097)`		`(2,097)`
Net loss	`-`		`-`		`-`		`(2,208,650)`		`-`		`(2,208,650)`
Balance June 30, 2025	`2,763,771`	$	`2,211`	$	`37,585,087`	$	`(29,510,433)`	$	`(211,383)`	$	`7,865,482`

	Common Stock Outstanding		Common Stock		Additional Paid-in-Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
Balance December 31, 2025	`3,233,329`	$	`2,586`	$	`39,563,657`	$	`(36,166,488)`	$	`(212,788)`	$	`3,186,967`
Common shares subscription, less offering costs	`426,143`		`338`		`747,637`		`-`		`-`		`747,975`
Common shares issued for non-cash consideration	`33,332`		`27`		`81,897`		`-`		`-`		`81,924`
Debt converted to common shares	`69,782`		`56`		`213,686`		`-`		`-`		`213,742`
Share based compensation	`-`		`-`		`87,454`		`-`		`-`		`87,454`
Other comprehensive loss	`-`		`-`		`-`		`-`		`(2)`		`(2)`
Net loss	`-`		`-`		`-`		`(2,320,245)`		`-`		`(2,320,245)`
Balance March 31, 2026	`3,762,586`		`3,007`		`40,694,331`		`(38,486,733)`		`(212,790)`		`1,997,815`
Common shares subscription, less offering costs	`4,355,652`		`436`		`11,791,538`		`-`		`-`		`11,791,974`
Common shares issued for non-cash consideration	`309,292`		`30`		`823,469`		`-`		`-`		`823,499`
Debt converted to common shares	`155,005`		`16`		`597,601`		`-`		`-`		`597,617`
Share based compensation	`199,500`		`20`		`606,528`		`-`		`-`		`606,548`
Other comprehensive loss	`-`		`-`		`-`		`-`		`(4)`		`(4)`
Net loss	`-`		`-`		`-`		`(4,055,376)`		`-`		`(4,055,376)`
Balance June 30, 2026	`8,782,035`	$	`3,509`	$	`54,513,467`	$	`(42,542,109)`	$	`(212,794)`	$	`11,762,073`

See accompanying Notes to Condensed Consolidated Financial Statements

		Six Months Ended		Six Months Ended
		June 30, 2026		June 30, 2025
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(6,375,621)	$	(5,542,344)
Adjustments to reconcile net loss to cash and restricted cash and cash equivalents used in operating activities:
Share based compensation		694,002		309,354
Depreciation and amortization		492,758		557,454
Amortization of debt issuance costs		(98,976)		807,636
Amortization of ROU asset		37,112		48,842
Loss (gain) on revaluation of warrant liabilities		174,882		(100,626)
Loss on extinguishment of debt		1,284,741		56,660
Gain on the sale of assets		-		(3,920)
Changes in operating assets and liabilities:
Accounts receivable		4,688		501,376
Prepaid expenses and other assets		(483,565)		(64,541)
Inventory		(828,167)		1,149,885
Accounts payable and accrued expenses		(277,456)		1,589,955
Operating lease liability		(38,097)		(39,132)
Net cash and restricted cash and cash equivalents used in operating activities		(5,413,699)		(729,401)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets		-		14,060
Purchase of property, plant, and equipment		(460,221)		(42,383)
Purchase of oil and gas development assets		-		(352,973)
Net cash and restricted cash and cash equivalents used in investing activities		(460,221)		(381,296)

CASH FLOWS FROM FINANCING
Proceeds on lines of credit		202,630		8,338,455
Payments on lines of credit		(42,318)		(8,465,550)
Proceeds from note payable		896,866		574,380
Payments on note payable		(533,413)		(1,670,741)
Payments on finance lease		-		(3,474)
Proceeds on issuance of common stock		13,907,446		-
Net issuance cost		(1,367,497)		-
Net cash and restricted cash and cash equivalents provided by (used in) financing activities		13,063,714		(1,226,930)

Effects of exchange rate on cash		(6)		(1,675)

Increase (decrease) in cash and restricted cash and cash equivalents		7,189,788		(2,339,302)
Cash and cash equivalents and restricted cash, beginning of the period		805,705		3,314,913

Cash and restricted cash and cash equivalents, end of the period	$	7,995,493	$	975,611

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.NATURE OF OPERATIONS

Sky Quarry, Inc. and its subsidiaries (“Sky Quarry”, “SQI” or the “Company”) is a domestic refining and resource development company. Through its Foreland Refinery Corp wholly owned subsidiary located near Ely, Nevada, the Company operates the only licensed permitted crude oil refinery in that state servicing the crude oil supply in the Uintah basin. For over 25 years, the refinery has produced diesel, vacuum gas oil (VGO), naphtha and asphalt for adjacent regional markets in the United States. Recent refinery shutdowns in California have highlighted fuel resiliency needs for this area which we intend to support and supply. Sky Quarry’s second wholly owned subsidiary known as 2020 Resources, LLC owns a development stage facility known as PR Springs near Vernal, Utah representing an opportunity to monetize further resources in the area for growth. For more information, visit www.skyquarry.com.

2.BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of Sky Quarry and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

These accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are not audited. Certain information and footnote disclosures that are usually included in the financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted in accordance with SEC rules and regulations. The accompanying condensed consolidated financial statements contain all the adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of June 30, 2026 and December 31, 2025, the results of operations for the three and six months ended June 30, 2026 and 2025, and the cash flows for the three and six months ended June 30, 2026 and 2025. The results of operations for the three and six months ended June 30, 2026 and 2025 are not necessarily indicative of the results for a full-year period. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC.

Significant Accounting Policies

The significant accounting policies were described in Note 1 to the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2025. There have been no changes to these policies during the quarter ended June 30, 2026, that are of significance or potential significance to the Company.

Recently Issued and Adopted Accounting Pronouncements

The Company has reviewed recently issued accounting standard updates and determined that all applicable standards have already been adopted, as disclosed in the Company’s previously filed Annual Report on Form 10-K. Accordingly, there are no new pronouncements requiring adoption in the current interim reporting period.

Reverse Stock Split

The Company effected the Reverse Stock Split (as defined below) on March 15, 2026, at 11:59 PM Eastern Time, and the split has been retroactively applied to all share and per share amounts presented in the financial statements. See Note 17 for additional information.

3.GOING CONCERN

These condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes that the Company will be able to realize its assets and satisfy its liabilities in the normal course of business for the foreseeable future. Management is aware, in making its going concern assessment, of material uncertainties related to events and conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. As of June 30, 2026, the Company has an accumulated deficit of $42,542,109. During the six months ended June 30, 2026, the Company had negative cash flows from operations of $5,413,699. The Company has received financing and capital through proceeds from sales of its common stock through an ATM offering of net proceeds of $12,539,949 and notes payable of $896,866 during the six months ended June 30, 2026.

Currently, repairs to the refinery have been completed and initial feedstock has been procured, subject to scale up operational testing and state inspection. As of the date of this report, the Foreland Refinery operations have not yet

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

restarted after a significant non-operating turnout period with no meaningful cash flow contributed to the Company during 2026 year to date. Without additional financing, the Company does not have sufficient operating cash flows to pay for its expenditures and settle its obligations as they mature. Subsequent to June 30, 2026, there is uncertainty in meeting these obligations. The Company does have to raise additional capital in the form of debt, equity and/or warrant exercise proceeds, or a combination thereof, to fund future capital expenditures, retire maturing debt obligations and any possible acquisitions. The Company’s current plan includes generating margin contribution from resumed refinery operations, closely monitoring its operating expenses, refinancing its current debt with longer term debt with amortization schedules that decrease monthly debt service obligations and utilizing equity offering proceeds where appropriate. These actions are intended to mitigate the going concern uncertainties and support the Company’s growth plans in commercializing its extraction technology. There is no assurance, however, that the Company will be successful in these efforts.

As of the date of this report, the Foreland Refinery operations have not yet restarted after a significant non-operating turnout period with no meaningful cash flow contributed to the Company during 2026 year to date. Without additional financing, the Company does not have sufficient operating cash flows to pay for its expenditures and settle its obligations as they mature. Subsequent to June 30, 2026, there is uncertainty in meeting these obligations. The Company does have to raise additional capital in the form of debt, equity and/or warrant exercise proceeds, or a combination thereof, to fund future capital expenditures, retire maturing debt obligations and any possible acquisitions. The Company’s current plan includes generating margin contribution from resumed refinery operations, closely monitoring its operating expenses, refinancing its current debt with longer term debt with amortization schedules that decrease monthly debt service obligations and utilizing equity offering proceeds where appropriate. These actions are intended to mitigate the going concern uncertainties and support the Company’s growth plans in commercializing its extraction technology. There is no assurance, however, that the Company will be successful in these efforts.

Management believes that the implementation of its plans will allow the Company to continue as a going concern. Investors are encouraged to review the financial statements and related disclosures for a comprehensive understanding of the Company’s financial position.

The condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption inappropriate. These adjustments could be material.

4.INVENTORY

Inventory consists primarily of raw crude, chemicals and finished goods. Inventory consisted of the following:

		Period Ended		Year Ended
		June 30, 2026		December 31, 2025
Finished goods	$	229,146	$	136,717
Raw materials		1,065,827		323,034
Chemicals		211,559		218,614
Total	$	1,506,532	$	678,365

5.MINERAL LEASES

Through its acquisition of 2020 Utah, the Company indirectly acquired certain mineral rights under three mineral leases entitled “Utah State Mineral Lease for Bituminous-Asphaltic Sands” between the State of Utah’s School and Institutional Trust Land Administration (“SITLA”), as lessor, and 2020 Utah, as lessee, covering certain lands in the PR Springs Area largely adjacent to each other (the “SITLA Leases”). The SITLA Mineral Lease consisted of the following and is included in property plant and equipment under capital projects started in the Condensed Consolidated Balance Sheets.

		SITLA Mineral Lease
Cost
December 31,2024	$	63,800
Additions		18,040
December 31,2025		81,840
Additions		426,000
June 30, 2026		507,840
Accumulated Amortization
June 30, 2026, 2025, and 2024		-

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)


Carrying Amounts
June 30, 2026	$	507,840

During the six months ended June 30, 2026, and year ended December 31, 2025, the Company did not record any amortization of the lease rights as operations have not yet commenced.

