HALLADOR ENERGY CO 10-K

ITEM 8. FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 44 Consolidated Balance Sheets 46 Consolidated Statements of Operations 47 Consolidated Statements of Cash Flows 48 Consolidated Statement of Stockholders’ Equity 50 Notes to Consolidated Financial Statements 51 43 Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders Hallador Energy Company Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Hallador Energy Company (a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, cash flows and stockholders’ equity for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 14, 2024 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Asset retirement obligations As of December 31, 2023, the Company’s asset retirement obligations totaled $16.7 million. As described further in Note 1 to the consolidated financial statements, the Company’s asset retirement obligations are associated with retirement of long-lived assets and recognized at fair value at the time the obligations are incurred. The Company reviews its asset retirement obligations at least annually and makes necessary adjustments for revisions of inputs and assumptions utilized in the calculations. The calculation of asset retirement obligations requires significant management judgement due to the inherent complexity in estimating the amount and timing of future reclamation activities. We identified the accounting for the asset retirement obligations as a critical audit matter. 44 Table of Contents The principal consideration for our determination that the accounting for the asset retirement obligations is a critical audit matter is that management utilized significant judgment in determining the amount of asset retirement obligations. In particular, the obligations value is estimated based upon a discounted cash flow technique and includes inputs and assumptions related to reclamation costs and the timing of reclamation activities. Accordingly, auditing management’s assumptions involved a high degree of subjectivity due to the uncertainty of management’s significant judgements. Our audit procedures related to the accounting for asset retirement obligations included the following, among others: ● We tested the design and operating effectiveness of internal controls over the asset retirement obligations estimation and recognition process. ● We assessed the reasonableness of the Company's methodology to calculate asset retirement obligations. ● We tested the completeness and accuracy of the underlying data used in management's asset retirement obligations calculation. ● We evaluated the reasonableness of significant judgements including inflation rate, credit-adjusted risk-free rate, reclamation cost estimates and timing of expected reclamation activities. ● We interviewed the Company's professionals with specialized skill and knowledge regarding the regulatory requirements and mine plans. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2022. Tulsa, Oklahoma March 14, 2024 45 Table of Contents PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Hallador Energy Company Consolidated Balance Sheets As of December 31, (in thousands) 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 2,842 $ 3,009 Restricted cash 4,281 3,417 Accounts receivable 19,937 29,889 Inventory 23,075 49,796 Parts and supplies 38,877 28,295 Contract asset - coal purchase agreement — 19,567 Prepaid expenses 2,262 4,546 Total current assets 91,274 138,519 Property, plant and equipment: Land and mineral rights 115,486 115,595 Buildings and equipment 537,131 534,129 Mine development 158,642 140,108 Finance lease right-of-use assets 12,346 — Total property, plant and equipment 823,605 789,832 Less - accumulated depreciation, depletion and amortization ( 334,971 ) ( 309,370 ) Total property, plant and equipment, net 488,634 480,462 Investment in Sunrise Energy 2,811 3,988 Other assets 7,061 7,585 Total assets $ 589,780 $ 630,554 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of bank debt, net $ 24,438 $ 33,031 Accounts payable and accrued liabilities 62,908 82,972 Current portion of lease financing 3,933 — Deferred revenue 23,062 35,485 Contract liability - power purchase agreement and capacity payment reduction 43,254 88,114 Total current liabilities 157,595 239,602 Long-term liabilities: Bank debt, net 63,453 49,713 Convertible notes payable 10,000 10,000 Convertible notes payable - related party 9,000 9,000 Long-term lease financing 8,157 — Deferred income taxes 9,235 4,606 Asset retirement obligations 14,538 17,254 Contract liability - power purchase agreement 47,425 84,096 Other 1,789 1,259 Total long-term liabilities 163,597 175,928 Total liabilities 321,192 415,530 Commitments and contingencies Stockholders' equity: Preferred stock, $ .10 par value, 10,000 shares authorized; none issued — — Common stock, $ .01 par value, 100,000 shares authorized; 34,052 and 32,983 issued and outstanding, respectively 341 330 Additional paid-in capital 127,548 118,788 Retained earnings 140,699 95,906 Total stockholders’ equity 268,588 215,024 Total liabilities and stockholders’ equity $ 589,780 $ 630,554 The accompanying notes are an integral part of these Consolidated Financial Statements 46 Table of Contents Hallador Energy Company Consolidated Statements of Operations For the years ended December 31, (in thousands, except per share data) 2023 2022 SALES AND OPERATING REVENUES: Coal sales $ 361,926 $ 289,376 Electric sales 267,927 66,252 Other revenues 4,627 6,363 Total sales and operating revenues 634,480 361,991 OPERATING EXPENSES: Operating expenses 473,390 266,608 Depreciation, depletion and amortization 67,211 46,875 Asset retirement obligations accretion 1,804 1,010 Exploration costs 904 651 General and administrative 26,159 16,417 Total operating expenses 569,468 331,561 INCOME FROM OPERATIONS 65,012 30,430 Interest expense (1) ( 13,711 ) ( 11,012 ) Loss on extinguishment of debt ( 1,491 ) — Equity method investment (loss) income ( 552 ) 443 INCOME BEFORE INCOME TAXES 49,258 19,861 INCOME TAX EXPENSE (BENEFIT): Current ( 164 ) — Deferred 4,629 1,756 Total income tax expense 4,465 1,756 NET INCOME $ 44,793 $ 18,105 NET INCOME PER SHARE: Basic $ 1.35 $ 0.57 Diluted $ 1.25 $ 0.55 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 33,133 32,043 Diluted 36,827 33,649 (1) Interest Expense: Interest on bank debt $ 8,636 $ 7,563 Other interest 1,842 715 Amortization and swap related interest: Payments on interest rate swap, net of changes in value — ( 867 ) Amortization of debt issuance costs 3,233 3,601 Total amortization and swap related interest 3,233 2,734 Total interest expense $ 13,711 $ 11,012 The accompanying notes are an integral part of these Consolidated Financial Statements 47 Table of Contents Hallador Energy Company Consolidated Statements of Cash Flows For the years ended December 31, (in thousands) 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 44,793 $ 18,105 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 4,629 1,756 Equity income (loss) – Sunrise Energy 552 ( 443 ) Cash distribution - Sunrise Energy 625 — Depreciation, depletion and amortization 67,211 46,875 Loss on extinguishment of debt 1,491 — Loss (gain) on sale of assets 398 ( 264 ) Payments on interest rate swap, net of changes in value — ( 867 ) Amortization of debt issuance costs 3,233 3,601 Asset retirement obligations accretion 1,804 1,010 Cash paid on asset retirement obligation reclamation (3,384) (3,162) Stock-based compensation 3,554 1,269 Provision for loss on customer contracts — 159 Amortization of contract asset and contract liabilities ( 39,791 ) ( 19,731 ) Change in current assets and liabilities: Accounts receivable 9,952 ( 16,305 ) Inventory 15,548 ( 25,863 ) Parts and supplies ( 10,582 ) ( 6,271 ) Prepaid expenses 1,186 ( 5,941 ) Accounts payable and accrued liabilities ( 18,992 ) 24,037 Deferred revenue ( 23,423 ) 35,485 Other 610 719 Net cash provided by operating activities $ 59,414 $ 54,169 48 Table of Contents Hallador Energy Company Consolidated Statements of Cash Flows For the years ended December 31, (in thousands) (continued) 2023 2022 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures $ ( 75,352 ) $ ( 54,020 ) Proceeds from sale of equipment 62 655 Net cash used in investing activities ( 75,290 ) ( 53,365 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on bank debt ( 59,713 ) ( 78,225 ) Borrowings of bank debt 66,000 51,700 Proceeds from sale and leaseback arrangement 11,082 — Issuance of