dec10k2007.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-KSB
[
x ]
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ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended: December 31,
2007
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[
]
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
file number: 0-14731
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HALLADOR
PETROLEUM COMPANY
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COLORADO
(State
of incorporation)
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84-1014610
(IRS
Employer Identification No.)
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1660 Lincoln Street, Suite 2700, Denver,
Colorado
(Address
of principal executive offices)
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80264-2701
(Zip
Code)
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Issuer's
telephone number:
303.839.5504
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Fax:
303.832.3013
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Securities
registered under Section 12(b) of the Exchange Act: NONE
Securities
registered under Section 12(g) of the Exchange Act: Common Stock, $.01 par
value
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. [ ]
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [x] No [
]
Check
if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [x]
Our
revenue for the year ended December 31, 2007 was about $30 million.
At
March 27, 2008, we had 16,362,528 shares outstanding and the aggregate market
value of such shares held by non-affiliates was about $7 million based on a
closing price of $4.35.
DOCUMENTS
INCORPORATED BY REFERENCE: NONE
PART
1
ITEM
1. DESCRIPTION OF BUSINESS
General Development of
Business
Hallador Petroleum
Company (Hallador), a Colorado corporation, was organized by our predecessor in
1949. Over 90% of our stock is closely held, see Item 11 of this Form
10-KSB for a listing of our major shareholders. Our stock is thinly
traded on the OTC Bulletin Board.
In
late 2006, we concluded to deemphasize our oil and gas operations and
concentrate our efforts in the coal business. In July 2007, we sold our
San Juan gas properties; our remaining oil and gas properties are not
significant.
With that in mind,
the following events have occurred during the last two years:
In
early January 2006, we signed a letter of intent with Sunrise Coal, LLC
(Sunrise) to affect a reorganization/merger between Hallador and Sunrise, a
private company not affiliated with the Yorktown group of
companies.
During the first
quarter of 2006, we loaned Sunrise $7 million in order for Sunrise to begin
development of their second coal mine (the "Carlisle mine"). Their
first mine, Howesville, began producing coal in November 2005. Both
mines are located in western Indiana. During the second quarter of
2006, Sunrise entered into a $30 million line of credit with two Indiana banks,
and our $7 million was repaid. We are the guarantor of this line of
credit. On May 1, 2006, Sunrise informed us that they intend to shut
down the Howesville mine effective June 10, 2006 due to safety
reasons.
Due to the shut
down of the Howesville mine, all of our previous agreements with Sunrise were
voided, and on July 31, 2006, we entered into a joint venture with Sunrise (JV)
to develop the Carlisle mine. Sunrise contributed all of their assets
for a 40% interest and we agreed to a $20.5 million funding commitment (which we
fulfilled during 2007) and guaranteed the aforementioned line of credit for a
60% interest. Through approximately 88% of the JV's cash flow
we are to receive $20.5 million plus interest at
10%. Thereafter, cash flow will be distributed 60% to us and
40% to the original Sunrise members. On July 31, 2006 (date of
acquisition), we began consolidating the Sunrise joint venture.
Carlisle
Mine
We
sell all of our coal to producers of electric power. Currently,
we have only one mine (Carlisle) and three mid-west electric utility
customers. The Carlisle mine is located in western Indiana and was in
the development stage through January 31, 2007. First commercial
production began February 5, 2007 and we sold 972,500 tons during 2007 at an
average price of $28/ton FOB (freight on board) the mine.
We
are talking to other coal purchasers about additional contracts, and if the rise
in coal prices continues, we believe our coal production could peak at
about 2.5 to 3 million tons per year in five or six
years. Recoverable reserves that are presently leased are about 36
million tons. Additional unleased reserves that could be mined in the
future are about 18 million tons. There can be no assurance that we
will be able to obtain suitable lease terms.
Our coal operations
have about 148 employees, and are running three shifts to develop and mine the
Carlisle reserves. The Carlisle mine is non-union.
During 2007, we
sold substantially all of our coal to two utilities. We
currently have three contracts with three different utilities ranging from one
year to six years.
