Note 1 - General Business

6 Months Ended

Jun. 30, 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 and six months ended June 30, 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.

In  August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. This was early adopted on January 1, 2022 and did not have a significant impact on our consolidated financial position and consolidated results of operations.

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 (Merom) 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 anticipated to close in September 2022, upon obtaining required governmental and financial approvals.

Going Concern - Alleviation of Substantial Doubt

In accordance with ASU 2014-15, “ Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, which 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 June 30, 2022, which raised substantial doubt about our ability to continue as a going concern within the next year, but such doubt was adequately mitigated by our plans to address the substantial doubt.

Also, during our analysis and overall assessment as we were preparing our Form 10-Q in April for the quarter ended  March 31, 2022, we determined that we were in violation of one of our financial covenants for the quarter ended  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 accompanying financial statements have been prepared assuming that the Company will continue as a going concern. During our analysis and overall assessment in July for the quarter ended June 30, 2022, it became clear that we were likely to violate one or more of our financial covenants for the quarter ending September 30, 2022 due to lower than expected Adjusted EBITDA, a significant non-GAAP factor in the calculation of the ratios.  This factor raised substantial doubt about the Company's ability to continue as a going concern.  Management's plans were to seek an amendment to the credit agreement to provide relief or obtain a waiver of the projected violations.

In August 2022, as disclosed in Note 5, we executed an amendment to our credit agreement providing relief on the covenants in question until the time our internal projections show we will again meet the covenants in the quarter ending December 31, 2022.

Accordingly, the above factors have alleviated substantial doubt about the entity's ability to continue as a going concern.