convertible notes payable — 11,000 Issuance of related party convertible notes payable — 18,000 Debt issuance costs ( 6,013 ) ( 2,097 ) Distributions to redeemable noncontrolling interests — ( 585 ) ATM offering 7,318 — Taxes paid on vesting of RSUs ( 2,101 ) — Net cash provided by (used in) financing activities 16,573 ( 207 ) Increase in cash, cash equivalents, and restricted cash 697 597 Cash, cash equivalents, and restricted cash, beginning of year 6,426 5,829 Cash, cash equivalents, and restricted cash, end of year $ 7,123 $ 6,426 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH: Cash and cash equivalents $ 2,842 $ 3,009 Restricted cash 4,281 3,417 $ 7,123 $ 6,426 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 9,966 $ 8,123 SUPPLEMENTAL NON-CASH FLOW INFORMATION: Change in capital expenditures included in accounts payable and finance lease $ 1,882 $ 3,440 The accompanying notes are an integral part of these Consolidated Financial Statements 49 Table of Contents Hallador Energy Company Consolidated Statement of Stockholders’ Equity (in thousands) Additional Total Common Stock Issued Paid-in Retained Stockholders' Shares Amount Capital Earnings Equity BALANCE, DECEMBER 31, 2021 30,785 $ 308 $ 104,126 $ 77,801 182,235 Stock-based compensation — — 1,269 — 1,269 Cancellation of redeemable noncontrolling interests — — 3,415 — 3,415 Stock issued on redemption of convertible note 232 2 998 — 1,000 Stock issued on redemption of related party convertible notes 1,966 20 8,980 — 9,000 Net income — — — 18,105 18,105 BALANCE, DECEMBER 31, 2022 32,983 330 118,788 95,906 215,024 Stock-based compensation — — 3,554 — 3,554 Stock issued on vesting of RSUs 473 5 ( 5 ) — — Taxes paid on vesting of RSUs ( 198 ) ( 2 ) ( 2,099 ) — ( 2,101 ) Stock issued in ATM offering 794 8 7,310 — 7,318 Net income — — — 44,793 44,793 BALANCE, DECEMBER 31, 2023 34,052 341 127,548 140,699 268,588 The accompanying notes are an integral part of these Consolidated Financial Statements 50 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 ( 1 ) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation The consolidated financial statements include the accounts of Hallador Energy Company (hereinafter, “we”, “our” or “us”) and our wholly owned subsidiaries Sunrise Coal, LLC (“Sunrise”), Hallador Power Company, LLC (“Hallador Power”) and Hourglass Sands, LLC (“Hourglass”), as well as Sunrise and Hallador Power's wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Sunrise is engaged in the production of steam coal from mines located in western Indiana. Hallador Power is engaged in the production of coal-fired electric power generation located in Sullivan County, Indiana. Segment Information As the result of Hallador Power’s acquisition of the Merom Generating Station one gigawatt power plant in Sullivan County, Indiana (the “Merom Power Plant”) from Hoosier Energy Rural Electric Cooperative, Inc. (“Hoosier”) on October 21, 2022 ( the “Merom Acquisition”), as further described in Note 15, beginning in the fourth quarter of 2022, we began to strategically view and manage our operations through two reportable segments: Coal Operations and Electric Operations. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as “Corporate and Other” and primarily are comprised of unallocated corporate costs and activities, including a 50 % interest in Sunrise Energy, LLC (“Sunrise Energy”), a private gas exploration company with operations in Indiana, which we account for using the equity method, and our wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River. The Coal Operations reportable segment includes currently operating mining complexes Oaktown 1 and Oaktown 2 underground mines, Prosperity surface mine, Freelandville surface mine and Carlisle wash plant. On February 23, 2024, our Sunrise Coal Division undertook an initiative designed to strengthen our financial and operational efficiency and to create significant operational savings and higher margins in our coal segment. For further information, see “Note 19 - Subsequent Events” below. The Electric Operations reportable segment includes electric power generation facilities of the Merom Power Plant. Reclassifications Amounts in the prior years consolidated financial statements are reclassified whenever necessary to conform to the current year’s presentation. Any reclassification adjustments had no impact on prior year total assets, liabilities, net income or shareholders’ equity. Cash and Cash Equivalents Cash and cash equivalents include investments with maturities when purchased of three months or less. Cash balances at individual banks may exceed the federally insured limit by the Federal Deposit Insurance Corporation. The Company has not experienced any material losses in such accounts. Accounts Receivable The timing of revenue recognition, billings and cash collections results in accounts receivable from customers. Customers are invoiced as coal is shipped or as power is delivered or at periodic intervals in accordance with contractual terms. Invoices typically include customary adjustments for the resolution of price variability, such as coal quality thresholds. Payments are generally received within thirty days of invoicing. Historically, credit losses have been insignificant. No charges for credit losses were recognized during the years ended December 31, 2023 or 2022. Inventory and Parts and Supplies Inventory and parts and supplies are valued at the lower of cost or net realizable value determined using the first -in first -out method. Inventory costs include labor, supplies, operating overhead, and other related costs incurred at or on behalf of the mining location or plant, including depreciation, depletion, and amortization of equipment, buildings, mineral rights, and mine development costs. Contract Asset - Coal Purchase Agreement Contract Asset - Coal Purchase Agreement (as defined in Note 15 ) is the result of a coal purchase agreement with Hoosier whereby we purchased coal from Hoosier through May 31, 2023, at fixed prices which were below market prices at the date of entry into the agreement. This agreement was entered into as consideration in the Merom Acquisition. The asset was amortized to inventory as coal was purchased over the term of the agreement as the contract was fulfilled. During the years ended December 31, 2023 and 2022, $ 19.6 million and $ 14.7 million, respectively, were amortized, of which $ 30.7 million and $ 3.6 million, respectively, was recognized in operating expenses on the consolidated statements of operations. The Coal Purchase Agreement term was from October 21, 2022 to May 31, 2023. Prepaid Expenses Prepaid expenses include prepaid insurance and other prepaid balances with vendors for various services paid for in advance of use. 51 Table of Contents Advanced Royalties Coal leases that require minimum annual or advance payments and are recoverable from future production are generally deferred and charged to expense as the coal is subsequently produced. Advance royalties are included in other assets. Mining Properties and Plant Equipment Mining properties are recorded at cost. Interest costs applicable to major asset additions are capitalized during the construction period. Expenditures that extend the useful lives or increase the productivity of the assets are capitalized. The cost of maintenance and repairs that do not extend the useful lives or increase the productivity of the assets are expensed as incurred. Other than land and most mining equipment, mining properties are depreciated using the units-of-production method over the estimated recoverable reserves. Most surface and underground mining equipment is depreciated using estimated useful lives ranging from three to twenty-five years. The values of the property, plant and equipment acquired as part of the Merom Acquisition were recorded at relative fair value based on the consideration paid upon closing of the acquisition of the plant in October 2022. Other equipment is recorded at cost. Expenditures that extend the useful lives or increase the productivity of the assets are capitalized. The cost of maintenance and repairs that do not extend the useful lives or increase the productivity of the assets are expensed as incurred. Most power plant equipment is depreciated using estimated useful lives ranging from four to nine years. If facts and circumstances suggest that a long-lived asset may be impaired, the carrying value is reviewed for recoverability. If