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company (through its subsidiary) holds mineral leases (or the operating rights under leases) covering approximately 5,880 net acres within the State of Utah. Terms of the SITLA Leases are set forth in the table below.

Oil and gas properties, located in the eastern Utah tar sands, includes undeveloped lands, unproved properties, research and development equipment, mining equipment and seismic costs where management has not fully evaluated for technical feasibility and commercial viability.

As of June 30, 2026, the Company holds oil and gas assets representing more than 10% of the total assets, which are primarily the PR Springs facility costs, which includes all direct costs incurred to acquire or construct the assets, including tanks, buildings, extraction processing equipment, shop, lab and equipment. The costs of the PR Springs facility under construction are capitalized as part of oil and gas properties. These costs include direct materials, labor,

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

and overhead attributable to the construction activities. As the facility is not yet operational, depreciation has not commenced. The construction project is classified as "construction in progress" until the PR Springs facility is placed into service. Once the asset is ready for its intended use, depreciation will begin based on its estimated useful life. The Company evaluates oil and gas properties for impairment in accordance with ASC 360-10-35. If indicators of impairment arise, the Company will assess the recoverability of the asset’s carrying value by comparing the asset’s carrying amount to the undiscounted future cash flows expected to be generated by the asset. If impairment is identified, the asset will be written down to its fair value. As of June 30, 2026, the Company has determined that there has been no impairment of the PR Springs facility under construction, as there are no indicators suggesting a decline in the asset's recoverable value. The Company has no proven reserves, and there have been no significant changes in reserves during the reporting period. The capitalized costs related to these oil and gas assets amount to $8,783,450 recorded at full cost, are not being depreciated and amortized as the facility is still under construction. Additions during the three and six months ended June 30, 2026 and 2025, relate to development and construction of the extraction facility at PR Springs There were no costs associated with well exploration during the periods ended the three and six months ended June 30, 2026 and 2025, respectively.

PR Springs has not commenced active extraction of reserves. Consequently, the Company is not required to provide reserve quantities or future cash flow disclosures in accordance with ASC 935-235-50-2. Based on our analysis of the asset group, we have determined that no impairment is necessary as of the reporting date. The carrying amounts of the development-stage extraction facility and related oil and gas properties are fully supported by projected future cash flows, which are derived from reasonable and supportable assumptions regarding commodity prices, expected production rates, and operating costs once the assets are operational. Additionally, no significant adverse changes in the economic environment, regulatory landscape, or project costs have occurred to suggest that the recoverable amount of these assets is less than their carrying value. As such, the assets continue to meet the criteria for capitalization, and no impairment loss has been recognized in accordance with ASC 360-10-35. Further, under ASC 932-360-35-19, the impairment analysis specifically considers the recoverability of costs capitalized for oil and gas properties in the development phase. As these costs are expected to be recoverable through future production, no impairment charge was required as of June 30, 2026 or June 30, 2025.

8.RIGHT-OF-USE ASSET AND LEASE LIABILITY

The Company currently leases office space, which are classified as operating leases under ASC 842.

The components of operating lease expense, associated with the Company’s leasing of office space, consisted of amortization of the right-of-use asset of $37,112 and $38,220 during the six months ended June 30, 2026 and 2025, respectively, and accretion of the lease liability of $780 and $4,781 for the six months ended June 30, 2026 and 2025, respectively.

The weighted average remaining lease term in years was 2.92 and 1.17 as of June 30, 2026 and 2025, respectively. The weighted average discount rate as of June 30, 2026 and 2025, was 11.90%.

Amortization expense on operating leases is included as part of general and administrative expenses on the income statement. The total lease expense recognized on the income statement is the sum of the accretion of the lease liability and amortization expense. This total expense reflects the cost of using the leased asset over the lease term.

The following table reconciles the undiscounted future cash flows for the next five years and thereafter to the operating lease liabilities recorded within the condensed consolidated balance sheet as of June 30, 2026:

On August 27, 2024, as consideration for the reduction of weekly payments to certain lenders during the Company’s Reg A Offering, the Company issued common stock warrants to purchase (“Purchase Warrant”) up to an aggregate of 78,125 shares of the Company’s common stock (the “Common Warrants”) at $4.50 per share.

The Purchase Warrant provides for a value calculation for the Purchase Warrant using the Black Scholes model in the event of certain fundamental transactions. The fair value calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined this provision introduces leverage to the holders of the Purchase Warrant that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrant as a liability in its condensed consolidated balance sheet. The classification of the Purchase Warrant, including whether the Purchase Warrant should be recorded as a liability or as equity, is evaluated at the end of each reporting period with changes in the fair value reported in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. The Purchase Warrant was initially recorded at a fair value at $1,936,937 at the grant date and is re-valued at each reporting date. Upon the issuance of warrants, the fair value of the Purchase Warrant liability was recorded as a loss on debt modification.

During the three and six months ended June 30, 2026, the Company recognized change in fair value of the warrant liability of $99,540 and $174,882, respectively. During the three and six months ended June 30, 2025, the Company recognized change in fair value of the warrant liability of $174,354 and $(100,626), respectively. As of December 31, 2025, the fair value of the warrant liability was $97,486.

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

All changes in the fair value of the warrant liabilities are recognized as a change in fair value of warrant liability in the Company’s consolidated statements of operations until they are either exercised or expire.

The warrant liabilities for the Common Warrants were valued using a Black Scholes pricing model with the following weighted average assumptions:

		June 30, 2026		December 31, 2025
Stock price		`3.67`		`1.76`
Risk-free interest rate		`4.19%`		`3.73%`
Expected volatility		`230%`		`139%`
Expected life (in years)		`3.16`		`3.65`
Expected dividend yield		`-`		`-`
Fair value of warrants	$	`272,368`	$	`97,485`

12. LINES OF CREDIT

		June 30, 2026		December 31, 2025
Invoice purchase and security agreement	$	1,614,049	$	1,453,737

On December 21, 2022, Foreland entered into an Invoice Purchase and Security Agreement (the “IPSA”) and inventory finance rider (the “Rider”) with Alterna Capital Solutions, LLC (“Alterna”). Under the terms of the IPSA, Alterna provides an advance of 85% of the amount of the purchased receivables to Foreland and during the time the receivables remain outstanding, is granted a continuing senior security interest in all assets of Foreland, to the extent and in the amount of the purchased receivables. The Rider provides a standby security for certain letters of credit in place with certain crude oil suppliers to Foreland. The letters of credit are adjusted periodically to correlate with the price and quantities of purchased heavy crude oil. The Agreement is senior secured by the sale-ready and pre-sale petroleum product inventory on hand at Foreland and matures on December 21, 2025. Funds drawn under the agreement accrue interest at a per annum rate equal to the sum of the Wall Street Journal Prime Rate of 7.50% plus 2.25%. In addition, a collateral monitoring fee of 0.17% on outstanding advances made is due monthly. Repayment of advances shall be payable from collection of Foreland accounts receivable, including those accounts arising from the sale of the inventory to its customers.

13.DEBT

Debt consisted of the following:

				Principal Balance		Principal Balance
Lender / Merchant	Maturity Date	Effective Interest Rate		June 30, 2026		December 31, 2025
Libertas 2026	February 14, 2028	8%	$	3,970,873	$	-
Private Lender A	November 24, 2025	30%		1,280,274		1,131,507
LendSpark #3	March 4, 2025	68%		555,650		555,650
ACMO USOS LLC	March 15, 2021	15%		191,699		191,699
Libertas #6	December 6, 2024	58%		-		2,388,381
Libertas #5	November 29, 2024	58%		-		1,187,082
Libertas #7	January 7, 2025	66%		-		379,675
LendSpark #4	December 4, 2024	68%		-		163,795
Libertas #4	September 12, 2024	68%		-		89,549
USA SBA	March 1, 2026	1%		-		6,313
				5,998,496		6,093,651
Less: Unamortized debt issuance costs				-		(917,708)
			$	5,998,496	$	5,175,943

As of June 30, 2026, the maturity date of debt is as follows:

The past due debt referred to above is owed to Private Lender A in the amount of $1,280,274, LendSpark in the amount of $555,650, and ACMO USOS LLC in the amount of $191,699. Provided that neither Libertas nor LendSpark

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Corporation commence foreclosure proceedings against us, we do not expect any adverse impact on our operations as a result of our past due debt.

The debt terms related to private lenders are as follows:

On June 29, 2026, Sky Quarry Inc. (the "Company”), together with Foreland Refining Corporation, a Texas corporation ("Foreland”), and 2020 Resources LLC ("2020 Resources,” and together with the Company and Foreland, the "Company Parties”), entered into a Conversion and Exchange Agreement (the "Exchange Agreement”) with Libertas Funding LLC, a Connecticut limited liability company ("Libertas”), pursuant to which the Company Parties converted, exchanged and cancelled $3,985,000 in aggregate outstanding merchant cash advance obligations (the "MCA Obligations”) owed to Libertas pursuant to (i) that certain Agreement of Sale of Future Receipts dated October 25, 2023, by and between Libertas and Foreland, for the sale of $1,731,660 of future sales receipts ("Libertas #4”), (ii) that certain Agreement of Sale of Future Receipts dated January 11, 2024, by and between Libertas and Foreland, for the sale of $2,632,852 of future sales receipts ("Libertas #5”), (iii) that certain Agreement of Sale of Future Receipts dated January 18, 2024, by and between Libertas and Foreland, for the sale of $4,224,000 of future sales receipts ("Libertas #6”), (iv) that certain Agreement of Sale of Future Receipts dated February 19, 2024, by and between Libertas and Foreland, for the sale of $1,386,000 of future sales receipts ("Libertas #7” and, together with Libertas #4, Libertas #5 and Libertas #6, the "MCA Agreements”), for the issuance by the Company Parties to Libertas a promissory note (the "Note”) in the original principal amount of $3,985,000. This note requires repayments over a period of 86 weeks of between $15,000 and $70,000 per week.

Upon issuance of the Note, the MCA Obligations and MCA Agreements were fully and irrevocably satisfied, cancelled and extinguished. Libertas provided a general release of all claims against the Company Parties arising out of or related to the MCA Agreements.

On July 24, 2025, the Company entered into a business loan with KF Business Ventures, LP (private lender A) in the amount of $1,000,000. This loan carries a rate of 30% and matures on November 24, 2025 and is secured by all assets of 2020 Resources. As an inducement for advancing the note, the lender was issued 62,500 shares valued at the market price of $5.50 per share in addition to 250,000 share purchase warrants, each granting the holder the right to purchase one common share of the company at a price of $5.60 per share for a period of five years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants and shares issued were recorded separately as debt discount and amortized over the term of the debt.

