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Note 1 - General Business | 3 Months Ended
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Mar. 31, 2022
Notes to Financial Statements |
Significant Accounting Policies [Text Block] |
(1) | GENERAL BUSINESS
The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements included herein have been prepared pursuant to the Securities and Exchange Commission's ( the "SEC") rules and regulations; accordingly, certain information and footnote disclosures normally included in generally accepted accounting principles ("GAAP") financial statements have been condensed or omitted. The results of operations and cash flows for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2022. Our organization and business, the accounting policies we follow, and other information are contained in the notes to our consolidated financial statements filed as part of our 2021 Annual Report on Form 10-K. This quarterly report should be read in conjunction with such Annual Report on Form 10-K. The condensed consolidated financial statements include the accounts of Hallador Energy Company (hereinafter known as “we, us, or our”) and its wholly-owned subsidiaries Sunrise Coal, LLC (Sunrise) and Hourglass Sands, LLC (Hourglass), and Sunrise’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. As announced in our Form 8-K filed on February 18, 2022, on February 14, 2022, Hallador Energy Company, through its subsidiary Hallador Power Company, LLC, entered into an Asset Purchase Agreement (the "Purchase Agreement") to acquire Hoosier Energy’s 1-Gigawatt Merom Generating Station, located in Sullivan County, Indiana, in return for assuming certain decommissioning costs and environmental responsibilities. The transaction, which includes a 3.5-year power purchase agreement (PPA), is scheduled to close in mid- July 2022 upon obtaining required governmental and financial approvals. Going Concern In accordance with ASU 2014-15, “ Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that our financials are issued. We performed the analysis, and our overall assessment was there were conditions or events, considered in the aggregate as of March 31, 2022, which raised substantial doubt about our ability to continue as a going concern within the next year. During our analysis and overall assessment as we were preparing our Form 10-Q in April, we determined that we were in violation of one of our financial covenants for the quarter ending March 31, 2022 due to lower than expected Adjusted EBITDA, a significant non-GAAP factor in the calculation of the ratio, and could be in violation of financial covenants in future quarters, which management determined raises substantial doubt about the Company’s ability to continue as a going concern. These factors did not exist when we filed our Form 10-K on March 28, 2022 as we were projecting at the time that all covenants would be met for the next twelve months and beyond. The Company has embarked on the following actions to address the concerns:
| ● | We executed an amendment to our credit agreement loosening our debt to EBITDA covenant for the three months ending March 31, 2022 and June 30, 2022. We plan to continue discussions with our banking group regarding possible non-compliance in future quarters if our other plans do not materialize.
| ● | We have improved production productivity by 20% in April and May. This has led to significant production cost improvements.
| ● | We have modified existing sales contracts, resulting in our average sales price increasing for the balance of 2022 – 2025. As the sales market is the strongest it has been in decades, we anticipate negotiating additional price increases for 2022-2023 later in the year.
| o | We expect the production cost improvements we have experienced that started in the second quarter 2022, coupled with our anticipated sales price increases, to increase our margins to closer to our historic >$10 per ton margins starting in June.
| ● | We anticipate completing the acquisition of the Merom Generating Station (Merom) in the third quarter of 2022, subject to receiving certain regulatory and financial approvals, which we expect to significantly add to the profitability of our Company and increase EBITDA at that time.
| ● | We also expect the dramatically stronger coal markets to contribute to an increase in our EBITDA in 2023.
| ● | In May, we issued $10 million in convertible notes to parties affiliated with four of our board members and one unrelated party, to add to our March 31, 2022 liquidity of $20.6MM.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Although we are confident that the actions we have taken and are taking will alleviate the substantial doubt, no assurance can be given that our plans to address these matters will be successful, and therefore substantial doubt about the ability to continue as a going concern has not been alleviated. These financial statements do not include any adjustments that might result from this uncertainty, other than presenting our outstanding debt as current for the period ended March 31, 2022.

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