this review indicates that the carrying value of the asset will not be recoverable through estimated undiscounted future net cash flows related to the asset over its remaining life, then an impairment loss is recognized by reducing the carrying value of the asset to its estimated fair value. There were no long-lived asset impairments during the years ended December 31, 2023 or December 31, 2022. Mine Development Costs of developing new mines, including asset retirement obligation assets, or significantly expanding the capacity of existing mines, are capitalized and amortized using the units-of-production method over estimated recoverable reserves. Deferred Revenue Deferred revenue includes advance payments on electric capacity payments and prepayments on coal deliveries. The deferred revenue for each will be reversed to revenue on a monthly pro-rata basis for the capacity payments and as coal is delivered for the coal prepayments based upon the underlying contractual terms. All deferred revenue is expected to be recognized in revenue within one year. Asset Retirement Obligations (ARO) – Reclamation At the time they are incurred, legal obligations associated with the retirement of long-lived assets are reflected at their estimated fair value, with a corresponding charge to mine development. Obligations are typically incurred when we commence development of underground and surface mines and include reclamation of support facilities, refuse areas and slurry ponds. Obligations are reflected at the present value of their future cash flows. We reflect accretion of the obligations for the period from the date they are incurred through the date they are extinguished. The ARO assets are amortized using the units-of-production method over estimated recoverable (proven and probable) reserves. We use credit-adjusted risk-free discount rates ranging from 7 % to 10 % to discount the obligation, inflation rates anticipated during the time to reclamation, and cost estimates prepared by its engineers inclusive of market risk premiums. Federal and state laws require that mines be reclaimed in accordance with specific standards and approved reclamation plans, as outlined in mining permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at underground mines, and reclamation of refuse areas and slurry ponds. We review our ARO at least annually and reflect revisions for permit changes, changes in estimated reclamation costs and changes in the estimated timing of such costs. The change in estimate for the year ended December 31, 2023, was a result of a change in timing and acreage of expected reclamation of the Merom Power Plant. In the event we are not able to perform reclamation, we have surety bonds at December 31, 2023 totaling $ 37.5 million to cover ARO. The undiscounted asset retirement obligation was $ 26.6 million and $ 27.0 million at December 31, 2023 and 2022, respectively. 52 Table of Contents The table below (in thousands) reflects the changes to ARO for the periods presented: Year Ended December 31, 2023 2022 Balance, beginning of year $ 20,834 $ 14,125 Merom acquisition — 7,230 Freelandville addition — 1,631 Accretion 1,804 1,010 Change in estimate ( 2,566 ) — Payments ( 3,384 ) ( 3,162 ) Balance, end of year 16,688 20,834 Less current portion ( 2,150 ) ( 3,580 ) Long-term balance, end of year $ 14,538 $ 17,254 Contract Liabilities - Power Purchase Agreement and Capacity Payment Reduction Contract Liabilities - Power Purchase Agreement and Capacity Payment Reduction (both as defined in Note 15 ) are the result of a power purchase agreement with Hoosier whereby Hallador Power is selling power to Hoosier through 2025 at fixed prices which were below market prices at the date the parties entered into the agreement. Hallador Power also agreed to a reduction in future capacity payments as part of the acquisition consideration. These agreements were entered into as consideration in the Merom Acquisition. The power purchase agreement liability is amortized to electric sales revenue pro-rata over the term of the agreement as the contract is fulfilled. During the years ended December 31, 2023 and 2022, amortization of the power purchase agreement contract liability totaled $ 70.5 million and $ 23.3 million, respectively. The Power Purchase Agreement term is from October 21, 2022 to December 31, 2025. The Capacity Payment Reductions occurred on May 31, 2023 and November 30, 2023 in the amount of $7.5 million each. Interest Rate Swaps We have historically utilized derivative instruments to manage exposures to interest rate risk on long-term debt. We enter interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. These interest rate swaps have not been designated as hedging instruments and were accounted for as an asset or a liability in the accompanying consolidated balance sheets at their fair value. Realized and unrealized gains and losses are classified as operating activities in the accompanying consolidated statements of cash flows. As of December 31, 2023 and 2022, we were not a party to any interest rate swaps. Commitments and Contingencies From time to time, we are involved in legal proceedings and/or may be subject to industry rulings that could bring rise to claims in the ordinary course of business. We have concluded that the likelihood is remote that the ultimate resolution of any pending litigation or pending claims will be material or have a material adverse effect on our business, financial position, results of operations or liquidity. Income Taxes Income taxes are provided based on the liability method of accounting. The provision for income taxes is based on pretax financial income. Deferred tax assets and liabilities are recognized for the future expected tax consequences of temporary differences between income tax and financial reporting and principally relate to differences in the tax basis of assets and liabilities and their reported amounts, using enacted tax rates in effect for the year in which differences are expected to reverse. 53 Table of Contents Net Income per Share Basic earnings per share (“EPS”) are computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS attributable to common shareholders is computed by adjusting net earnings by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include shares of restricted stock units as if the units issued by us were vested and convertible debt. We apply the treasury stock method to account for the dilutive impact of its restricted stock units and the if converted method for its convertible notes. Anti-dilutive securities are excluded from diluted EPS. As a result of determining the effect of potentially dilutive securities, in certain periods, diluted net loss per share is the same as the basic net loss per share for the periods presented. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates. The most significant estimates included in the preparation of the financial statements relate to: (i) deferred income tax accounts, (ii) coal reserves, (iii) depreciation, depletion, and amortization, (iv) estimates related to the Merom Acquisition, (v) estimates used in our impairment analysis, and (vi) estimates used in the calculation of ARO. Long-term Contracts As of December 31, 2023 , we are committed to supplying third -party customers up to a maximum of 9.2 million tons of coal through 2027, of which 6.2 million tons are priced. We are committed to supplying coal to Merom Power Plant up to a maximum of 10.7 million tons of coal through 2028. All committed tons to Merom are priced. For 2023 , we derived 93 % of our third -party coal sales from five customers, each representing at least 10% of coal sales. At December 31, 2023, 85 % of our coal operations accounts receivable was from four customers, each representing more than 10%. For the year ended December 31, 2023 , 100 % of our electric sales and accounts receivable were with two customers. For 2022 , we derived 90 % of our coal sales from five customers, each representing at least 10% of our coal sales. At December 31, 2022, 86 % of our coal operations accounts receivable was from four customers, each representing more than 10%. For the year ended December 31, 2022, 100 % of our electric sales and accounts receivable was with one customer. For 2023, 100 % of our delivered energy generation revenue was sold to Hoosier or the Midcontinent Independent System Operator ("MISO") wholesale market. MISO is the independent system operator managing the flow of