On March 4, 2026, KF Business Ventures, LP (private lender A) filed a lawsuit against the Company and its subsidiaries, Foreland Refining Corp. and 2020 Resources LLC, in Utah state court alleging, among other things, breach of contract, and seeking repayment of approximately $2,200,000 in principal under certain promissory notes, plus accrued interest, unpaid advisory fees, and foreclosure on the collateral securing the notes. The Company intends to vigorously defend against these claims. For additional information, see Part II, Item 1, “Legal Proceedings.”

On September 9, 2025, Foreland entered into a one-month forbearance agreement with LendSpark Corporation to forebear foreclosing the debt from August 1, 2025, to August 31, 2025, in exchange for 12,500 shares of Sky Quarry common stock. The expense was recognized as interest in September 2025, with a value of $61,270 based on recent common stock sales for cash of $4.90 per share.

On May 16, 2024, Foreland entered into a business loan and security agreement with LendSpark Corporation for a loan in the amount of $900,000 (LendSpark #4”). The loan is repaid in 40 equal weekly payments of $30,750 for total repayment of $1,215,000. The loan is secured by all of the assets of Foreland. As inducement for advancing the note, the lender was issued 12,500 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $36.00 per share for a period of three years from the issuance date of the warrants. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. On April 25, 2025, as an inducement to negotiate and enter into a forbearance agreement the amount owing was increased by $32,108. This forbearance expired August 31, 2025.

On April 30, 2024, Foreland entered into a business loan and security agreement with LendSpark Corporation for a loan in the amount of $1,500,000 (LendSpark #3”). The loan is repaid in 44 equal weekly payments of $45,000 for total repayment of $1,980,000. The loan is secured by all the assets of Foreland. Subsequent to April 30, 2024, as inducement to a reduction in payment the lender was issued 31,250 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $36.00 per share for a period of five years from the issuance date of the warrant. The warrants were classified as liabilities and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. Subsequent to December 31, 2024, as inducement to a reduction in payment the warrant agreement was amended to reduce the price to $11.20 per share and the incremental fair value warrants were recorded to debt issuance costs.

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

LIABILITY FOR SALE OF FUTURE REVENUES

As of June 30, 2026, the Company is party to several agreements related to the sale of future revenues with Libertas Funding, LLC (“Libertas”), a total of four agreements remain outstanding and four agreements have been terminated. The agreements, summarized below, contain substantially the same terms and conditions and grant a continuing security interest in all assets of Foreland, to the extent and in the amount of the purchased receivables.

Interest and discounts related to the agreements are amortized to expense over the estimated term of the agreements, which is anticipated to be between 10 to 12 months from the funding of each agreement. During the six months ended June 30, 2026, the Company amortized an aggregate of $941,618 discount, respectively, to interest expense. Unamortized interest and discounts in the aggregate is $0 as of June 30, 2026. As inducement to a reduction in payment the lender was issued 4,688 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $36.00 per share for a period of five years from the issuance date of the warrant. The warrants were classified as debt and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. On December 30, 2024, as further inducement to a reduction in payment the warrant agreement was amended to reduce the price to $6.64 per share.

On February 19, 2024, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $1,386,000 of future sales receipts (“Libertas #7”) for gross proceeds of $1,018,500. Under the agreement, Foreland will make weekly delivery of receivables not less than $30,000 until the amount sold is extinguished. As of June 30, 2026, a total of $0, exclusive of debt discounts, remained outstanding.

On January 18, 2024, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $4,224,000 of future sales receipts (“Libertas #6”) for gross proceeds of $3,300,000, of which $884,667 was used to pay off the Libertas September 14, 2023, agreement. Under the agreement, Foreland will make weekly delivery of receivables not less than $91,429 until the amount sold is extinguished. As of June 30, 2026, a total of $0, exclusive of debt discounts, remained outstanding.

On January 11, 2024, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $2,632,852 of future sales receipts (“Libertas #5”) for gross proceeds of $2,056,916, of which $796,916 and $1,260,000 was used to pay off the Libertas May 17, 2023, and June 30, 2023, agreements respectively. Under the agreement, Foreland will make weekly delivery of receivables not less than $56,988 until the amount sold is extinguished. As of June 30, 2026, a total of $0, exclusive of debt discounts, remained outstanding.

On October 25, 2023, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $1,731,660 of future sales receipts (“Libertas #4”) for gross proceeds of $1,302,000. Under the agreement, Foreland will make weekly delivery of receivables not less than $37,482 until the amount sold is extinguished. As of June 30, 2026, a total of $0, exclusive of debt discounts, remained outstanding.

As of June 30, 2026, the Company had the following unamortized debt discounts related to the Libertas agreements:

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2026, the maturity date of the mandatorily redeemable preferred shares is as follows:

Due in less than one year	$	`-`
Due in more than one year		`513,300`
Less: Unamortized debt issuance costs		`(27,461)`
	$	`485,839`

On July 22, 2025, Foreland received $159,211 (net of fees and holdback) in funding from issuance of preferred stock in Foreland Refinery of $179,500. The company issued 1,795 of preferred shares in Foreland Refining valued at the market price of $100 per share which are automatically redeemed after five years. This agreement has a term of 5 years, with interest/dividends accrued annually at a rate of 10%.

On August 7, 2025, Foreland received $103,856 (net of fees and holdback) in funding from issuance of preferred stock in Foreland Refinery of $117,500. The company issued 1,175 of preferred shares in Foreland Refining valued at the market price of $100 per share which are automatically redeemed after five years. This agreement has a term of 5 years, with interest/dividends accrued annually at a rate of 10%.

On October 1, 2025, Foreland received $107,120 (net of fees and holdback) in funding from issuance of preferred stock in Foreland Refinery of $118,200. The company issued 1,182 of preferred shares in Foreland Refining valued at the market price of $100 per share which are automatically redeemed after five years. This agreement has a term of 5 years, with interest/dividends accrued annually at a rate of 10%.

On November 21, 2025, Foreland received $52,199 (net of fees and holdback) in funding from issuance of preferred stock in Foreland Refinery of $42,500. The company issued 425 of preferred shares in Foreland Refining valued at the market price of $100 per share which are automatically redeemed after five years. This agreement has a term of 5 years, with interest/dividends accrued annually at a rate of 10%.

On December 26, 2025, Foreland received $53,551 (net of fees and holdback) in funding from issuance of preferred stock in Foreland Refinery of $55,600. The company issued 556 of preferred shares in Foreland Refining valued at the market price of $100 per share which are automatically redeemed after five years. This agreement has a term of 5 years, with interest/dividends accrued annually at a rate of 10%.

In July 2025, the Company’s wholly-owned subsidiary, Foreland Refining Corporation ("Foreland”), commenced an offering of its Series A 10% Redeemable Preferred Stock ("Preferred Stock”) pursuant to Regulation Crowdfunding ("Reg CF Offering”).

Pursuant to the terms of the Reg CF Offering, Foreland is offering up to $1,235,000 of its Preferred Stock at a price of $100.00 per share. The material terms of the Preferred Stock are set forth below:

The Preferred Stock carries an annual dividend payment of ten percent (10%) ("Preferred Dividend”). The dividend on the Preferred Stock shall accrue, beginning from the date of issuance. Preferred Dividends shall be computed on the basis of the actual number of days elapsed and a 365-day year. The Preferred Dividends shall accrue and be paid to the holder of the Preferred Stock within fifteen (15) days of the end of each calendar year. The Preferred Stock will be senior preferred equity of Foreland and contain customary provisions restricting the payment of dividends on, and the repurchase of, junior and pari passu equity at any time when all Preferred Dividends on the Preferred Stock have not been paid in full in cash.

The Preferred Stock is not convertible into shares of Foreland’s common stock and does not have any voting rights.

Holders of the Preferred Stock shall receive a royalty of $0.75 (for every $1 million of Preferred Stock, prorated for lesser amounts) per barrel of crude oil refined and sold by Foreland, at all times, while the Preferred Stock is outstanding ("Royalty Payment”). The Royalty Payment shall be paid to the holders of the Preferred Stock within thirty (30) days of Foreland’s annual financial statements being audited and filed with the SEC as part of its parent company’s, Sky Quarry Inc. ("Sky Quarry” or "Parent Company”), obligations to file a Form 10-K with the SEC ("Royalty Payment Date”). The amount of the annual Royalty Payment shall not exceed an aggregate return of more than twenty-five percent (25%) per annum to the holders of the Preferred Stock, inclusive of the annual 10% Preferred Dividend.

The Preferred Stock shall be redeemed by Foreland on the date that is five (5) years after the date of issuance ("Automatic Redemption Date”) at a price equal to the liquidation preference. If the Preferred Stock is redeemed prior to the Automatic Redemption Date between the date of issuance and the date that is: (i) thirty-six (36) months thereafter, the Preferred Stock may be redeemed by Foreland in whole or in part in its sole discretion at a price equal to 110% of the liquidation preference; (ii) between thirty-six (36) months and forty-eight (48) months after the issuance of the Preferred Stock, the Preferred Stock may be redeemed by Foreland in whole or in part in its sole

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

discretion at a price equal to 105% of the liquidation preference; or (iii) between forty-eight (48) months after the issuance of the Preferred Stock and the Automatic Redemption Date, the Preferred Stock may be redeemed by Foreland in whole or in part in its sole discretion at a price equal to 103% of the liquidation preference. If the Preferred Stock is redeemed prior to the Automatic Redemption Date, the holder of the Preferred Stock shall be entitled to their Royalty Payment through the date of redemption.

