0001096906-26-000807
SEC filingQ1 2026 losses narrowed significantly from prior year as gross, operating, and net losses improved 46%, 40%, and 30% respectively, reflecting disciplined cost management amid refinery maintenance and lower production volumes.
Sky Quarry Inc. reported narrowed losses in Q1 2026 amid operational challenges at its Foreland refinery. Gross profit loss improved to -$389K from -$726K year-over-year, a 46.4% reduction. This reflects the decline in cost of sales primarily due to lower net sales, though cost of goods sold did not change directly with sales because of fixed cost allocations across significantly lower production barrels, as noted in Management's Discussion.
Operating income loss narrowed 39.8% to -$1.6M from -$2.7M. The improvement stems from cost discipline exercised during a phase of substantial investment in refinery refurbishment and related activities. Despite efforts to increase production capacity through ongoing maintenance, the company is not yet generating sufficient cash flow to cover operational costs, contributing to the operating shortfall.
Net income loss decreased 30.4% to -$2.3M from -$3.3M. This progress occurred even as interest expense increased, reflecting financial obligations to maintain liquidity and fund operations via high-cost term notes supporting working capital needs. The increase in liabilities noted in the period ties directly to these losses, underscoring the impact of financing costs during refinery upgrades.
Cash flow from operating activities improved markedly to -$589K from -$1.96M, signaling better management of working capital amid idle operations. However, capital expenditures rose to $443K from $33K, focused on refurbishment to enhance future crude oil processing volumes. This resulted in free cash flow of -$1.0M, highlighting ongoing liquidity pressures.
Management continues evaluating its capital structure to optimize costs and enhance stability, considering refinancing and alternative sources. To address going concern uncertainty—also flagged in the prior year's audit opinion—the company aims to secure greater crude oil volumes for the Foreland refinery, which should improve contribution margins and revenues. Ongoing high interest payments and negative cash flows persist as key risks, with potential future segmental reporting tied to new revenue streams.