HALLADOR ENERGY CO

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 Stationone 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 Note15,* beginning in thefourth quarter of2022, we began to strategically view and manage our operations throughtwo reportable segments: Coal Operations and Electric Operations. The remainder of our operations, which arenot 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 Oaktown1 and Oaktown2 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 “Note19* - 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 hadno 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 ofthree months or less. Cash balances at individual banks* mayexceed the federally insured limit by the Federal Deposit Insurance Corporation. The Company hasnot* 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 withinthirty days of invoicing. Historically, credit losses have been insignificant. No charges for credit losses were recognized during the years ended* December**31,* 2023 or2022.

Inventory and Parts and Supplies

Inventory and parts and supplies are valued at the lower of cost or net realizable value determined using thefirst-infirst-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 Note15) 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, 2023and2022,* $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, 2022to 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

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 donot 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 totwenty-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 donot* 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 tonine years.

If facts and circumstances suggest that a long-lived asset* maybe impaired, the carrying value is reviewed for recoverability. If this review indicates that the carrying value of the asset willnot* 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 wereno long-lived asset impairments during the years ended* December 31, 2023or 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 withinone 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 arenot* able to perform reclamation, we have surety bonds at* December 31, 2023totaling $37.5 million to cover ARO. The undiscounted asset retirement obligation was $26.6 million and $27.0 million at December 31, 2023and2022,* respectively.

52

The table below (in thousands) reflects the changes to ARO for the periods presented:

Contract Liabilities - Power Purchase Agreement and Capacity Payment Reduction

Contract Liabilities - Power Purchase Agreement and Capacity Payment Reduction (both as defined in Note15) are the result of a power purchase agreement with Hoosier whereby Hallador Power is selling power to Hoosier through2025 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, 2023and2022,* 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, 2022to December 31, 2025.The Capacity Payment Reductions occurred on May 31, 2023and 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 havenot 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, 2023and2022,* we werenot 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

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 supplyingthird-party customers up to a maximum of 9.2 million tons of coal through2027, 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.

For2023, we derived 93% of ourthird-party coal sales from five customers, each representing at least10% of coal sales. At* December 31, 2023,85% of our coal operations accounts receivable was from four customers, each representing more than10%.* For the year ended* December 31, 2023*,100% of our electric sales and accounts receivable were withtwo customers.

For2022, we derived 90% of our coal sales from five customers, each representing at least10% of our coal sales. At* December 31, 2022,86% of our coal operations accounts receivable was from four customers, each representing more than10%.* For the year ended* December 31, 2022,*100% of our electric sales and accounts receivable was withone customer.

For2023, 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 across15 U.S. states and the Canadian province of Manitoba. For2023, we derived 91% of our capacity sales revenue from three customers, each representing at least10% 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,through2026* and approximately 28% of the plant’s capacity during the years ending* December 31, 2027,through2028.* For2022, we derived100% 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 (generallytwo tofour years) using the straight-line method.

Recent Accounting PronouncementsNot Yet Adopted

In* November 2023,the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")2023-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures ("ASU2023-07"). ASU2023-07 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. ASU2023-07 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 ASU2023*-07, but donot expect it to have a material effect on our consolidated financial statements.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures ("ASU2023-09"). ASU2023-09 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. ASU2023-09 is effective for fiscal years beginning after* December 15, 2024,with early adoption permitted. We are currently evaluating the impact of adopting ASU2023*-09, but donot 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*, and2022, coal inventory includes NRV adjustments of $2.0 million and $4.9 million, respectively.

(3) OTHER LONG-TERM ASSETS (IN THOUSANDS)

(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, 2021levels 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 for2022* and increased the covenant for2023 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, 2023amendment, 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, 2023amendment, 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 2023each quarter thereafter in2023* and $5.0 million by* March 31, 2024.Under the August 2, 2023amendment, 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, 2023and2022,* 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, 2023amendments totaled $1.6 million and $4.3 million, respectively. During2023* 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, 2023amendment 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

Bank debt, less debt issuance costs, is presented below (in thousands):

Covenants

The credit facility includes a Maximum Leverage Ratio (consolidated funded debt / trailingtwelve months adjusted EBITDA), calculated as of the end of each fiscal quarter for the trailingtwelve months,not to exceed 2.25 to1.00.

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 trailing12* months of 1.25 to1.00 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.

56

(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (IN THOUSANDS)

(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.

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* mayallow 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

We concluded that for a Power Purchase Agreement (“PPA”) that isnot determined to be a lease or derivative, the definition of a contract and the criteria in ASC606, Revenue from Contracts with Customers (“ASC606”), 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 isnot determined to be a lease or derivative constitutes a valid contract under ASC606.