high-voltage electricity across 15 U.S. states and the Canadian province of Manitoba. For 2023, we derived 91 % of our capacity sales revenue from three customers, each representing at least 10% of capacity sales revenue. As of December 31, 2023, we are committed to supply approximately 22 % of the plant’s energy generation output and approximately 32 % of the plant’s capacity to Hoosier from June 1, 2023, through May 31, 2028. Additionally, as of December 31, 2023, we are committed to supply to other customers approximately 47 % to 55 % of the plant’s capacity during the years ending December 31, 2024, through 2026 and approximately 28 % of the plant’s capacity during the years ending December 31, 2027, through 2028. For 2022, we derived 100% of our electric delivered energy generation and capacity sales revenue from Hoosier. Stock-based Compensation Stock-based compensation for restricted stock units is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable vesting period of the stock award (generally two to four years) using the straight-line method. Recent Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures ("ASU 2023 - 07" ). ASU 2023 - 07 primarily requires enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker ("CODM"), the amount and composition of other segment items, and the title and position of the CODM. ASU 2023 - 07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023 - 07, but do not expect it to have a material effect on our consolidated financial statements. In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures ("ASU 2023 - 09" ). ASU 2023 - 09 primarily requires enhanced disclosures to ( 1 ) disclose specific categories in the rate reconciliation, ( 2 ) disclose the amount of income taxes paid and expensed disaggregated by federal, state, and foreign taxes, with further disaggregation by individual jurisdictions if certain criteria are met, and ( 3 ) disclose income (loss) from continuing operations before income tax (benefit) disaggregated between domestic and foreign. ASU 2023 - 09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023 - 09, but do not expect it to have a material effect on our consolidated financial statements. ( 2 ) INVENTORY Inventory is valued at lower of cost or net realizable value (“NRV”). As of December 31, 2023 , and 2022, coal inventory includes NRV adjustments of $ 2.0 million and $ 4.9 million, respectively. 54 Table of Contents ( 3 ) OTHER LONG-TERM ASSETS (IN THOUSANDS) December 31, 2023 2022 Advanced coal royalties $ 5,521 $ 5,967 Other 1,540 1,618 Total other assets $ 7,061 $ 7,585 ( 4 ) BANK DEBT On March 25, 2022, we executed an amendment to our credit agreement with PNC Bank, National Association (in its capacity as administrative agent, “PNC”), administrative agent for its lenders under its credit agreement. The primary purpose of the amendment was to return the allowable leverage ratio and debt service coverage ratio to December 31, 2021 levels through September 30, 2022, with the debt service coverage waived for March 31, 2022. On May 20, 2022, we executed an additional amendment to our credit agreement with PNC. The primary purpose of this amendment was to modify the allowable leverage ratio and debt service coverage ratio through June 30, 2022, to provide relief for current and anticipated covenant violations. On August 5, 2022, we executed an additional amendment to our credit agreement with PNC. The primary purpose of this amendment was to modify the allowable leverage ratio and debt service coverage ratio through September 30, 2022, to provide relief for anticipated covenant violations. On March 13, 2023, we executed an additional amendment to our credit agreement with PNC. The primary purpose of the amendment was to convert $ 35 million of the outstanding balance on the revolver into a new term loan with a maturity date of March 31, 2024, and extend the maturity date of the revolver to May 31, 2024. The amendment also reduced the total capacity under the revolver to $ 85 million and waived the maximum annual capital expenditure covenant for 2022 and increased the covenant for 2023 to $ 75 million. Subsequent to December 31, 2022, and prior to the effective date of this amendment, we had borrowed an additional $ 17 million under the revolver. Additionally, this amendment provided for the transition in interest rates from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) based pricing with ranges from SOFR plus 4.00 % to SOFR plus 5.00 %, depending on our leverage ratio. On August 2, 2023, we executed an additional amendment to our credit agreement with PNC, which was accounted for as a debt extinguishment. The primary purpose of the amendment was to convert $ 65 million of the outstanding funded debt into a new term loan with a maturity of March 31, 2026, and enter into a revolver of $ 75 million with a maturity of July 31, 2026. The amendment increased the maximum annual capital expenditure limit to $ 100 million. Prior to the March 13, 2023 amendment, bank debt was comprised of term debt ($ 5.5 million as of December 31, 2022) and a $ 120 million revolver ($ 79.7 million borrowed as of December 31, 2022). The term debt amortization was to conclude with the final payment of $ 5.5 million in March 2023. The revolver was to mature in September 2023. Under the provision of the March 13, 2023 amendment, bank debt was comprised of term debt ($ 35.0 million as of March 13, 2023) and an $ 85 million revolver ($ 40.2 million borrowed as of March 13, 2023). The term debt required payment of $ 10 million in June 2023 each quarter thereafter in 2023 and $ 5.0 million by March 31, 2024. Under the August 2, 2023 amendment, bank debt was comprised of term debt ($ 58.5 million borrowed as of December 31, 2023) and a $ 75 million revolver ($ 33.0 million borrowed as of December 31, 2023. The term debt requires payments of $ 6.5 million beginning April 2024 through March 2026. Bank debt increased by $ 6.3 million and was reduced by $ 26.5 million during the years ended December 31, 2023 and 2022, respectively. Our debt is recorded at amortized cost, which approximates fair value due to the variable interest rates in the agreement and is collateralized primarily by our assets. Liquidity As of December 31, 2023, we had additional borrowing capacity of $ 23.4 million under the revolver and total liquidity of $ 26.2 million. Our additional borrowing capacity is net of $ 18.6 million in outstanding letters of credit as of December 31, 2023 that were required to maintain surety bonds. Liquidity consists of additional borrowing capacity and cash and cash equivalents. Fees Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $ 2.5 million as of December 31, 2022. Additional costs incurred with the March 13, 2023 and August 2, 2023 amendments totaled $ 1.6 million and $ 4.3 million, respectively. During 2023 we recognized a loss on extinguishment of debt of $ 1.5 million for the write-off of unamortized loan fees related to the August 2, 2023 amendment to our credit agreement, which was accounted for as a debt extinguishment. The remaining costs were deferred and are being amortized over the term of the loan. Unamortized costs as of December 31, 2023, and December 31, 2022 were $ 3.6 million and $ 2.5 million, respectively. 