14. CONVERTIBLE DEBENTURES

On May 16, 2024, Foreland entered into a business loan and security agreement with LendSpark Corporation for a loan in the amount of $900,000 (LendSpark #4). The loan is repaid in 40 equal weekly payments of $30,750 for total repayment of $1,215,000. The loan is secured by all of the assets of Foreland. As an inducement for advancing the note, the lender was issued 12,500 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $36.00 per share for a period of three years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. On April 25, 2025, as an inducement to negotiate and enter into a forbearance agreement the amount owing was increased by $32,108. This forbearance expired August 31, 2025. On December 11, 2025, the Company issued 87,498 shares of its common stock ("Initial Shares”) to LendSpark Corporation ("LendSpark”) pursuant to the terms of a settlement agreement entered into between the Company and LendSpark on December 1, 2025 ("Settlement Agreement”). The Settlement Agreement settled $491,384 due and owing from Foreland Refining Corporation, the Company’s wholly-owned subsidiary, to LendSpark pursuant to the terms of the business loan and security agreement dated May 16, 2024. In addition to the Initial Shares, LendSpark is entitled to the issuance of an additional 87,498 shares of its common stock ("Additional Shares”) in full settlement of all amounts due to LendSpark pursuant to the terms of the Settlement Agreement. The Company also issued an additional 8,750 shares of its common stock to LendSpark for fees incurred by LendSpark in connection with the settlement. All the shares described above were issued pursuant to Section 3(a)(10) of the Securities Act. On January 6, 2026, LendSpark Corp. converted $245,692 of an amount due to them by the Company into 87,498 shares of our common stock.

On December 2, 2024, the Company entered into a promissory note for $1,200,000 from private lender A. The Note is convertible into shares of our common stock at a conversion price of $6.72 per share at any time after the issuance date of the Note. As an inducement for advancing the note, the lender was issued 150,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $6.72 per share for a period of five years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and are being amortized over the term of the debt. The Company also amended previous warrant agreements dated April 6, 2023, June 19, 2024, and August 27, 2024, agreeing to extend the exercise period to five years from the issuance date of the amendment. On April 24, 2025, as an inducement for extending the maturity date to June 2, 2025, the Company agreed to reduce the exercise price of each of the warrants to $5.60 per share and agreeing the default rate of interest of the Note be calculated retroactively to December 2, 2024. This note matured on November 24, 2025.

On November 24, 2023, the Company issued a promissory note in the amount of $2,000,000, convertible at the election of the holder into shares of common stock at an exercise price of $36.00 post reverse split, with a maturity date of November 24, 2026. The note has a term of thirty-six months and bears interest at a rate of 9% per annum payable semi-annually, with any outstanding interest and principal due on maturity. On April 30, 2024, the note holder elected to convert the accumulated interest as of December 31, 2023, totaling $18,247 to 476 shares of common stock, and on June 30, 2024, elected to convert the accumulated interest from January 1, 2024, to June 30, 2024, totaling $89,260 to 2,325 shares of common stock.

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

On April 16, 2025, the Company issued a promissory note in the amount of $100,000 to private lender D, convertible at the election of the holder into shares of common stock at an exercise price of eighty percent (80%) of the lowest trading price of the common stock during the ten (10) consecutive trading days including and immediately preceding the conversion date, subject to a floor price of $3.20 per share in replacement of current debt. On May 5, 2025, the note holder elected to convert $79,197 of debt and the accumulated interest as of May 5, 2025, totaling $21,292 into 5,000 shares of common stock. On January 5, 2026, the holder elected to convert $49,974.02 of a promissory note into 18,816 shares of common stock.

On May 22, 2025, the Company entered into a promissory note for $150,000 from private lender E. The note is unsecured, bears interest at a rate of 12% per annum, with a maturity date of May 22, 2027. As consideration for advancing the note, the lender was issued warrants to purchase up to 7,500 shares of common stock at a price of $10.00 per share for a period of two years from the date of issuance. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. The promissory note can be converted into common stock of the Company at the holder’s option at a price of $10.00 per share.

On July 21, 2025, the Company entered into a promissory note for $125,000 from private lender E. This note is unsecured, and bears interest at a rate of 12% per annum, with a maturity date of July 21, 2027. As consideration for advancing the note, the lender was issued 6,250 warrants with each warrant granting the holder the right to purchase one common share of the Company at a price of $5.04 per share for a period of two years from the date of issuance. The warrants were classified as equity and the fair value of the warrants were recorded separately as a debt discount and amortized over the term of the debt. The promissory note can be converted into common stock of the Company at the holder’s option at a price of $5.04 per share.

On August 29, 2025, the Company entered into a promissory note for $175,000 from private lender E. This note is unsecured, and bears interest at a rate of 12% per annum, with a maturity date of August 29, 2027. As consideration for advancing the note, the lender was issued 5,000 shares purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $4.08 per share for a period of two years from the date of issuance. The warrants were classified as equity and the fair value of the warrants were recorded separately as a debt discount and amortized over the term of the debt. The promissory note can be converted into common stock of the Company at the holder’s option at a price of $4.08 per share.

On October 21, 2025, the Company entered into a promissory note for $100,000 from private lender E. This note is unsecured, and bears interest at a rate of 12% per annum, with a maturity date of April 10, 2026 or the Company’s completion of the sale of a minimum of $5,000,000 of its equity securities. As consideration for advancing the note, the lender was issued 8,750 shares purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $3.84 per share for a period of two years from the date of issuance. The warrants were classified as equity and the fair value of the warrants were recorded separately as a debt discount and amortized over the term of the debt. The promissory note can be converted into common stock of the Company at the holder’s option at a price of $3.84 per share.

On April 8, 2026, Company convertible note holder Varie Asset Management, LLC elected to convert $125,000 of the principal and $11,100 of its interest due on the Note issued by Sky Quarry Inc. (“Borrower”) on July 21, 2025, into 34,025 shares of our common stock.

On April 8, 2026, Company convertible note holder Varie Asset Management, LLC elected to convert $150,000 of the principal and $16,557 of its interest due on the Note issued by Borrower on May 22, 2025, into 41,640 shares of our common stock.

On April 13, 2026, Company convertible note holder Varie Asset Management, LLC elected to convert $175,000 of the principal and $13,308 of its interest due on the Note issued by Borrower on August 29, 2025, into 49,039 shares of our common stock.

On May 7, 2026, Company convertible note holder Varie Asset Management, LLC elected to convert $100,000.00 of the principal and $6,659 of its interest due on the Note issued by Borrower on October 21, 2025, into 30,301 shares of our common stock.

15.INCOME TAXES

As of June 30, 2026, the Company had U.S. federal net operating loss carryforwards.

The Company considered all positive and negative evidence. Given the caution of Subtopic 30-21 regarding the difficulty in forming a conclusion that a valuation allowance is not needed in the case of cumulative losses, it is the Company’s conclusion that it is more likely than not that the Company’s existing deferred tax assets in the U.S. will

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

not be realized and that a valuation allowance is necessary as of June 30, 2026. Accordingly, the Company has recorded a full valuation allowance of in the U.S. The Company has evaluated all the negative and positive evidence as of June 30, 2026, and concludes that due to the Company being in a 3-year cumulative loss position, it is more likely than not that the net Canadian deferred tax assets will be not realized. As such, the Company has recorded and maintained a full valuation allowance in Canada.

The Company has not performed a Section 382 study to determine whether it had experienced a change in ownership and, if so, whether the tax attributes (net operating losses or credits) were impaired. Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s ability to utilize net operating loss or other tax attributes, such as research tax credits, in any taxable year may be limited if the Company has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if there is a cumulative increase of more than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who own at least 5% of a corporation’s stock within a specified testing period. Similar rules may apply under state tax laws.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted this for the year ended December 31, 2025.

As of June 30, 2026, and December 31, 2025, the Company does not have any unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2026 and December 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions.

16.NET LOSS PER COMMON SHARE

Net loss per common share is computed based on the weighted average number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, convertible preferred stock and warrants are considered to be potential common stock. The computation of diluted net loss per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Basic net loss per common share is the amount of net loss for the period available to each weighted average share of common stock outstanding during the reporting period. Diluted net loss per common share is the amount of net loss for the period available to each weighted average share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an anti-dilutive effect.

All outstanding options, warrants and convertible preferred stock for common shares are not included in the computation of diluted net loss per common share because they are anti-dilutive, which for six months ended June 30, 2026 and 2025, totaled 862,979 and 1,054,827, respectively.

17.EQUITY

During the six months ended June 30, 2026 and 2025, the Company issued 342,624 and 366,828 shares of common stock for non-cash payments of accounts payable of $905,423 and $1,330,599, respectively. During the six months ended June 30, 2026 and 2025, the Company issued 224,787 and 18,542 shares of common stock, for conversion of debt, amounting to $811,359 and $192,573 net of offering costs of $0, respectively.

During the six months ended June 30, 2026 and 2025, the Company issued 4,781,795 and 0 shares of common stock, respectively, for acceptance of share subscriptions, amounting to $13,907,446 and $0 net of offering costs of $1,367,497 and $0, respectively. These costs consisted of legal, marketing, accounting, printing, administration, broker-dealer, escrow and filing fees directly related to their respective offerings.

On June 14, 2024, the SEC qualified an offering of securities submitted by the Company under Regulation A (the “2024 Reg A Offering”). Under the 2024 Reg A Offering, the Company proposed to sell up to 416,667 shares (“Shares”) at a price of $48.00 per Share, and up to 606,528 shares of common stock underlying warrants issued in the Company’s 2021 Reg A Offering, exercisable at a price of $36.00 per warrant.

On March 5, 2026, the Company filed its Certificate of Amendment to the Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of Delaware to (i) effect on the corporate level a one-for-eight (1-for-8) reverse stock split (the “Reverse Stock Split”) of the Company’s shares of Common Stock, par value $0.0001 (the “Common Stock”). The reverse stock split was effective on March 15, 2026, at 11:59pm Eastern Time and the split has been retroactively applied to all share and per share amounts presented in the financial statements.

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Common Stock began trading on a Reverse Stock Split-adjusted basis on the Nasdaq Capital Market on March 16, 2026. The trading symbols for the Common Stock will remain “SKYQ”. The next CUSIP number for the Common Stock following the Reverse Stock Split is 83087C303.

As a result of the Reverse Stock Split, every eight (8) shares of the pre-split issued and outstanding shares of Common Stock automatically converted into one (1) post-split share of Common Stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, registered stockholders who would be entitled to receive fractional shares of Common Stock because they held a number of shares not evenly divisible by the Reverse Stock Split ratio had their fractional share rounded up to the nearest whole number of shares of Common Stock. No cash was paid in lieu of fractional shares.

The Reverse Stock Split had no effect on the number of authorized shares of Common Stock nor the par value of the Common Stock. The Reverse Stock Split affected all stockholders uniformly and did not affect any stockholder’s ownership percentage of the Company’s shares of Common Stock (except to the extent that the Reverse Stock Split resulted in some of the stockholders’ fractional shares being rounded up).

