Operations and Production - The Eagle Springs Refinery has been operational since September 30, 2022, and is producing diesel, vacuum gas oil (VGO), naphtha, and liquid paving asphalt from crude oil suppliers in the Uintah basin [20]. - The Eagle Springs refinery experienced a shutdown during Q4 2025 for boiler repairs, negatively impacting financial results for Q3 and Q4 2025, with expectations to resume operations by the end of Q2 2026 [24]. - The Eagle Springs Refinery has a nameplate production capacity of approximately 80,000 barrels per month, with an anticipated operational output of around 45,000 barrels per month in 2026 [66]. - The PR Spring Facility is expected to produce asphalt paving aggregate from remediated asphalt shingles and mined bitumen sands [70]. - The company aims to increase production output, driven by nearby refinery shutdowns that reduce diesel supply and increase margins [89]. Financial Condition and Risks - The company has experienced recurring losses from operations, raising substantial doubt regarding its ability to continue as a going concern, and has outstanding debt that is past due [13]. - The company reported operational losses of $9,248,500 and $7,523,186 for the years ended December 31, 2025, and 2024, respectively, raising substantial doubt about its ability to continue as a going concern [113]. - As of the date of the report, the company has approximately $7,618,831 in outstanding debt that is currently past due, with reduced payments being made to lenders [115]. - The company anticipates an increase in operating expenses in the near future, with no assurance of profitability soon [118]. - The company is exploring partnerships to optimize supply costs for crude oil and petroleum inputs, which are critical for pricing products [77]. - The company faces significant environmental liabilities due to stringent regulations, which could lead to substantial costs exceeding current expectations [174]. - The company may incur substantial decommissioning costs for abandoning and reclaiming oil sands facilities, which could divert resources from other projects [164]. Technology and Innovation - The proprietary ECOSolv technology has demonstrated oil separation rates of up to 95% in bench testing, utilizing a closed-loop distillation and evaporation circuit [21]. - The ECOSolv process has demonstrated a hydrocarbon recovery factor of up to 95% from waste asphalt shingles, with less than 1% solvent remaining in the final product [61]. - The PR Spring Facility has seen an investment of approximately $6.3 million for retrofitting to utilize the ECOSolv process for recycling waste asphalt shingles into crude oil [59]. - The viability of the company's ECOSolv technology for recycling waste asphalt shingles is uncertain, and failure to perform as expected could jeopardize the business plan [147]. Market and Industry Trends - The U.S. crude oil production reached an estimated 13.6 million barrels per day in 2025, representing the highest annual output in U.S. history, with projections to remain near record levels in 2026 [31]. - The U.S. refining capacity supports high levels of refined product output, with strong refinery utilization rates, particularly during peak driving seasons [53]. - The U.S. residential and commercial roofing materials market is projected to grow at a compound annual growth rate of 4.5%, reaching an estimated size of $16 billion by 2024 [36]. - The asphalt paving market is driven by infrastructure development, with significant federal investments of $110 billion allocated for roads and bridges under the bipartisan infrastructure package [48]. - The use of reclaimed asphalt pavement (RAP) has increased by 75.2% since 2009, reducing the need for approximately 26.9 million barrels of asphalt binder [37]. Customer and Supplier Relationships - The company has a limited operating history and depends on several significant customers and suppliers, which poses risks to its financial condition and results of operations [13]. - For the year ended December 31, 2025, three customers accounted for approximately 33%, 31%, and 24% of total net sales, indicating a concentration risk [82]. - Three significant customers accounted for approximately 31%, 33%, and 24% of total net sales for the year ended December 31, 2025, indicating a reliance on a limited customer base [119]. - The company relies on a limited number of suppliers for crude oil, with one vendor accounting for 17% of its supply for the year ended December 31, 2025 [122]. - The company has identified tipping fees for waste asphalt shingles ranging from $45 to $150 per ton, with processing costs around $25 per ton [86]. Regulatory and Compliance Issues - The company is subject to various U.S. government regulations, including those from the EPA and OSHA, impacting operational compliance [102]. - The company is subject to stringent environmental regulations, which may impose substantial costs and liabilities on its operations [130]. - The company has entered into financing arrangements with covenants that could limit its ability to engage in certain transactions, potentially affecting its operational flexibility [125]. - The company received a notice of noncompliance with Nasdaq's minimum bid price requirement, risking delisting if compliance is not regained by March 23, 2026 [181]. Stock and Investment Considerations - A reverse stock split of one-for-eight (1-for-8) was effective on March 15, 2026, to comply with Nasdaq listing requirements [25]. - The market price of the company's common stock is expected to be highly volatile, potentially leading to significant investment losses for shareholders [188]. - The company does not anticipate paying any cash dividends in the foreseeable future, requiring investors to rely on stock price appreciation for returns [194]. - Future issuances of common stock or convertible securities may dilute existing shareholders' holdings and negatively impact stock price [196]. - The trading market for the company's common stock may be less active and liquid, making it difficult for shareholders to sell their shares at favorable prices [191]. - The company is classified as an emerging growth company, allowing it to take advantage of certain reporting exemptions that may result in less information available to investors [201]. Economic and Market Risks - The overall economic decline and factors such as recessionary conditions may adversely affect consumer demand for the company's products, potentially harming its financial condition and results of operations [133]. - The Consumer Price Index increased by 2.4% from January 2025 to January 2026, indicating rising inflation that could negatively impact the company's operating expenses, particularly in labor and fuel costs [136]. - The company is exposed to rising inflation rates and trade disputes that could further increase operational costs and affect cash flow [135]. - Oil prices are historically volatile, significantly impacting cash flows and capital expenditures [160]. - The U.S. Energy Information Administration projects a 5% decline in domestic motor gasoline consumption by 2026 compared to 2019 levels, driven by efficiency improvements and EV market penetration [171]. Operational Challenges - The company is currently addressing material weaknesses in its internal control over financial reporting, which, if not remediated, could lead to significant financial misstatements and loss of investor confidence [139]. - The company faces risks related to its asphalt shingle recycling operations, including price fluctuations and regulatory challenges that could impact profitability [145]. - The company does not have proven oil reserves in its bitumen deposit, which poses a risk to its planned oil sands operations and could adversely affect operating results [159]. - The company lacks supply agreements for waste asphalt shingles, which are critical for its recycling operations, potentially impacting business continuity [158]. - The company’s operations are subject to various risks, including equipment failure and cybersecurity threats, which could adversely affect business performance [168].
Sky Quarry Inc.(SKYQ) - 2025 Q4 - Annual Report