55 Table of Contents Bank debt, less debt issuance costs, is presented below (in thousands): December 31, 2023 2022 Current bank debt $ 26,000 $ 35,500 Less unamortized debt issuance cost ( 1,562 ) ( 2,469 ) Net current portion $ 24,438 $ 33,031 Long-term bank debt $ 65,500 $ 49,713 Less unamortized debt issuance cost ( 2,047 ) — Net long-term portion $ 63,453 $ 49,713 Total bank debt $ 91,500 $ 85,213 Less total unamortized debt issuance cost ( 3,609 ) ( 2,469 ) Net bank debt $ 87,891 $ 82,744 Covenants The credit facility includes a Maximum Leverage Ratio (consolidated funded debt / trailing twelve months adjusted EBITDA), calculated as of the end of each fiscal quarter for the trailing twelve months, not to exceed 2.25 to 1.00. As of December 31, 2023 , our Leverage Ratio of 1.32 was in compliance with the requirements of the credit agreement. Beginning December 31, 2022, the credit facility requires a Minimum Debt Service Coverage Ratio (consolidated adjusted EBITDA/annual debt service) calculated as of the end of each fiscal quarter for the trailing 12 months of 1.25 to 1.00 through the maturity of the credit facility. As of December 31, 2023 , our Debt Service Coverage Ratio of 3.30 was in compliance with the requirements of the credit agreement. Interest Rate The interest rate on the facility ranges from SOFR plus 4.00 % to SOFR plus 5.00 %, depending on our Leverage Ratio. As of December 31, 2023, we were paying SOFR plus 4.25 % on the outstanding bank debt. Future Maturities (in thousands): 2024 26,000 2025 26,000 2026 39,500 Total $ 91,500 56 Table of Contents ( 5 ) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (IN THOUSANDS) December 31, 2023 2022 Accounts payable $ 43,636 $ 62,306 Accrued property taxes 2,987 1,917 Accrued payroll 6,575 5,933 Workers' compensation reserve 3,629 3,440 Group health insurance 2,300 2,250 Asset retirement obligation - current portion 2,150 3,580 Other 1,631 3,546 Total accounts payable and accrued liabilities $ 62,908 $ 82,972 ( 6 ) REVENUE Revenue from Contracts with Customers We account for a contract with a customer when the parties have approved the contract and are committed to performing their respective obligations, the rights of each party are identified, payment terms are identified, the contract has commercial substance, and it is probable substantially all of the consideration will be collected. We recognize revenue when we satisfy a performance obligation by transferring control of a good or service to a customer. Coal operations Our coal revenue is derived from sales to customers of coal produced at its facilities. Our customers typically purchase coal directly from our mine sites where the sale occurs and where title, risk of loss, and control pass to the customer at that point. Our customers arrange for and bear the costs of transporting their coal from our mines to their plants or other specified discharge points. Our customers are typically domestic utility companies. Our coal sales agreements with our customers are fixed-priced, fixed-volume supply contracts, or include a pre-determined escalation in price for each year. Price re-opener and index provisions may allow either party to commence a renegotiation of the contract price at a pre-determined time. Price re-opener provisions may automatically set a new price based on the prevailing market price or, in some instances, require us to negotiate a new price, sometimes within specified ranges of prices. The terms of our coal sales agreements result from competitive bidding and extensive negotiations with customers. Consequently, the terms of these contracts vary by customer. Coal sales agreements will typically contain coal quality specifications. With coal quality specifications in place, the raw coal sold by us to the customer at the delivery point must be substantially free of magnetic material and other foreign material impurities and crushed to a maximum size as set forth in the respective coal sales agreement. Price adjustments are made and billed in the month the coal sale was recognized based on quality standards that are specified in the coal sales agreement, such as British thermal unit (“Btu”) factor, moisture, ash, and sulfur content, and can result in either increases or decreases in the value of the coal shipped. 57 Table of Contents Electric operations We concluded that for a Power Purchase Agreement (“PPA”) that is not determined to be a lease or derivative, the definition of a contract and the criteria in ASC 606, Revenue from Contracts with Customers (“ASC 606” ), is met at the time a PPA is executed by the parties, as this is the point at which enforceable rights and obligations are established. Accordingly, we concluded that a PPA that is not determined to be a lease or derivative constitutes a valid contract under ASC 606. We recognize revenue daily, based on an output method of capacity made available as part of any stand-ready obligations for contract capacity performance obligations and daily, based on an output method of MWh of electricity delivered. For the delivered energy performance obligation in the PPA with Hoosier, we recognize revenue daily for actual delivered electricity plus the amortization of the contract liability as a result of the Asset Purchase Agreement with Hoosier. For the delivered energy to all other customers, we recognize revenue daily for the actual delivered electricity. Disaggregation of Revenue Revenue is disaggregated by primary geographic markets for our coal operations and by revenue source for our electric operations, as we believe this best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. Coal operations For the years ended December 31, 2023 and 2022, 33 % and 74 %, respectively, of our coal revenue was sold to customers in the State of Indiana with the remainder sold to customers in Florida, North Carolina, Georgia, and Alabama. Electric operations For the year ended December 31, 2023, electric sales revenue from delivered energy generation and capacity sales revenue was $ 211.8 million and $ 56.1 million, respectively. For the year ended December 31, 2022, electric sales revenue from delivered energy generation and capacity sales revenue was $ 53.9 million and $ 12.3 million, respectively. Performance Obligations Coal operations A performance obligation is a promise in a contract with a customer to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue recognition standard and therefore determine when and how revenue is recognized. In most of our coal contracts, the customer contracts with us to provide coal that meets certain quality criteria. We consider each ton of coal a separate performance obligation and allocate the transaction price based on the base price per the contract, increased or decreased for quality adjustments. We recognize revenue at a point in time as the customer does not have control over the asset at any point during the fulfillment of the contract. For substantially all of our customers, this is supported by the fact that title and risk of loss transfer to the customer upon loading of the truck or railcar at the mine. This is also the point at which physical possession of the coal transfers to the customer, as well as the right to receive substantially all benefits and the risk of loss in ownership of the coal. We have remaining coal sales performance obligations relating to fixed priced contracts to third -party customers of approximately $324 million, which represent the average fixed prices on our committed contracts as of December 31, 2023. We expect to recognize approximately 55 % of this coal sales revenue in 2024, with the remainder recognized through 2027. We have remaining performance obligations relating to coal sales contracts with price reopeners of approximately $ 155 million, which represents our estimate of the expected re-opener price on committed contracts as of December 31, 2023. We expect to recognize all of this coal sales revenue beginning in 2024 through 2027. The coal tons used to determine the remaining performance obligations are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce tonnage if such option exists in the customer contract. Electric operations We concluded that each megawatt hour (“MWh”) of delivered energy is capable of being distinct as a customer could benefit from each on its own by using/consuming it as a part of its operations. We also concluded that the stand-ready obligation to be available to provide electricity is capable of being distinct as each unit of capacity provides an economic benefit to the holder and could be sold by the customer. 