We
believe that rapid economic expansion in developing nations, particularly China
and India, has increased global demand for coal. We expect coal exports from the
United States to increase in response to growing global coal demand,
particularly as some of the traditional coal export nations experience mine,
port, and rail and labor challenges. We estimate that higher domestic demand for
coal and higher U.S. coal exports will positively influence domestic coal
demand. Additionally, we expect decreased production, particularly in the
Central Appalachian region of the United States, to adversely impact domestic
coal supply in the coming years. We anticipate continuing demand growth and
weaker coal supplies to exert upward pressure on coal pricing in the future. As
a result, we have not yet priced a large portion of our total reserves in order
to take advantage of expected price increases.
Demand for coal is
broadly influenced by weather. Weather patterns requiring greater use of
air-conditioning or heating, translate into greater demand for coal-based
electricity generation.
Coal is expected to
remain the fuel of choice for domestic power generation through at least 2030,
according to the Energy Information Administration (EIA). Through that time, we
expect new technologies intended to lower emissions of mercury, sulfur dioxide,
nitrogen oxide and particulate matter will be introduced into the power
generation industry. We believe these technological advancements will help coal
retain its role as a key fuel for electric power generation well into the
future.
Prices for oil and
natural gas in the United States have reached record levels because of
increasing demand and tensions regarding international supply. Historically high
oil and gas prices and global energy security concerns have increased government
and private sector interest in converting coal into liquid fuel, a process known
as liquefaction. Liquid fuel produced from coal can be refined further to
produce transportation fuels, such as low-sulfur diesel fuel, gasoline and other
oil products, such as plastics and solvents. Several coal-to-liquids projects
are in the process of development. We also expect advances in
technologies designed to convert coal into electricity through coal gasification
processes and to capture and sequester carbon dioxide emissions from electricity
generation and other sources. These technologies have garnered greater attention
in recent years due to developing concerns about the impact of carbon dioxide on
the global climate. We believe the advancement of coal-conversion and other
technologies represents a positive development for the long-term demand for
coal.
The United States
produces approximately one-fifth of the world’s coal production and is the
second largest coal producer in the world, exceeded only by China. Coal in the
United States represents approximately 94% of the domestic fossil energy
reserves with over 250 billion tons of recoverable coal, according to the
U.S. Geological Survey. The U.S. Department of Energy estimates that
current domestic recoverable coal reserves could supply enough electricity to
satisfy domestic demand for more than 200 years. Coal production in the
United States has increased from 434 million tons in 1960 to approximately
1.2 billion tons in 2007 based on information provided by
EIA.
The Illinois basin
includes Illinois, Indiana and western Kentucky and is the major coal production
center in the interior region of the United States. Coal from the Illinois basin
varies in heat value and has high sulfur content. Despite its high sulfur
content, coal from the Illinois basin can generally be used by some electric power
generation facilities that have installed pollution control devices, such as
scrubbers, to reduce emissions. We anticipate that Illinois basin coal will play
an increasingly vital role in the U.S. energy markets in future
periods.
Safety and Environmental
Regulations
Our operations,
like operations of other coal companies, are subject to regulation, primarily by
federal and state authorities, on matters such as: air quality standards;
reclamation and restoration activities involving our mining properties; mine
permits and other licensing requirements; water pollution; employee health and
safety; management of materials generated by mining operations; storage of
petroleum products; protection of wetlands and endangered plant and wildlife
protection. Many of these regulations require registration,
permitting, compliance, monitoring and self-reporting and may impose civil and
criminal penalties for non-compliance.
Additionally, the
electric generation industry is subject to extensive regulation regarding the
environmental impact of its power generation activities, which could affect
demand for our coal over time. The possibility exists that new legislation or
regulations may be adopted or that the enforcement of existing laws could become
more stringent, causing coal to become a less attractive fuel source and
reducing the percentage of electricity generated from coal. Future legislation
or regulation or more stringent enforcement of existing laws may have a
significant impact on our mining operations or our customers’ ability to use
coal.
While it is not
possible to accurately quantify the expenditures we incur to maintain compliance
with all applicable federal and state laws, those costs have been and are
expected to continue to be significant. Federal and state mining laws and
regulations require us to obtain surety bonds to guarantee performance or
payment of certain long-term obligations, including mine closure and reclamation
costs.