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.

For the years ended* December 31, 2023and2022,* 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.

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

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 doesnot 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 tothird-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 through2027.*

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 through2027.*

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.

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

In accordance with the APA, as defined in Note15. Merom Acquisition, with Hoosier, Hallador Power shall sell, and Hoosier shall buy, at least 70% of the delivered energy quantities through2025 at the contract price, which is $34.00 per MWh. We have remaining delivered energy obligations to Hoosier totaling $115.6 million through2025 as of* December 31, 2023.The agreement was amended August 31, 2023to 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 yearstwo 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 through2025 totaling $41.6 million as of* December 31, 2023.The agreement was amended August 31, 2023to 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 ASC606, 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 donot* currently have any other contracts in place where it would transfer coal, electricity or capacity in advance of knowing the final price, and thus donot 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):

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):

59

Our effective tax rate (“ETR”) for2023 and2022 was approximately 9%. The tax rate for the years ended* December 31, 2023and2022* arenot 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 doesnot 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 thannot 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 priorthree years as well as projected earnings into the future, we believe that it is more likely thannot 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 offset100% of future years' taxable income. The federal NOLs generated in post2017 years of $60.7 million can offset80% of future years' taxable income. The pre-2018 federal NOLs will expire in varying amounts from2035 to2037 if they arenot utilized. Indiana NOLs have a20-year carryforward period and will expire in the years2034 to2041 if they arenot 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 thannot be sustained by the applicable tax authority. Tax positionsnot deemed to meet the more-likely-than-not threshold arenot 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 donot anticipate any adjustments that will result in a material change to its consolidated financial position. Whilenot 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 forthree 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*:

RSU Vesting Schedule

60

Shares vested in2023 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, 2023and2022,* 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 arenot* allocated earnings and losses as they are considered non-participating securities.

Stock Options

We haveno stock options outstanding.

(9) EMPLOYEE BENEFITS

Our employee benefit expenses for the years ended* December**31* are below (in thousands):

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 and2022, 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 for2023 and2022, and are recorded in operating expenses in the consolidated statements of operations. Workers’ compensation is ano-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* mayinclude options to extend or terminate the lease when it is reasonably certain that we will exercise that option. If our lease doesnot* 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 thanone year to approximately five years. As most of the leases donot 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, 2023and2022,* 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 during2023, 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):

61

We recognized the following costs related to our leases in our consolidated balance sheets:

Future minimum lease payments under non-cancellable leases as of* December 31, 2023,* were as follows:

(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* and2022, respectively.

Restricted cash of $4.3 million and $3.4 million as of* December 31, 2023and2022,* respectively, represents cash held and controlled by athird 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:

62

(13) FAIR VALUE MEASUREMENTS

We account for certain assets and liabilities at fair value. The hierarchy below liststhree 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 inone of thesethree levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level1: 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 haveno Level1 instruments.

Level2: Quoted prices in markets that arenot active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. We haveno Level2 instruments.

Level3: 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 orno market activity). ARO liabilities use Level3 non-recurring fair value measures as further discussed in Note1. Lastly, Level3 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, 2023and2022* was $2.8 million and $4.0 million, respectively.

63

(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 intothree 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 Topic805-50, 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.

64

(16) CONVERTIBLE NOTES

On* May 2, 2022,and May 20, 2022,we issued senior unsecured convertible notes (the “Notes”) tofive* 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 mayconvert 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) the30*-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 upon30* days' written notice provided to the holders, elect to redeem the Notes (in whole andnot in part) and the holders shall be obligated to surrender the Notes, at a redemption price equal to100% 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 usno* later than5 days prior to the date fixed for redemption.

In* June 2022,thefour* holders of the $9 million related party notes converted them into 1,965,841 shares of common stock of the Company and theone 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, 2022through 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 mayelect to redeem the Note and the holder shall be obligated to surrender the note at100%* 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, 2022through 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 mayelect to redeem the Notes and the holder shall be obligated to surrender the Notes at100%* 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 mayelect to redeem the Note and the holder shall be obligated to surrender the Note at100%* 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 Note16 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

(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* mayissue 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 givingfive* (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 intotwo primary reportable segments, the Coal Operations and Electric Operations segments. The remainder of our operations, which arenot* 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.

(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 ourseven* units of underground equipment onfour units of our lowest cost production at our Oaktown Mine. Increasing the run time of thesefour lower cost units fromfive and a half days per week toseven 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 thefirst quarter of2024, Hallador borrowed $5 million from certain members of the Company’s Board of Directors. The notes are unsecured, mature in* February 2025and 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