58 Table of Contents In accordance with the APA, as defined in Note 15. Merom Acquisition, with Hoosier, Hallador Power shall sell, and Hoosier shall buy, at least 70 % of the delivered energy quantities through 2025 at the contract price, which is $ 34.00 per MWh. We have remaining delivered energy obligations to Hoosier totaling $ 115.6 million through 2025 as of December 31, 2023. The agreement was amended August 31, 2023 to extend through 2028 with additional obligations to Hoosier of $ 186.6 million as of December 31, 2023. In addition to delivered energy, under the APA, Hallador Power shall provide a stand-ready obligation to provide electricity, also known as contract capacity. The contract capacity that Hallador Power shall provide to Hoosier is 917 megawatts (“MW”) for contract year one, and 300 MW for contract years two to four. Hoosier shall pay Hallador Power the capacity price of $ 5.80 per kilowatt month for the contract capacity. We have remaining capacity obligations to Hoosier through 2025 totaling $ 41.6 million as of December 31, 2023. The agreement was amended August 31, 2023 to extend through 2028 with additional capacity obligation to Hoosier of $ 60.9 million as of December 31, 2023. We also have capacity obligations outside of the APA to customers through 2028 totaling $ 144.6 million as of December 31, 2023. The Company has $ 23.1 million of deferred revenue as of December 31, 2023, related to these obligations. Contract Balances Under ASC 606, the timing of when a performance obligation is satisfied can affect the presentation of accounts receivable, contract assets, and contract liabilities. The main distinction between accounts receivable and contract assets is whether consideration is conditional on something other than the passage of time. A receivable is an entity’s right to consideration that is unconditional. Under the typical payment terms of our contracts with customers, the customer pays us a base price for the coal, increased or decreased for any quality adjustments, electricity, or capacity. Amounts billed and due are recorded as trade accounts receivable and included in accounts receivable in our consolidated balance sheets. As of December 31, 2023, accounts receivable for coal sales billed to customers was $ 14.3 million. We do not currently have any other contracts in place where it would transfer coal, electricity or capacity in advance of knowing the final price, and thus do not have any other contract assets recorded. Contract liabilities also arise when consideration is received in advance of performance. ( 7 ) INCOME TAXES Our income tax is different than the expected amount computed using the applicable federal statutory income tax rate of 21 %. The reasons for and effects of such differences for the years ended December 31 are below (in thousands): 2023 2022 Expected amount $ 10,344 $ 4,171 State income taxes, net of federal benefit 1,246 391 Percentage depletion ( 3,348 ) ( 2,081 ) Change in valuation allowance ( 3,681 ) ( 970 ) Stock-based compensation ( 844 ) — Return to provision adjustments 159 153 Other 589 92 Total income tax expense $ 4,465 $ 1,756 The deferred tax assets and liabilities resulting from temporary differences between book and tax basis are comprised of the following at December 31 (in thousands): 2023 2022 Deferred tax assets: Net operating loss $ 20,029 $ 26,570 Power contracts 23,302 34,233 Compensation 2,287 1,344 Accrued liabilities 570 556 Other 2,016 471 Total deferred tax assets 48,204 63,174 Valuation allowance — ( 3,681 ) Deferred tax assets, net of valuation allowance 48,204 59,493 Deferred tax liabilities: Coal properties ( 25,764 ) ( 27,700 ) Power properties ( 31,126 ) ( 35,702 ) Investment partnerships ( 549 ) ( 494 ) Other — ( 203 ) Total deferred tax liabilities ( 57,439 ) ( 64,099 ) Net deferred tax liability $ ( 9,235 ) $ ( 4,606 ) 59 Table of Contents Our effective tax rate (“ETR”) for 2023 and 2022 was approximately 9 %. The tax rate for the years ended December 31, 2023 and 2022 are not predictive of future tax rates. Our ETR differs from the statutory rate due to statutory depletion in excess of tax basis, return to provision adjustments, stock-based compensation and changes in the valuation allowance. The deduction for statutory depletion does not necessarily change proportionately to changes in income before income taxes. We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Due to historical cumulative earnings over the prior three years as well as projected earnings into the future, we believe that it is more likely than not that the benefit from certain federal and state deferred tax assets will be realized. As such, we released the valuation allowance as of December 31, 2023. The federal NOLs generated in pre- 2018 years and remaining of $ 13.4 million can offset 100% of future years' taxable income. The federal NOLs generated in post 2017 years of $ 60.7 million can offset 80% of future years' taxable income. The pre- 2018 federal NOLs will expire in varying amounts from 2035 to 2037 if they are not utilized. Indiana NOLs have a 20 -year carryforward period and will expire in the years 2034 to 2041 if they are not utilized. We have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions, to determine whether the positions will be more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than- not threshold are not recorded as a tax benefit or expense in the current year. We identified our federal tax return and our Indiana state tax return as “major” tax jurisdictions. We believe that our income tax filing positions and deduction will be sustained on audit and do not anticipate any adjustments that will result in a material change to its consolidated financial position. While not material, we record any penalties and interest as general and administrative expense. Tax returns filed with the Internal Revenue Service and state entities generally remain subject to examination for three years after filing. ( 8 ) STOCK COMPENSATION PLANS Restricted Stock Units (RSUs) The table below shows the number of RSUs available for issuance at December 31, 2023 : Total authorized RSUs in Plan approved by shareholders 4,850,000 Stock issued out of the Plan from vested grants ( 3,540,178 ) Non-vested grants ( 858,363 ) RSUs available for future issuance 451,459 Non-vested grants at December 31, 2021 183,000 Granted – weighted average share price on grant date was $6.74 881,437 Vested — Forfeited ( 7,500 ) Non-vested grants at December 31, 2022 1,056,937 Granted – weighted average share price on grant date was $9.30 312,147 Vested ( 472,721 ) Forfeited ( 38,000 ) Non-vested grants at December 31, 2023 858,363 RSU Vesting Schedule Vesting Year RSUs Vesting 2024 319,419 2025 538,944 60 Table of Contents Shares vested in 2023 had a value of $ 5.0 million based on the share price of $ 10.69 on their vesting dates. Under our RSU plan, participants are allowed to relinquish shares to pay for their required statutory income taxes. The outstanding RSUs have a value of $7.2 million based on the March 8, 2024 closing stock price of $8.39. For the years ended December 31, 2023 and 2022, stock-based compensation was $ 3.6 million and $ 1.3 million, respectively. As of December 31, 2023, unrecognized stock compensation expense was $ 4.1 million, and we had 451,459 RSUs available for future issuance. RSUs are not allocated earnings and losses as they are considered non-participating securities. Stock Options We have no stock options outstanding. ( 9 ) EMPLOYEE BENEFITS Our employee benefit expenses for the years ended December 31 are below (in thousands): 2023 2022 Health benefits, including premiums $ 18,483 $ 14,607 401(k) matching 2,910 2,549 Deferred bonus plan 687 809 Total $ 22,080 $ 17,965 Of the amounts in the above table, $ 21.5 million and $ 17.4 million are recorded in operating expenses in the consolidated statements of operations for the years ended December 31, 2023 and 2022, respectively, with the remainder in general and administrative. Our mine employees are also covered by workers’ compensation and such costs were approximately $ 4.9 million for 2023 and 2022, and are recorded in operating expenses in the consolidated statements of operations. Workers’ compensation is a no -fault system by which individuals who sustain work-related injuries or occupational diseases are compensated. Benefits and coverage are mandated by each state which includes disability ratings, medical claims, rehabilitation services, and death and survivor benefits. We are partially self-insured for such claims, however, its operations are protected from these perils through stop-loss insurance policies. Our maximum annual exposure is limited to $ 1.0 million per occurrence with a $ 4.0 million aggregate deductible. ( 10 ) LEASES We determine if an arrangement is an operating or finance lease at the inception of each contract. If the contract is classified as an operating lease, we record a right-of-use (“ROU”) asset and corresponding liability reflecting the total remaining present value of fixed lease payments over the expected term of the lease agreement. The expected term of the lease may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. If our lease does not provide an implicit rate in the contract, we use our incremental borrowing rate when calculating the present value. We have 2 operating leases for office space and processing facilities with remaining lease terms ranging from less than one year to approximately five years. As most of the leases do not provide an implicit