Mining Permits and
Approvals
Numerous
governmental permits or approvals are required for mining operations. When we
apply for these permits and approvals, we may be required to prepare and present
data to federal, state or local authorities data pertaining to the effect or
impact that any proposed production or processing of coal may have upon the
environment. The authorization, permitting and implementation requirements
imposed by any of these authorities may be costly and time consuming and may
delay commencement or continuation of mining operations. Regulations also
provide that a mining permit or modification can be delayed, refused or revoked
if an officer, director or a shareholder with a 10% or greater interest in the
entity is affiliated with another entity that has outstanding permit violations.
Thus, past or ongoing violations of federal and state mining laws could provide
a basis to revoke existing permits and to deny the issuance of additional
permits.
In
order to obtain mining permits and approvals from state regulatory authorities,
mine operators must submit a reclamation plan for restoring, upon the completion
of mining operations, the mined property to its prior condition, productive use
or other permitted condition. Typically, we submit the necessary permit
applications several months or even years before we plan to begin mining a new
area. Some of our required permits are becoming increasingly more difficult and
expensive to obtain, and the application review processes are taking longer to
complete and becoming increasingly subject to challenge.
Under some
circumstances, substantial fines and penalties, including revocation or
suspension of mining permits, may be imposed under the laws described above.
Monetary sanctions and, in severe
circumstances,
criminal sanctions may be imposed for failure to comply with these
laws. Compliance with these laws has increased the cost of coal
mining for domestic coal producers.
Mine Health and Safety
Laws
Stringent safety
and health standards have been imposed by federal legislation since Congress
adopted the Mine Safety and Health Act of 1969. The Mine Safety and Health Act
of 1977 significantly expanded the enforcement of safety and health standards
and imposed comprehensive safety and health standards on all aspects of mining
operations. In addition to federal regulatory programs, the state in which we
operate also has programs for mine safety and health regulation and
enforcement. In reaction to several mine accidents in recent years,
federal and state legislatures and regulatory authorities have increased
scrutiny of mine safety matters and passed more stringent laws governing mining.
For example, in 2006, Congress enacted the Mine Improvement and New Emergency
Response Act of 2006, which we refer to as the MINER Act. The MINER Act imposes
additional obligations on coal operators including, among other things, the
following:
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development
of new emergency response plans that address post-accident communications,
tracking of miners, breathable air, lifelines, training and communication
with local emergency response personnel;
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establishment
of additional requirements for mine rescue teams;
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notification
of federal authorities in the event of certain events;
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increased
penalties for violations of the applicable federal laws and
regulations; and
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requirement
that standards be implemented regarding the manner in which closed areas
of underground mines are sealed.
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The geological
characteristics of coal reserves largely determine the coal mining method
employed. There are two primary methods of mining coal: surface
mining and underground mining. The Carlisle mine is an
underground mine, and is operated using room-and-pillar
mining.
Room-and-pillar
mining is effective for small blocks of thin coal seams. In room-and-pillar
mining, we cut a network of rooms into the coal seam, leaving a series of
pillars of coal to support the roof of the mine. We use continuous mining
equipment to cut the coal from the mining face and battery shuttle cars to
transport the coal to a conveyor belt for further transportation to the surface.
The pillars generated as part of this mining method can constitute up to 50% of
the total coal in a seam.
Coal
Preparation
Coal extracted from
Carlisle contains impurities, such as rock and sulfur impurities, and comes in a
variety of different-sized fragments. We use a coal preparation plant
located at the mine. Our coal preparation plant allows us to treat the coal we
extract from Carlisle to ensure a consistent quality.
We
sell our coal FOB the mine. The electric utilities are currently
using trucks to transport the coal. Rail and trucks will be used in
the future.
Sales, Marketing and
Customers
Coal prices are
influenced by a number of factors and vary dramatically by region. As a result
of these regional characteristics, prices of coal by product type within a given
major coal producing region tend to be relatively consistent with each
other. The price of coal within a region is influenced by market
conditions, mine operating costs, coal quality, transportation costs involved in
moving coal from the mine to the point of use and the costs of alternative
fuels.
