Sky Quarry Inc.

Risk Management and Strategy

We recognize the importance of assessing, identifying, and managing material risks related to cybersecurity threats. Our approach to cybersecurity risk management is aligned with our risk profile and business. We collaborate with partners who maintain SOC1/SOC2 compliance standards. To address these risks, we leverage the support of third-party information technology and security providers who maintain SOC1/SOC2 compliance standards, including to perform a risk assessment designed to identify, assess, and manage cybersecurity risks, as well as provide cybersecurity response plans and procedures. Further, we will develop a formal, documented process to assess the data protection practices of certain third-party vendors that may handle sensitive information on our behalf.

Although risks from cybersecurity threats have to date not materially affected, and we do not believe they are reasonably likely to materially affect us or our business strategy, results of operations or financial condition, we could, from time to time, experience threats and security incidents relating to our and our third-party vendors’ information systems. For more information, please see the section entitled “Risk Factors” in this Annual Report on Form 10-K.

Governance

Our Board of Directors has primary responsibility for oversight of our cybersecurity and other information technology risks, including our plans to mitigate cybersecurity risks and to respond to data breaches.

The Board of Directors receives regular reports on cybersecurity matters. These reports include a range of topics, including our cybersecurity risk profile, the current cybersecurity and emerging threat landscape, the status of ongoing cybersecurity initiatives, incident reports, and the results of internal and external assessments of our information systems. The Board of Directors also annually reviews the adequacy and effectiveness of our information and technology security policies and the internal controls regarding information and technology security and cybersecurity and periodically receives updates on the results of cybersecurity audits and applicable mitigation activities. In addition, our Board of Directors periodically receives presentations on cybersecurity matters from external experts.

Management is working with a professional IT consulting firm to develop cybersecurity compliance standards and monitor necessary controls and processes used to identify cybersecurity matters and regular reporting to the Board of Directors.

Our principal executive offices are located at 707 W. 700 S. Suite 101, Woods Cross, UT 84087 and our telephone number is (424) 394-1090. We believe that our offices are sufficient for our current operations.

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.

KF Business Ventures

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) an 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.