rate, we calculate the ROU assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. At December 31, 2023 and 2022, respectively, we had approximately $ 0.7 and $ 0.2 million of ROU operating lease assets recorded within buildings and equipment on the consolidated balance sheets. Operating lease expense associated with ROU assets is recognized on a monthly basis over the lease term in operating costs on the consolidated statements of operation. We entered into three finance leases during 2023, which are accounted for as failed sale-leaseback transactions. Finance lease assets are included in finance lease right-of-use assets on the consolidated balance sheets and the associated finance lease liabilities are reflected within current portion of lease financing and long-term lease financing on the consolidated balance sheets as applicable. Depreciation on our finance lease assets was $ 2.3 million for the year ended December 31, 2023. Imputed interest expense on our lease liabilities was $ 0.1 million for the year ended December 31, 2023. We deferred financing fees of $ 0.1 million in connection with entry into the finance leases. These deferred financing fees will be amortized on a straight-line basis over the term of the finance leases. For the year ended December 31, 2023, the amortization of finance lease deferred financing fees was immaterial. Information related to leases was as follows as of December 31 ( in thousands): December 31, 2023 2022 Operating lease information: Operating cash outflows from operating leases $ 208 $ 218 Weighted average remaining lease term in years 8.50 1.30 Weighted average discount rate 9.5 % 6.0 % Finance lease information: Financing cash outflows from finance leases $ — $ — Proceeds from sale and leaseback arrangement 11,082 — Weighted average remaining lease term in years 3.00 — Weighted average discount rate 8.5 % — % 61 Table of Contents We recognized the following costs related to our leases in our consolidated balance sheets: Classification on Consolidated Balance Sheets December 31, 2023 2022 (in thousands) Operating lease assets Buildings and equipment $ 712 $ 230 Operating lease liabilities: Current operating lease liabilities Accounts payable and accrued liabilities $ 58 $ 173 Non-current operating lease liabilities Other long-term liabilities $ 654 $ 57 Total operating lease liabilities $ 712 $ 230 Finance lease assets Finance lease right-of-use assets $ 12,346 $ — Finance lease liabilities: Current finance lease liabilities Current portion of lease financing $ 3,933 $ — Non-current finance lease liabilities Long-term lease financing $ 8,157 $ — Total finance lease liabilities $ 12,090 $ — Future minimum lease payments under non-cancellable leases as of December 31, 2023, were as follows: Year Operating Leases Finance Leases (in thousands) 2024 $ 58 $ 4,947 2025 118 4,645 2026 122 4,333 2027 125 — 2028 129 — Thereafter 483 — Total minimum lease payments $ 1,035 $ 13,925 Less imputed interest and deferred finance fees ( 323 ) ( 1,835 ) Total lease liability $ 712 $ 12,090 ( 11 ) SELF INSURANCE We self-insure non-leased underground mining equipment. Such equipment is allocated among seven mining units dispersed over 11 miles. The historical cost of such equipment was approximately $ 262 million and $ 280 million as of December 31, 2023 and 2022, respectively. Restricted cash of $ 4.3 million and $ 3.4 million as of December 31, 2023 and 2022, respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments. ( 12 ) NET INCOME PER SHARE The following table (in thousands, except per share amounts) sets forth the computation of basic earnings per share for the periods presented: Year Ended December 31, 2023 2022 Basic earnings per common share: Net income - basic $ 44,793 $ 18,105 Weighted average shares outstanding - basic 33,133 32,043 Basic earnings per common share $ 1.35 $ 0.57 The following table (in thousands, except per share amounts) sets forth the computation of diluted net income per share: Year Ended December 31, 2023 2022 Diluted earnings per common share: Net income - basic $ 44,793 $ 18,105 Add: Convertible Notes interest expense, net of tax 1,201 527 Net income - diluted $ 45,994 $ 18,632 Weighted average shares outstanding - basic 33,133 32,043 Add: Dilutive effects of if converted Convertible Notes 3,164 1,398 Add: Dilutive effects of Restricted Stock Units 530 208 Weighted average shares outstanding - diluted 36,827 33,649 Diluted net earnings per share $ 1.25 $ 0.55 62 Table of Contents ( 13 ) FAIR VALUE MEASUREMENTS We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. We have no Level 1 instruments. Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. We have no Level 2 instruments. Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). ARO liabilities use Level 3 non-recurring fair value measures as further discussed in Note 1. Lastly, Level 3 fair value measurements were also used in the determination of the fair values of assets acquired, liabilities assumed, and considerations exchanged as part of the Merom Acquisition. ( 14 ) EQUITY METHOD INVESTMENTS Sunrise Energy, LLC We own a 50 % interest in Sunrise Energy, which owns gas reserves and gathering equipment with plans to develop and operate such reserves. Sunrise Energy also plans to develop and explore for oil, natural gas, and coal-bed methane gas reserves on or near our underground coal reserves. The carrying value of the investment included in the consolidated balance sheets as of December 31, 2023 and 2022 was $ 2.8 million and $ 4.0 million, respectively. 63 Table of Contents ( 15 ) MEROM ACQUISITION On February 14, 2022, Hallador Power signed an Asset Purchase Agreement (“APA”), with Hoosier, a rural electric membership corporation organized and existing under the laws of the state of Indiana. Under the APA, Hallador Power acquired the Merom power plant, along with: equipment and machinery in the power plant; materials inventory; a coal purchase agreement; a coal combustion certified coal ash landfill, certain generation interconnection agreements, and coal inventory (collectively, the “Acquired Assets”). Additionally, contemporaneous with entering into the APA, Hallador Power entered into three other agreements with Hoosier comprised of ( 1 ) a Power Purchase Agreement (the “PPA”), ( 2 ) a Coal Supply Purchase Agreement (the “Coal Purchase Agreement”), and ( 3 ) a Closing Side Letter agreeing to a reduction in future capacity payments of $ 15.0 million (“Capacity Payment Reduction”). The purchase price for the Acquired Assets also consisted of the assumption of the power plant’s closure and post-closure remediation, valued at approximately $ 7.2 million; no cash was paid by Hallador Power to Hoosier to effectuate the APA other than payments totaling approximately $ 17.0 million for coal inventory on hand, with an initial payment of $ 5.4 million and subsequent periodic payments over time, subject to post-close adjustments based on actual on-site inventories. The acquisition closed on October 21, 2022. The acquisition was accounted for as an asset acquisition under ASC Topic 805 - 50, Business Combinations as substantially all of the fair value of the gross assets acquired are concentrated in a group of similar identifiable assets. As such, the total purchase consideration (which includes $ 2.9 million of transaction costs) is allocated to the assets acquired on a relative fair value basis. The following table summarizes the final relative fair value allocation of assets acquired and liabilities assumed and incurred as of the Merom Acquisition date. Consideration: (in thousands) Direct transaction costs $ 2,855 Contract liability - PPA 184,500 Contract liability - Capacity payment reduction 11,000 Contract asset - Coal purchase agreement ( 34,300 ) Coal inventory purchased 5,400 Deferred coal inventory payment 11,600 Total consideration $ 181,055 Relative fair value of assets acquired: Plant $ 165,816 Materials and supplies 12,009 Coal inventory 10,460 Amount attributable to assets acquired $ 188,285 Fair value of liabilities assumed: Asset retirement obligations $ 7,230 Amount attributable to liabilities assumed $ 7,230 64 Table of Contents ( 16 ) CONVERTIBLE NOTES On May 2, 2022, and May 20, 2022, we issued senior unsecured convertible notes (the “Notes”) to five parties, in the aggregate principal amount of $ 10 million, with $ 9 million being issued to related parties affiliated with independent members of our board of directors and the remainder