In
addition to the cost of mine operations, the price of coal is also a function of
quality characteristics such as heat value, sulfur, ash and moisture
content.
The coal industry
is intensely competitive. The most important factors on which we
compete are coal quality, transportation costs from the mine to the customer and
the reliability of supply. Most of our competitors are larger than us and have
greater financial resources and larger reserve bases.
Additionally, coal
competes with other fuels, such as nuclear energy, natural gas, hydropower, and
petroleum for steam and electrical power generation. Costs and other factors,
such as safety and environmental considerations, relating to these alternative
fuels affect the overall demand for coal as a fuel.
Carlisle is a new
mine and is operating in compliance with all local, state, and federal
regulations. Since Carlisle is new, we have no old mine
properties to reclaim, other than the Howesville mine, which also was a new mine
and operated for only eight months before it was closed. During 2007,
we finished Phase I of the reclamation of the Howesville mine. To
reach final reclamation we must raise commercial crops for a period of five
years.
Our 45% Interest in Savoy
Energy, L.P.
On
December 31, 2005, we acquired a 32% interest in Savoy Energy, L.P. (Savoy), a
private company engaged in the oil and gas business primarily in the State of
Michigan. A value of $6.1 million was assigned for this
investment. We account for our interest in Savoy using the equity
method of accounting.
On
October 5, 2007, we sold 3,564,517 shares of our common stock for about $11
million cash ($3.10 per share). The shares were sold to our existing
investors in a private placement transaction. The proceeds from the
sale were used to purchase an additional 13% interest in Savoy for $6 million
which brings our total ownership to about 45%. The remaining $5
million will be used for general corporate purposes.
Savoy's oil and gas
properties are located primarily in the State of Michigan. Savoy's
condensed financial statements and reserve information are presented in Note 6
to our financial statements.
Other
We
have no significant patents, trademarks, licenses, franchises or
concessions.
Other than the coal
employees in Indiana, we have four full-time employees and two part-time
employees in Denver. When needed we also engage consultants, accountants
and attorneys on a fee basis.
Our office is
located at 1660 Lincoln Street, Suite 2700, Denver, Colorado 80264, phone
303.839.5504, fax 303.832.3013. Sunrise Coal, LLC is located at 6641 S.
St. Rd. 46, Terre Haute, Indiana 47802, phone 812.894.3480, fax
812.894.3665. Terre Haute is approximately 70 miles west of
Indianapolis, Indiana. We have no website.
ITEM
2. DESCRIPTION OF PROPERTY
The Carlisle mine,
located near the town of Carlisle in Sullivan County, Indiana, is an underground
mine which became operational in January 2007; during 2006 the mine was under
development. The coal is accessed with a slope to a depth of
340'. The coal is mined in the Indiana Coal V seam which is
high volatile B bituminous coal.
Current mine plans
indicates 13,500 acres of mineable coal greater than 4' thickness in the project
area. Of the 13,500 acres, 8,900 are currently under lease to
Sunrise. The Indiana V seam has been extensively mined by underground
and surface methods in the general area and is the most economically significant
coal in Indiana.
Findings are based
on generally accepted engineering principles and professional experience in the
mining industry. All judgments are based on the facts that are
available at this time.
Sunrise currently
has approximately 3,575 acres under an approved Indiana permit.
Coal Reserve
Estimates
The Mine Reserve
estimate for the 8,900 leased acres was made utilizing Carlson mining 2007
(software developed by Carlson Software). To convert volumes of coal
to an in-place tonnage, a weight of 80 pounds/cubic foot was used. To
convert to product tonnage, a 55% mine recovery and an average of 79% washed
recovery (coal only recovery, no out-of- seam dilution included) were
used.
Example: In-place
tonnage x 55% x 79% = product tonnage.
Standards set forth
by the United States Geological Survey were used to place areas of the mine
reserves into the Proven (measured) and Probable (indicated)
categories. Under these standards, coal within 1,320' of a data point
is considered to be proven, and coal within 1,320' to 3,960' is
placed in the Probable category. All reserves are stated as a final
salable product.
ADDITIONAL
DISCLOSURES
1.