On April 8, 2026, Company convertible note holder Varie Asset Management, LLC elected to convert $125,000 of the principal and $11,099.80 of its interest due on the Note issued by Borrower on July 21, 2025, into 34,025 shares of our common stock.

On April 8, 2026, Company convertible note holder Varie Asset Management, LLC elected to convert $150,000 of the principal and $16,556.93 of its interest due on the Note issued by Borrower on May 22, 2025, into 41,640 shares of our common stock.

On April 13, 2026, Company convertible note holder Varie Asset Management, LLC elected to convert $175,000 of the principal and $13,308.03 of its interest due on the Note issued by Borrower on August 29, 2025, into 49,039 shares of our common stock.

On April 22, 2026, in connection with its At-the Market Program (the “ATM Program”), the Company entered into that certain Amended and Restated Sales Agreement (the “A&R Sales Agreement”) with Muriel Siebert & Co., LLC (“Siebert” or the “Agent”), pursuant to which Siebert replaced Cantor Fitzgerald & Co. (“Cantor”) as the principal and/or the sole designated sales agent. The material terms and conditions of the Sales Agreement, dated January 12, 2026, by and between the Company and Cantor otherwise remain unchanged.

On April 22, 2026, in connection with its ATM Program, the Company filed a prospectus supplement with the SEC, updating the aggregate sales price to up to $12,600,000, pursuant to the A&R Sales Agreement. As of June 28, 2026 the Company issued 822,764 shares of common stock through Siebert under the ATM Program, generating net proceeds to the Company of $4,803,278.

On May 27, 2026 the Compensation Committee of the Board of Directors granted and the Company issued a total of 199,500 shares of its common stock to its Directors and eight other employees of the Company pursuant to the Company’s 2020 Stock Plan.

On June 18, 2026, the Company issued 300,000 shares of its restricted common stock in connection with executing an advisory and consulting agreement with Quantum PR OU for a six month engagement.

From April 23, 2026 until June 24, 2026, under the previously announced ATM equity sales program, the Company issued 4,355,652 shares of common stock and received net proceeds after offering expenses of $12,221,999 during the second quarter. The proceeds were allocated for working capital purposes.

The table below sets forth the shares reserved as of June 30, 2026, by the Company for future potential issuance.

	Maximum Issuable
Company Stock Option Plan	500,000

Common Share Purchase Warrants issued	790,833
Shares issuable on exercise of outstanding Offering Warrants issued under the Reg A Offering	0
Shares issuable on exercise of outstanding Brokers Warrants issued under the Reg A Offering	6,065
Reservation for conversion of maximum issuable common shares	416,667
Shares issuable on exercise of outstanding Brokers Warrants issued under the Reg A Offering	3,214
Reservation for convertible note	328,539
TOTAL SHARES RESERVED FOR ISSUANCE	2,045,318

Sky Quarry Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

On June 14, 2024, the Company entered into an engagement agreement with Digital Offering, LLC to provide broker-dealer services in connection with the 2024 Reg A Offering. Under the terms of the engagement letter, the Company will issue a warrant to purchase one share of the Company’s common stock (an “Agent Warrant”) equal to 2.30% of the total Shares sold to investors under the offering at an exercise price of $7.50 per share and subject to transfer, lock-up and exercise restrictions as set forth in Rule 5110 of the Financial Industry Regulatory Authority, Inc (“FINRA”), as applicable. The 2024 Reg A Offering closed on October 9, 2024, and 25,714 Agent Warrants were issued to Digital Offering, LLC in connection with its services under the 2024 Reg A Offering.

As of June 30, 2026, the Company had a total of 796,987 warrants issued and outstanding each to purchase one share of common stock, exercisable at a range from $60 to $3.84 per share for cash and a range length of time to exercise from 0.8 to 5 years. There were 800,113 warrants to purchase common stock outstanding as of December 31, 2025.

18.STOCK OPTION PLAN AND RESTRICTED SHARE AWARDS

On March 27, 2020, the Company adopted an incentive stock option plan (the “Plan”). The Plan allows the Board of Directors of the Company to grant restricted shares and options to acquire shares of common stock of the Company to directors, officers, key employees and consultants. The option price, term and vesting periods are determined at the discretion of the Board of Directors, subject to certain restrictions as required by the policies of Section 422 of the Internal Revenue Code. The Plan is a fixed number plan with a maximum of 208,334 shares of common stock reserved for issuance under the Plan.

On September 7, 2024, the Company amended the 2020 Stock Plan to increase the number of shares of common stock of the Corporation available for grant under the plan from 208,334 (as adjusted for the 1 for 3 reverse split) to 500,000. On November 4, 2025, the Company’s shareholders approved the amendment to the 2020 Stock Plan.

The table below sets forth share options outstanding as of June 30, 2026.

		Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
		June 30, 2026		June 30, 2025		June 30, 2026		June 30, 2025
Executive compensation	$	1,029,027	$	773,061	$	1,537,760	$	1,406,691
Professional fees		623,765		498,987		1,076,313		1,464,073
Insurance		112,620		160,918		244,656		323,693
Lease and utilities		50,196		55,335		94,649		114,610
Travel		23,410		46,744		60,590		104,148
Licenses		24,326		14,102		44,455		15,165
Other general and administrative		19,063		35,534		32,662		60,888
Bank charges		4,549		1,501		9,107		6,924
Auto		-		34,514		-		58,234
	$	1,886,956	$	1,620,696	$	3,100,192	$	3,554,426

		Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
		June 30,		June 30,		June 30,		June 30,
		2026		2025		2026		2025
Net sales	$	-	$	4,541,472	$	383	$	10,874,439
Cost of goods sold		685,601		4,658,440		1,075,202		11,717,499
Gross margin		(685,601)		(116,968)		(1,074,819)		(843,060)

Operating expenses:
General and administrative		1,886,956		1,620,696		3,100,192		3,554,426
Depreciation and amortization		1,649		2,916		3,859		4,944
Total operating expenses		1,888,605		1,623,612		3,104,051		3,559,370

Loss from operations		(2,574,206)		(1,740,580)		(4,178,870)		(4,402,430)

Other income (expense):
Interest income or (expense)		(349,476)		(318,708)		(683,465)		(1,191,176)
Gain (loss) on extinguishment of debt		(1,015,345)		29,093		(1,284,741)		(56,660)
Gain or (loss) on warrant revaluation		(99,540)		(174,354)		(174,882)		100,626
Other income (expense)		(16,809)		(4,101)		(53,663)		3,376
Gain on disposal of assets		-		-		-		3,920
Other expense, net		(1,481,170)		(468,070)		(2,196,751)		(1,139,914)

Loss before provision for income taxes		(4,055,376)		(2,208,650)		(6,375,621)		(5,542,344)

Provision for income taxes		-		-		-		-

Net loss		(4,055,376)		(2,208,650)		(6,375,621)		(5,542,344)

Other Comprehensive Loss
Exchange loss on translation of foreign operations		(4)		(2,097)		(6)		(1,675)

Net loss and comprehensive loss		(4,055,380)		(2,210,747)		(6,375,627)		(5,544,019)

Loss per common share
Basic and diluted	$	(0.77)	$	(0.82)	$	(1.44)	$	(2.17)
Weighted average shares outstanding
Basic and diluted		5,257,807		2,698,677		4,412,662		2,552,812

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

24.SUBSEQUENT EVENTS

Management performed a review and determined that, except as disclosed elsewhere herein and below, no material events occurred subsequent to June 30, 2026 through the date of the presentation of these financial statements.

On July 6, 2026, the Company issued an aggregate of 49,195 shares of its restricted common stock to Bengt Eriksson for interest due in the amount of $104,293 for the period between July 1, 2025 and December 31, 2025 pursuant to the convertible promissory note dated November 24, 2023 based on the Nasdaq official closing price of the Corporation’s common stock of $2.12 per share on July 6, 2026;

On July 15, 2026, the Board of Directors (the "Board”) of Sky Quarry Inc. (the "Company”), upon the recommendation of the Compensation Committee of the Board, approved a one-time, discretionary cash award in the amount of $100,000 (the "Executive Supplemental Award”) to Marcus Laun, in recognition of his service as the Company’s President, interim Chief Executive Officer and interim Chief Financial Officer and his leadership in guiding the Company through its growth initiatives. The Executive Supplemental Award is a lump-sum cash payment approved by the Board outside of, and in addition to, the Company’s annual incentive compensation program. The Company also paid $175,000 to each of its three independent directors for Board services, and $125,000 to its executive Chairman.

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to our unaudited condensed consolidated financial statements, which appear elsewhere in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2026.

Overview

We operate a regional refinery (the Eagle Springs Refinery) producing diesel, VGO, naphtha and liquid paving asphalt from crude oil supplied from the Uintah basin near Ely, Nevada. In addition to our goal of growing the refinery, we have a separate division in the development-stage (PR Springs) formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated sands and soils, providing sustainable refined crude products. We anticipate several benefits from the recycling and production of oil from asphalt shingles reducing the dependence on landfills for the disposal of waste and reducing dependence on foreign oil.

We have developed a process for separating oil from oily sands and other oil-bearing solids utilizing a proprietary solvent, which we refer to as our ECOSolv technology or the ECOSolv process. The solvent is used in a closed-loop distillation and evaporation circuit which results in up to 99% of the solvent being recoverable for continuous reuse and requires no water. The solvent has demonstrated oil separation rates of up to 95% in bench testing using samples of both mined crushed ore and ground asphalt shingles. Bench testing was conducted in house, and through unaffiliated third parties which were completed in May and August 2022.

Currently, we intend to finish retrofitting our oil sands remediation facility located in PR Springs in eastern Utah in the 2027 calendar year when the necessary funding is obtained to recycle waste asphalt shingles using our ECOSolv technology, to produce and sell oil as well as asphalt paving aggregate mined from our bitumen deposit.

We intend to continue to develop regional model asphalt shingle recycling facilities, which can be deployed in areas with high concentrations of waste asphalt shingles and near asphalt shingle manufacturing centers. Our design contemplates a modular, scalable, purpose-built facility capable of remediating waste asphalt shingles and separation into their base components of bitumen / asphalt cement, shingle granules, sand aggregate, limestone and fiberglass.

The Company has a single segment reporting approach given all revenues are generated from Foreland Refining products. The Company anticipates the possibility of segmental reporting in the future in connection with alternative revenue streams and cost centers.