to a non-affiliated party. The Notes were scheduled to mature on December 29, 2028, and accrue interest at 8 % per annum, with interest payable on the date of maturity. Pursuant to the terms of the Notes, the holders of the Notes may convert the entire principal balance and all accrued and unpaid interest then outstanding during the period beginning June 1, 2022, and ending on May 31, 2027, into shares of the Company's common stock at a conversion price the greater of (i) $ 3.33 and (ii) the 30 -day trailing volume-weighted average sales price for the common stock on the Nasdaq Capital Market ending on and including the date on which this Note is converted. At any time on or after June 1, 2025, we may, at our option and upon 30 days' written notice provided to the holders, elect to redeem the Notes (in whole and not in part) and the holders shall be obligated to surrender the Notes, at a redemption price equal to 100% of the outstanding principal balance, together with any accrued but unpaid interest thereon to the redemption date. After receipt of such redemption notice from us, the holder may, at its option, elect to convert the principal balance and accrued interest into the Company's common stock by giving written notice of such election to us no later than 5 days prior to the date fixed for redemption. In June 2022, the four holders of the $ 9 million related party notes converted them into 1,965,841 shares of common stock of the Company and the one holder of the $ 1 million Notes converted it into 231,697 shares of common stock pursuant to the terms of the Notes and their related agreements. On July 29, 2022, we issued an additional $ 5 million senior unsecured convertible note to a related party affiliated with an independent member of our board of directors. The Note carries an interest rate of 8 % per annum with a maturity date of December 29, 2028. For the period August 18, 2022 through August 17, 2024, the holder has the option to convert the Note into shares of our common stock at a conversion price of $ 6.254 . Beginning August 18, 2025, we may elect to redeem the Note and the holder shall be obligated to surrender the note at 100% of the outstanding principal balance together with any accrued unpaid interest. Upon receipt of the redemption notice from us, the holder may elect to convert the principal balance and accrued interest into the Company's common stock. On August 8, 2022, we issued an additional $ 4 million of senior unsecured convertible notes to related parties affiliated with independent members of our board of directors. The Notes carry an interest rate of 8 % per annum with a maturity date of December 29, 2028. For the period August 18, 2022 through August 17, 2024, the holder has the option to convert the Notes into shares of our common stock at a conversion price of $ 6.254 . Beginning August 8, 2025, we may elect to redeem the Notes and the holder shall be obligated to surrender the Notes at 100% of the outstanding principal balance together with any accrued unpaid interest. Upon receipt of the redemption notice from us, the holder may elect to convert the principal balance and accrued interest into the Company's common stock. On August 12, 2022, we issued an additional $ 10 million senior unsecured convertible note to an unrelated party. The Note carries an interest rate of 8 % per annum with a maturity date of December 31, 2026. For the period August 18, 2022, through the maturity date, the holder has the option to convert the Note into shares of our common stock at a conversion price of $ 6.15 . Beginning August 12, 2025, we may elect to redeem the Note and the holder shall be obligated to surrender the Note at 100% of the outstanding principal balance together with any accrued unpaid interest. Upon receipt of the redemption notice from us, the holder may elect to convert the principal balance and accrued interest into the Company's common stock. The funds received from the issuance of the various Notes described above in this Note 16 were used to provide additional working capital to the Company. The conversion price and number of shares of our common stock issuable upon conversion of the above notes are subject to adjustment from time to time for any subdivision or consolidation of our shares of common stock and other standard dilutive events. 65 Table of Contents ( 17 ) AT MARKET AGREEMENT On December 18, 2023, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (the “Agent”), pursuant to which we may issue and sell, from time to time, shares (the “Shares”) of our common stock, par value $ 0.01 per share (the “Common Stock”), with aggregate gross proceeds of up to $ 50 million through an “at-the-market” equity offering program under which the Agent will act as sales agent (the “ATM Program”). Under the Sales Agreement, each of us and the Agent have the right, by giving five ( 5 ) days’ notice, to terminate the Sales Agreement in its sole discretion. The Agent may also terminate the Agreement, by notice to us, upon the occurrence of certain events described in the Sales Agreement. During December 2023, we issued 794,000 shares of Common Stock under the ATM Program for net proceeds of $ 7.3 million. For the period January 1, 2024, to March 14, 2024, we issued 710,623 shares of Common Stock under the ATM Program for net proceeds of $ 6.6 million. ( 18 ) SEGMENTS OF BUSINESS At December 31, 2023, our operations are divided into two primary reportable segments, the Coal Operations and Electric Operations segments. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as “Corporate and Other and Eliminations” and primarily are comprised of unallocated corporate costs and activities, including a 50 % interest in Sunrise Energy, which is accounted for using the equity method and our wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River. Year Ended December 31, (in thousands) 2023 2022 Operating Revenues Coal Operations $ 435,425 $ 293,344 Electric Operations $ 268,341 $ 66,316 Corporate and Other and Eliminations $ ( 69,286 ) $ 2,331 Consolidated Operating Revenues $ 634,480 $ 361,991 Income (Loss) from Operations Coal Operations $ 63,600 $ 3,736 Electric Operations $ 12,552 $ 31,505 Corporate and Other and Eliminations $ ( 11,140 ) $ ( 4,811 ) Consolidated Income (Loss) from Operations $ 65,012 $ 30,430 Depreciation, Depletion and Amortization Coal Operations $ 48,365 $ 43,612 Electric Operations $ 18,739 $ 3,117 Corporate and Other and Eliminations $ 107 $ 146 Consolidated Depreciation, Depletion and Amortization $ 67,211 $ 46,875 Assets Coal Operations $ 376,387 $ 376,228 Electric Operations $ 208,331 $ 266,730 Corporate and Other and Eliminations $ 5,062 $ ( 12,404 ) Consolidated Assets $ 589,780 $ 630,554 Capital Expenditures Coal Operations $ 56,521 $ 50,367 Electric Operations $ 18,831 $ 3,653 Corporate and Other and Eliminations $ - $ - Consolidated Capital Expenditures $ 75,352 $ 54,020 ( 19 ) SUBSEQUENT EVENTS On February 23, 2024, our Coal Operations Segment undertook an initiative designed to strengthen our financial and operational efficiency and to create significant operational savings and higher margins in our coal segment. This step will advance our transition from a company primarily focused on coal production to a more resilient and diversified vertically integrated IPP. As part of this initiative, we idled production at our higher cost Prosperity Mine, and substantially idled production at Freelandville Mine with minimal production. We also focused our seven units of underground equipment on four units of our lowest cost production at our Oaktown Mine. Increasing the run time of these four lower cost units from five and a half days per week to seven days per week is intended to further improve the overall cost structure of the coal segment. As part of the initiative, the Company reduced its workforce by approximately 110 employees. In the first quarter of 2024, Hallador borrowed $ 5 million from certain members of the Company’s Board of Directors. The notes are unsecured, mature in February 2025 and accrue interest at 12 % annually, with interest to be paid quarterly beginning on May 31, 2024. In February 2024, the Company elected to pay the semi-annual interest due on the $ 19 million senior unsecured convertible notes with common stock as allowed in the note agreements. The amount of stock issued for the interest payments was 122,600 shares. 66 Table of Contents ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.