{"url_path":"/sec/skyq/10-q/2026/item-1","section_key":"item-1","section_title":"Item 1 ****Legal Proceedings**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1812447/0001096906-26-000807-index.html","accession_number":"0001096906-26-000807","cik":"0001812447","ticker":"SKYQ","issuer_name":"Sky Quarry Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1812447/0001096906-26-000807-index.html","primary_entity_key":"0001812447","primary_entity_name":"Sky Quarry Inc."},"word_count":786,"has_tables":true,"body_markdown":"**ITEM 1****Legal Proceedings** \n\n \n\nFrom 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. \n\n \n\n**Delwo**\n\n \n\nOn 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.\n\n \n\n**KF Business Ventures**\n\n \n\nOn 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.  \n\n \n\nThe 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.  \n\n \n\nSecond, 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.  \n\n \n\nThird, 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.\n\n \n\nFourth, 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.\n\n \n\nIn 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.  \n\n \n\nThe 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.\n\n \n\nThe 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.\n\n34"}