Reverse Stock Split

We filed a Certificate of Amendment to our Certificate of Incorporation with the State of Delaware on March 5, 2026 to effect a one-for-eight (1-for-8) reverse stock split (the “Reverse Stock Split”) of our shares of common stock, par value $0.0001 (the “Common Stock”). The Reverse Stock Split was effective on March 15, 2026, at 11:59 PM Eastern Time.

All historical share and per-share amounts reflected throughout the consolidated financial statements and our discussions herein in this Item 2 have been adjusted to reflect the Reverse Stock Split.

ATM Program

On April 22, 2026, the Company replaced Cantor Fitzgerald & Co. with Muriel Siebert & Co., LLC (“Siebert” or the “Agent”) as the principal and/or the sole designated sales agent and updated the size of the program to up to $12,600,000. As of June 30, 2026, the Company issued 4,781,795 shares of common stock through its ATM sales agents, generating net proceeds of $12,539,949.

Exclusivity Agreement

In March 2026, the Company entered into an exclusivity agreement (the “Exclusivity Agreement”) with a counterparty in connection with the Company’s evaluation of a potential transaction involving the acquisition of digital infrastructure assets (the “Potential Transaction”). No definitive terms have been agreed upon, and the Company has not entered into any definitive agreement with respect to the Potential Transaction.

Plant Outages and Maintenance

Our facilities require ongoing maintenance and from time-to-time certain repairs, improvements and retrofitting, which may require us to temporarily shut down or operate at a diminished capacity. Our Eagle Springs refinery operated by Foreland Refinery Corporation experienced a shut down during the fourth quarter of 2025 and first half of 2026 in connection with a boiler repair and related items. Currently, repairs to the refinery have been completed and initial feedstock has been procured, subject to scale up operational testing and state inspection. The unscheduled repairs and outages at Foreland’s Eagle Springs Refinery have had a negative impact on our final financial results for the third and fourth quarters of 2025, and financial results for the first and second quarters of 2026. We expect the facility to be operational by the end of the third quarter of 2026.

Our Financial Condition and Going Concern Issues

As a result of our financial condition, we have included in our condensed consolidated financial statements as of June 30, 2026 and December 31, 2025, and for the three and six months ended June 30, 2026 and 2025, a note indicating that there is significant doubt about the Company’s ability to continue as a going concern. The opinion on the December 31, 2025 audited financial statements from our independent registered public accounting firm for those statements also includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. From inception (June 4, 2019) through June 30, 2026, we have incurred accumulated net losses of $42,542,109. To address our going concern, we aim to increase revenues by securing greater volumes of crude oil for our Foreland refinery, which should enhance our contribution margin. Additionally, we are pursuing opportunities to reduce debt service through refinancing or repayment of existing obligations, establish strategic partnerships, and raise capital through equity or debt offerings, or a combination of these actions. Given our current revenue and cash usage levels, we have pressing working capital needs that necessitate raising funds through equity or debt issuance, coupled with efforts to boost revenue and control operating expenses. However, there is no guarantee that we will be able to raise sufficient capital, grow revenues, and generate the cash flow needed to meet our operating expenses and capital requirements effectively.

Special Notes Regarding Smaller Reporting Company Status

We are filing this report as a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). As a result of being a smaller reporting company, we are allowed and have elected to omit certain information from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate.

Results of Operations for the three and six months ended June 30, 2026 and 2025

Introduction

This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three and six months ended June 30, 2026 and 2025, respectively. We have derived this data from our unaudited interim condensed consolidated financial statements included in this Quarterly Report.

We had net sales of $0 and $383 for the three and six months ended June 30, 2026, compared to $4,541,472 and $10,874,439 for the three and six months ended June 30, 2025. Our cost of goods sold for the three months ended June 30, 2026, were $685,601, compared to $4,658,440 for the three months ended June 30, 2025. Year to date cost of goods sold of $1,075,202 for the six months ended June 30, 2026, compared to $11,717,499 for the six months ended June 30, 2025. Cost of goods sold does not change directly with sales due to certain fixed-cost allocations across significantly lower production barrels. The significant decrease in our sales was the direct result of the Company’s challenges associated with the outage of our Eagle Springs refinery.

Our operating expenses were $1,888,605 for the three months ended June 30, 2026, compared to $1,623,612 for the three months ended June 30, 2025. Year to date operating expenses were $3,104,051 for the six months ended June 30, 2026, compared to $3,559,370 for the six months ended June 30, 2025. Our operating expenses consisted of general and administrative, and depreciation and amortization.

Net Sales and Net Loss

Our net sales, costs of goods sold, gross profit, operating expenses, other income (expense) and net loss for the three and six months ended June 30, 2026 and 2025, were as follows:

		Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
		June 30,		June 30,		June 30,		June 30,
		2026		2025		2026		2025
Net sales	$	-	$	4,541,472	$	383	$	10,874,439
Cost of goods sold		685,601		4,658,440		1,075,202		11,717,499
Gross margin		(685,601)		(116,968)		(1,074,819)		(843,060)

Operating expenses:
General and administrative		1,886,956		1,620,696		3,100,192		3,554,426
Depreciation and amortization		1,649		2,916		3,859		4,944
Total operating expenses		1,888,605		1,623,612		3,104,051		3,559,370

Loss from operations		(2,574,206)		(1,740,580)		(4,178,870)		(4,402,430)

Other income (expense):
Interest income or (expense)		(349,476)		(318,708)		(683,465)		(1,191,176)
Gain (loss) on extinguishment of debt		(1,015,345)		29,093		(1,284,741)		(56,660)
Gain or (loss) on warrant revaluation		(99,540)		(174,354)		(174,882)		100,626
Other income (expense)		(16,809)		(4,101)		(53,663)		3,376
Gain on disposal of assets		-		-		-		3,920
Other expense, net		(1,481,170)		(468,070)		(2,196,751)		(1,139,914)

Loss before provision for income taxes		(4,055,376)		(2,208,650)		(6,375,621)		(5,542,344)

Provision for income taxes		-		-		-		-

Net loss		(4,055,376)		(2,208,650)		(6,375,621)		(5,542,344)

Other Comprehensive Loss
Exchange loss on translation of foreign operations		(4)		(2,097)		(6)		(1,675)

Net loss and comprehensive loss		(4,055,380)		(2,210,747)		(6,375,627)		(5,544,019)

Loss per common share
Basic and diluted	$	(0.77)	$	(0.82)	$	(1.44)	$	(2.17)
Weighted average shares outstanding
Basic and diluted		5,257,807		2,698,677		4,412,662		2,552,812

		Three Months Ended		Three Months Ended			Six Months Ended		Six Months Ended
		June 30, 2026		June 30, 2025	Change		June 30, 2026		June 30, 2025	Change
Crude Oil	$	`(109,809)`	$	`2,729,208`	-104%	$	`(110,114)`	$	`7,513,308`	-101%
Fuels and chemicals		`266,203`		`379,887`	-30%		`265,135`		`811,733`	-67%
Freight out		`1,723`		`435,180`	-100%		`(80,272)`		`1,189,269`	-107%
Freight in		`67,100`		`361,331`	-81%		`64,299`		`823,715`	-92%
Salary and wages		`134,822`		`338,683`	-60%		`259,925`		`629,641`	-59%
Depreciation and amortization		`226,252`		`311,372`	-27%		`488,899`		`552,510`	-12%
Repairs and maintenance		`85,577`		`91,011`	-6%		`161,393`		`159,641`	1%
Other		`13,733`		`11,768`	17%		`25,937`		`37,682`	-31%
	$	`685,601`	$	`4,658,440`	-85%	$	`1,075,202`	$	`11,717,499`	-685,601%

		Three Months Ended		Three Months Ended			Six Months Ended		Six Months Ended
		June 30, 2026		June 30, 2025	Change		June 30, 2026		June 30, 2025	Change
Executive compensation	$	`1,029,027`	$	`773,061`	33%	$	`1,537,760`	$	`1,406,691`	9%
Professional fees		`623,765`		`498,987`	25%		`1,076,313`		`1,464,073`	-26%
Insurance		`112,620`		`160,918`	-30%		`244,656`		`323,693`	-24%
Lease and utilities		`50,196`		`55,335`	-9%		`94,649`		`114,610`	-17%
Travel		`23,410`		`46,744`	-50%		`60,590`		`104,148`	-42%
Licenses		`24,326`		`14,102`	73%		`44,455`		`15,165`	193%
Other general and administrative		`19,063`		`35,534`	-46%		`32,662`		`60,888`	-46%
Bank charges		`4,549`		`1,501`	203%		`9,107`		`6,924`	32%
Auto		`-`		`34,514`	-100%				`58,234`
	$	`1,886,956`	$	`1,620,696`	16%	$	`3,100,192`	$	`3,554,426`	-13%

Our general and administrative expenses increased by $266,260 for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily due to an increase of $255,966 in executive compensation attributable to increased salaries for executive officers expensed in the current year, The increased general and administrative costs for the three months ended June 30, 2026 compared to 2025 were also due to a $124,778 increase in professional fees related to legal matters found in Part II, Item 1, partially offset decreases in advertising and marketing, and business development expenses.

Other Income (Expense)

Other expense was $1,481,170 for the three months ended June 30, 2026, compared to $468,070 for the three months ended June 30, 2025, an increase of $1,013,100. In the three months ended June 30, 2026, other income (expense) consisted of interest expense $349,476, loss on extinguishment of debt $1,015,345, loss on warrant valuation $99,540, and other expense $16,809. In the three months ended June 30, 2025, other income (expense) consisted of interest expense $318,708, loss on warrant valuation $174,354, offset by gain on extinguishment of debt $29,093 and other income $4,101.

Other expense was $2,196,751 for the six months ended June 30, 2026, compared to $1,139,914 for the six months ended June 30, 2025, an increase of $1,056,837. In the six months ended June 30, 2026, other income (expense) consisted of interest expense of $683,465, loss on extinguishment of debt of $1,284,741, loss on change in fair value

of warrant liabilities of $174,882, and other expense of $53,663. In the six months ended June 30, 2025, other income (expense) consisted of interest expense of $1,191,176, loss on extinguishment of debt of $56,660, offset by gain on change in fair value of warrant liabilities of $100,626, other income of $3,376, and gain on disposal of assets of $3,920.

The warrant liability is revalued at each reporting date based on changes in the underlying factors influencing the fair value of the warrants, such as the Company’s stock price, volatility, and other market conditions. The Company’s management believes that the non-cash gain recognized in the current period from the remeasurement of warrant liabilities is not reflective of ongoing operating performance. During the period, the Company incurred significant interest expense related to its term debt. This interest expense is primarily due to the high financing costs associated with the term notes, which were utilized to support ongoing working capital needs and operational expenses. These notes, characterized by higher interest rates relative to traditional debt instruments, have resulted in a notable impact on our financial performance for the quarter. This increase in interest expense reflects the financial obligations of maintaining liquidity and funding operations, particularly during a phase of substantial investment in refinery refurbishment and related activities. The Company continues to evaluate its capital structure to optimize costs and enhance financial stability, considering refinancing options and alternative capital sources where feasible.

Net Loss

Net loss was $4,055,376 or a loss of $(0.77) per share, for the three months ended June 30, 2026, compared to net loss of $2,208,650 or $(0.82) per share, for the three months ended June 30, 2025. Net loss was $6,375,621 or a loss of $(1.44) per share, for the six months ended June 30, 2026, compared to net loss of $5,542,344 or $(2.17) per share, for the six months ended June 30, 2025.

Our net loss compared to the previous periods’ net loss was primarily driven by a reduction in total production of the refinery attributable to the outage, which resulted in significantly reduced revenues during the period, combined with increased losses on extinguishment of debt associated with the Libertas Conversion and Exchange Agreement.

Liquidity and Capital Resources

Introduction

We had negative operating cash flows for the six months ended June 30, 2026 of $5,413,699. Our cash on hand as of June 30, 2026, was $7,226,564. In connection with the Foreland Refinery acquisition and PR Springs facility retrofit program, we believe we will continue to have material capital expenditures and face long term cash needs. While we anticipate that these needs will be satisfied through the issuance of our debt and/or equity securities until such time as our cash flows from operations will satisfy our cash needs, we cannot provide any assurances of such.

Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2026 and December 31, 2025, respectively, are as follows:

Our cash increased by $7,191,194 as of June 30, 2026, as compared to December 31, 2025. Our total current assets increased by $9,102,738 primarily because of the ATM program during the current quarter.

Our total assets increased by $9,113,067 due to the changes in cash of $7,191,194 and inventory of $828,167.

Our current liabilities as of June 30, 2026 as compared to December 31, 2025, decreased by $1,085,369 primarily as a result of a decrease in accounts payable of $390,951 and a decrease in current portion of notes payable of $1,016,700, partially offset by increases in warrant liabilities of $174,882 and an increase in lines of credit of $160,312. Our long term liabilities increased by $1,623,330 primarily due to an increase in long term notes payable of $1,567,131 as a result of the refinancing of the Company’s previously outstanding sale of future revenue obligations.

The increase in liabilities, noted above, are due to the losses described above.

To repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.

On June 27, 2025, the Company’s wholly owned subsidiary, Foreland Refining Corporation, launched a Regulation Crowdfunding (“Reg CF”) offering to fund working capital and general corporate purposes. The offering is terminated and raised a total of $513,300. Although the Reg CF is being conducted at the subsidiary level, the proceeds are expected to support business lines that may be consolidated into the Company’s operations. The offering is not expected to have a material near-term impact on the Company’s consolidated liquidity position.

ATM Program

We continue to maintain an ATM Program. On January 12, 2026, we entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor, pursuant to which we, from time to time, may offer and sell shares (the “ATM Shares”) of our common stock, through or to Cantor, acting as principal and/or sales agent, having an aggregate sales price of up to $4,700,000.

On April 22, 2026, the Company entered into that certain Amended and Restated Sales Agreement (the “A&R Sales Agreement”) with Siebert, pursuant to which Siebert replaced Cantor as the principal and/or the sole designated sales agent. The material terms and conditions of the Sales Agreement otherwise remain unchanged.

On April 22, 2026, in connection with its ATM Program, the Company filed a prospectus supplement with the SEC, updating the aggregate sales price to up to $12,600,000, pursuant to the A&R Sales Agreement. Through the ATM Program, the Company issued an aggregate of approximately 4,773,348 shares of Common Stock, resulting in aggregate gross proceeds of approximately $13,528,940. Of this total, the Company sold approximately 417,696 shares through Cantor pursuant to the Sales Agreement, generating gross proceeds of approximately $1,306,941, and sold 4,355,652 shares through Siebert pursuant to the A&R Sales Agreement, generating proceeds of approximately $12,221,999.

Cash Requirements

Our cash on hand as of June 30, 2026, was $7,226,564. The Company will continue to require additional cash to meet ongoing operational and capital needs. Despite the company’s efforts to increase production capacity at the refinery, as well as ongoing maintenance and refurbishment activities, and the high interest payments, we are not yet generating sufficient cash flow to cover operational costs. The need for cash is driven by both ongoing operating expenses, and costs of indebtedness. We anticipate that these needs will be satisfied through the issuance of debt or the sale of our equity securities, or a combination thereof, until such time as improvements to our cash flows from operations will satisfy our cash flow needs. Management remains committed to securing the necessary resources to ensure the Company can meet its financial obligations and continue executing its long-term objectives. There is no assurance, however, that we will be successful in these efforts.

Sources and Uses of Cash

Operating Activities

Our net cash used in operating activities for the six months ended June 30, 2026 and 2025, was $5,413,699, as compared to net cash used of $729,401, respectively. Our net cash used in operating activities for the six months ended June 30, 2026, consisted of a net loss of $6,375,621, unfavorable working capital changes of $4,684,298, adjusted for share based compensation of $694,002, depreciation and amortization of $492,758, amortization of debt issuance costs of $98,976, amortization of right-of-use asset of $37,112, loss on extinguishment of debt of $1,284,741, and loss on revaluation of warrant liability of $174,882. Our net cash used in operating activities for the six months ended June 30, 2025 consisted of a net loss of $5,542,344, less unfavorable changes in working capital of $738,676, share-based compensation of $309,354, depreciation and amortization of $557,454, amortization of right-of-use asset of $48,842, amortization of debt issuance costs of $807,636, and loss on extinguishment of debt of $56,660.

Investing Activities

Our cash flow used in investing activities for the six months ended June 30, 2026 and 2025, was $460,221 and $381,296, respectively, an increase of $78,925. Our investing activities during six months ended June 30, 2026, consisted of payments for property, plant and equipment of $460,221. Our investing activities during the six months ended June 30, 2025, consisted of a net increase from property, plant and equipment of $352,973, purchase of gas development assets of $42,383, and an increase from proceeds of sale of assets of $14,060.

Financing Activities

Our net cash provided by (used in) financing activities for the six months ended June 30, 2026 and 2025, was $13,063,714 and $1,226,930, respectively, an increase of $11,836,784. Our cash flows from financing activities during the six months ended June 30, 2026, consisted of proceeds of lines of credit of $202,630, proceeds from notes

payable of $896,866, proceeds from common stock $13,907,446, offset by payments on lines of credit of $42,318 and payments on notes payable of $533,413. Our cash flows from financing activities during the six months ended June 30, 2025, consisted of proceeds of lines of credit of $8,338,455, proceeds from notes payable of $574,380, and issuance of common stock of $0, offset by payments on lines of credit of $8,465,550, and payments on notes payable of $1,670,741.

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

Not applicable

ITEM 4 Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management conducted an evaluation, under the supervision and participation of our principal executive officer and principal financial officer on June 30, 2026, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of June 30, 2026, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of June 30, 2026, were not effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2026, that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures provide our management with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within the Company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

PART II – OTHER INFORMATION

ITEM 1Legal Proceedings

From time to time, we have in the past and may in the future become subject to legal proceedings or claims arising in the ordinary course of our business. Except as described below, we are not currently a party to any legal proceedings, the outcome of which, if determined adversely, we believe would individually or in aggregate have a material adverse effect on our business, financial condition or results of operations.

Sealock Matter.

David Sealock, former Chief Executive Officer of the Company, filed a whistleblower retaliation complaint with the U.S. Department of Labor – OSHA under Section 806 of the Sarbanes-Oxley Act (Case No. 301072795, dated February 23, 2026). OSHA’s Denver regional office served the complaint on the Company on March 5, 2026, and the Company filed its written response and supporting exhibits on March 25, 2026, requesting dismissal of the claim. The complaint alleges that Sky Quarry retaliated against Mr. Sealock in violation of the SOX whistleblower provisions (18 U.S.C. § 1514A), with the alleged protected activity centered on the August 10, 2025-dated memorandum submitted to the Company’s HR director. The complaint does not state a specific monetary demand.

The Company categorically denies retaliation and requested dismissal on multiple grounds.

The OSHA administrative proceeding is the only formal action to date. The matter is in OSHA’s investigative stage, with no findings issued.

Delwo Matter

On March 24, 2026, Darryl Delwo, the Company’s former Chief Financial Officer, filed a complaint against the Company and its interim-CEO Marcus Laun in the Superior Court of California, County of Los Angeles, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and tortious interference with contract. Mr. Delwo alleges that the Company failed to increase his compensation as promised following the Company's October 2024 IPO and NASDAQ listing, failed to pay portions of his salary throughout 2024 and 2025, and refused to provide separation payments and benefits owed under his Executive Employment Agreement following his resignation for which he claims there was Good Reason on August 4, 2025. The complaint also alleges that Mr. Laun personally and deliberately induced the Board to withhold Mr. Delwo’s compensation and contractual benefits, acting outside the scope of his employment and with malice. Mr. Delwo seeks damages of not less than $875,012.35 on each cause of action, plus attorneys' fees and pre-judgment interest, and has demanded a jury trial.

KF Business Ventures Matter

On March 4, 2026, KF Business Ventures, LP (“KF Business”), a California limited partnership, filed a complaint against Company, Foreland Refining Corp., a Texas corporation and wholly owned subsidiary of the Company, and 2020 Resources LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, in the Third Judicial District Court of Salt Lake County, Utah.

The complaint arises from several contractual arrangements between KF Business and the defendants. First, KF Business alleges that the Company breached an Advisory Agreement dated December 2, 2024, pursuant to which the Company agreed to pay KF Business $10,500 plus $10,500 of the Company’s Common Stock per month in exchange for business advisory services. KF Business alleges that the Company has failed to pay $126,000 in cash and 41,096 shares of Common Stock owed through February 2026, with monthly payments continuing to accrue.

Second, KF Business alleges that the Company breached a Secured Promissory Note dated December 2, 2024, in the original principal amount of $1,200,000 (as amended, the “Sky Quarry KF Business Note”). The Sky Quarry KF Business Note was subsequently amended in April 2025 and July 2025 to extend the payment deadline to November 24, 2025, and to modify the interest rate to 30% per annum. KF Business alleges that the Company failed to make payment when due.

Third, KF Business alleges that Foreland Refining Corp. breached a Secured Promissory Note dated July 24, 2025 (the “Foreland Refining KF Business Note”), in the principal amount of $1,000,000, bearing interest at 30% per annum, with all unpaid principal and interest due on November 24, 2025. KF Business alleges that Foreland Refining Corp. failed to make payment when due.

Fourth, KF Business alleges that the Company and 2020 Resources LLC breached a Guaranty Agreement dated July 24, 2025, pursuant to which the Company and 2020 Resources LLC guaranteed payment of the Sky Quarry KF Business Note and the Foreland Refining KF Business Note.

In connection with these obligations, KF Business holds security interests in certain collateral pursuant to (i) a security agreement, which granted KF Business a security interest in two natural gas turbine power generators owned by 2020 Resources LLC, and (ii) a security agreement, which granted KF Business a security interest in various assets of 2020 Resources LLC, including accounts, equipment, inventory, and intellectual property.

The complaint asserts fifteen causes of action, including breach of contract, breach of the implied covenant of good faith and fair dealing and quasi contract/unjust enrichment/quantum meruit, and judicial foreclosure and replevin in connection with the security agreements. KF Business seeks relief, including damages in an aggregate amount of $2,200,000 in principal under the promissory notes, plus interest at 30% per annum, $126,000 in unpaid advisory fees and 41,096 shares of the Company’s Common Stock, along with attorneys’ fees, costs, pre- and post-judgment interest, and judicial foreclosure and possession of collateral.

The Company intends to vigorously defend against the claims asserted in this action. The litigation is in its early stages and no assurance can be given as to the timing or outcome of the proceeding. An unfavorable outcome could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.

ITEM 1ARisk Factors

Not applicable.

ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

ITEM 3Defaults Upon Senior Securities

The promissory notes payable to KF Business Ventures, LP (aggregate principal amount of approximately $2,200,000) matured on November 24, 2025 and remain unpaid as of the date of this filing. The aggregate amount in default exceeds 5% of the Company’s total consolidated assets as of June 30, 2026. For additional detail regarding the notes payable and related litigation, see Note 13 to the condensed consolidated financial statements and Part II, Item 1 (Legal Proceedings) in this Quarterly Report.

ITEM 4Mine Safety Disclosures

Not applicable.

ITEM 5Other Information

During the quarter ended June 30, 2026, no director or officer of the Company adopted or terminated any contract, instruction, or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act, and no director or officer adopted or terminated any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).

ITEM 6Exhibits

(a)Exhibits

Exhibit No.	Description

10.1	Amended and Restated Sales Agreement, dated as of April 22, 2026, by and between the Company and Muriel Siebert & Co., LLC. (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed on April 22, 2026).

31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.

31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.

32.1**	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

32.2**	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

101.INS	Inline XBRL Instance Document

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Gross	Net	Lease Expiry Date		Annual Rent		Annual Advance Minimum Royalty	Production Royalty Rate
Reference	Acres	Acres	(1)		(2)		(3)	(4)
ML-49927	4,319.9	4,319.9	1/31/2030	$	12,960	$	373,680	10%
ML-51705	1,560.0	1,560.0	1/31/2030		1,560		15,600	8%

Total	5,879.9	5,879.9		$	14,520	$	389,280

		June 30, 2026		December 31, 2025
Buildings	$	`1,575,000`	$	`1,575,000`
Machinery and equipment		`6,085,776`		`6,085,776`
Capital projects started		`542,062`		`81,840`
Office furniture and equipment		`34,401`		`34,401`
Total property, plant and equipment		`8,237,239`		`7,777,017`
Less: Accumulated depreciation and amortization		`(3,180,637)`		`(2,687,878)`
Property, plant and equipment, net	$	`5,056,602`	$	`5,089,139`

2026 (Remainder)	$	13,000
2027	$	31,668
2028	$	32,618
2029	$	16,550
Total lease payments		93,836
Less: amounts representing interest		(14,271)
Present value of lease liabilities	$	79,565

		June 30, 2026		December 31, 2025
Trade accounts payable	$	`2,669,663`	$	`2,668,663`
Accrued expenses		`1,439,364`		`1,831,702`
Other		`46,086`		`45,699`
	$	`4,155,113`	$	`4,546,064`

Due in less than one year	$	`4,010,123`
Due in more than one year, but less than two years		`1,988,373`
Less: Unamortized debt issuance costs		`-`
	$	`5,998,496`

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosure About Market Risks	32
Item 4.	Controls and Procedures	32

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	35
Item 6.	Exhibits	35

SIGNATURES		36

		June 30, 2026		December 31, 2025
Balance, beginning of period	$	`8,783,450`	$	`8,534,967`
Disposal		`-`		`(252,334)`
Additions		`-`		`500,817`
Balance, end of period	$	`8,783,450`	$	`8,783,450`

		June 30, 2026		December 31, 2025
Beginning balance	$	97,486	$	459,067
Fair value upon issuance of warrants		-		-
Change in fair value		174,882		(361,581)
Ending balance	$	272,368	$	97,486

Lender	Date Issue		Gross Discount		Unamortized Discount
Libertas #4	October 25, 2023	$	449,737	$	-
Libertas #5	January 11, 2024		575,936		-
Libertas #6	January 18, 2024		990,000		-
Libertas #7	February 19, 2024		397,500		-
		$	2,413,173	$	-

				Principal		Principal
		Effective		Balance		Balance
	Maturity	Interest		June 30,		December 31,
Lender / Merchant	Date	Rate		2026		2025
Private Lender F	October 2, 2030	10%	$	179,500	$	179,500
Private Lender F	October 2, 2030	10%		117,500		117,500
Private Lender F	October 2, 2030	10%		118,200		118,200
Private Lender F	October 2, 2030	10%		42,500		42,500
Private Lender F	October 2, 2030	10%		55,600		55,600
				513,300		513,300
Less: Unamortized debt issuance costs				(27,461)		(30,770)
			$	485,839	$	482,530

		Interest		Principal Due		Principal Due
Lender	Maturity Date	Rate		June 30, 2026		December 31, 2025
Private Lender C	November 24, 2026	9%	$	2,193,262	$	2,098,131
Private Lender A	March 2, 2025	30%		1,767,123		1,588,603
Private Lender E	August 27, 2027	12%		-		182,245
Private Lender E	May 22, 2027	12%		-		161,353
Private Lender E	July 21, 2027	12%		-		131,848
Private Lender E	April 10, 2026	12%		-		102,351
Private Lender D	July 16, 2025	5%	$	-		48,794
			$	3,960,385	$	4,313,325
Less: Unamortized debt issuance costs				-		(77,509)
			$	3,960,385	$	4,235,816

Grant Date	Options Outstanding		Exercise Price	Expiration	Vesting
September 1, 2022	4,896	$	21.60	August 31, 2027	Equally over 3 years commencing on first anniversary of grant date
October 15, 2023	42,345		38.40	October 14, 2028	Equally over 3 years commencing on first anniversary of grant date
November 1, 2023	10,417		38.40	October 31, 2028	3,334 vest immediately, remaining vest equally over 3 years commencing on first anniversary of grant date
November 22, 2024	8,333		11.76	November 23, 2027	Equally over 3 years commencing on first anniversary of grant date

		Weighted Average
	Number of	Exercise Price
	Options	Per Share
Outstanding as of December 31, 2025	69,449	$ 12.00
Granted	-	-
Exercised	-	-
Forfeited	(3,458)	$ 38.40
Outstanding as of June 30, 2026	65,991	$ 9.48

Grant Date	Restricted Shares	Issue Price	Expiration	Vesting
December 31, 2024	10,417	$8.24	January 2, 2026	Vested on August 8, 2025 by board resolution
January 10, 2025	10,417	$11.12	January 12, 2026	Vested on August 8, 2025 by board resolution
February 28, 2025	10,417	$5.76	March 2, 2026	Vested on August 8, 2025 by board resolution
May 27, 2025	56,250	$6.64	May 29, 2026	Vested on August 8, 2025 by board resolution
November 4, 2025	87,500	$3.35	September 4, 2026	Vesting over 10 months
November 5, 2025	56,250	$3.19	November 5, 2025	Vested at issuance
May 27, 2026	199,500	$2.40	May 27, 2026	Vested at issuance

				2020
		Foreland		Resource
		Refining		LLC		Total
Total assets	$	9,521,558	$	18,806,330	$	28,327,888

		Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
		June 30, 2026		June 30, 2025		June 30, 2026		June 30, 2025
Auditor	$	63,824	$	78,969	$	239,779	$	236,974
Legal		440,745		89,967		566,596		83,103
Business development		84,915		265,183		192,448		1,002,564
Membership and subscriptions		34,626		31,435		64,393		61,057
Environmental		3,629		16,493		17,063		21,841
Investor relations		(3,974)		10,540		(3,966)		20,742
Other		-		3,050		-		7,775
Tax		-		3,350		-		30,017
	$	623,765	$	498,987	$	1,076,313	$	1,464,073

	Acres	Expiration		Annual Fee
Right-of-Way Grant N-41035	19.66	December 31, 2054	$	2,850
Right-of-Way Grant N-42414	20.32	December 31, 2044		1,400
			$	4,250

		June 30, 2026		December 31, 2025		Increase (decrease)
Cash	$	`7,226,564`	$	`35,370`	$	`7,191,194`
Total Current Assets		`10,430,418`		`1,327,680`		`9,102,738`
Total Assets		`28,327,888`		`19,214,821`		`9,113,067`
Total Current Liabilities		`14,035,404`		`15,120,773`		`(1,085,369)`
Total Liabilities	$	`16,565,815`	$	`16,027,854`	$	`537,961`

	Sky Quarry Inc.
Dated: August 12, 2026	/s/	Marcus Laun
	By:	Marcus Laun
	Its:	Interim Chief Executive Officer and Interim Chief Financial Officer (Principal Executive Officer)