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The Carlisle
mine currently has road frontage on State Highway 58, and is adjacent to
the CSX railroad. Construction of a double 100 car loop
facility is ongoing, and construction is planned to be completed during
the second quarter 2008. Currently, coal is being trucked from
the Carlisle mine.
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2.
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Currently
only the Indiana V seam is planned to be mined, and all of the controlled
tonnage is leased to Sunrise. Most leases have unlimited terms
once mining has begun, and yearly payments or earned royalties are kept
current. Mineable coal thickness used is greater than four
feet. The current Carlisle mine plan is broken into four areas
– North Main – South Main – West Main – 2 South
Main. Approximately 66% of the total mine plan is currently
under lease ("controlled"). It is believed that all additional
property that would be required to access all lease areas can be obtained
but, if some properties cannot be leased, some modification of the current
mine plan would be required. All coal should be mined within
the terms of the leases. Leasing programs are continuing by Sunrise
staff.
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3.
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Mine
construction began in 2006 and the first coal sales were in February
2007.
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4.
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The Carlisle
mine has a dual use slope for the main coal conveyor, the moving of
supplies and personnel without a hoist. There are two 8'
diameter shafts at the base of the slope for mine
ventilation. The slope is 18' wide with concrete and steel arch
construction. All underground mining equipment is powered with
electricity and underground compliant
diesel.
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5.
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Current
production capabilities are 1,600,000 tons per year. Additional
equipment is planned to increase production to 2 million tons per year by
2009. Total reserves in the current mine plan (both controlled
and uncontrolled) indicates approximately 28 years production at 2 million
tons per year. The mine plan is a basic room and pillar
mine using a synchronized continuous miner section with no retreat
mining. Plans are for 60'x80' pillars with 18'
entries for our mains, and 60'x60' pillars with 20' entries in the
rooms.
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6.
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The Carlisle
mine has been in production since January 2007. The North Main
and Sub Main #1 have been developed with both units currently setting up
the first panels.
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7.
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Quality
specifications for saleable product are 13-16% moisture; 10,900-11,400
BTU; 8-10% ash; and 5-6.5 LB SO2.
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8.
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The Carlisle
mine has a 400 tons/hour raw feed wash plant. The wash
plant is modular in construction and was designed and constructed on site
so that capacity could be doubled if sales
dictate.
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9.
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Mine dilution
is assumed to be from 6% to 10% depending on seam
height.
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10.
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Proven
(measured) reserves are 21.9 million tons and probable (indicated)
reserves are 14.6 million tons.
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ITEM 3. LEGAL
PROCEEDINGS: None
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS: None
ITEM
5.
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY
SECURITIES
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Our common stock is
traded on the OTC Bulletin Board under the symbol “HPCO.OB”. The following
table sets forth the high and low sales price for the periods
indicated:
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High
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Low
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2008
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(January 1 through March 27, 2008)
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$
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4.50
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$
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3.75
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2007
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First quarter
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3.25
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2.50
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Second quarter
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3.50
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2.50
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Third quarter
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3.25
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2.85
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Fourth
quarter
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3.55
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2.75
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2006
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First quarter
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4.10
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3.10
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Second quarter
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5.00
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3.90
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Third quarter
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4.25
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3.25
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Fourth quarter
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3.45
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3.00
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During the last two
years no dividends were paid. We have no present intention to pay any
dividends in the foreseeable future.
At
March 27, 2008, we have about 400 shareholders of record of our common stock and
the last recorded sales price was $4.35.
Equity Compensation Plan
Information
We
have 550,000 options outstanding, at a weighted average exercise price of $2.30
and 200,000 options are available to be issued in the future. Our
stock option plan was not approved by security holders.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Overview
Our consolidated
financial statements should be read in conjunction with this discussion.
Our primary operating property is the Carlisle coal mine located in western
Indiana of which we own a 60% interest. The Carlisle mine was in the
development stage through January 31, 2007. Commercial coal
production began February 5, 2007. We also have a 45% equity
interest in Savoy Energy, L.P., an oil and gas company which has operations in
Michigan. Over 90% of our stock is closely held, see Item 11 of this Form
10-KSB for a listing of our major shareholders. Our stock is thinly
traded on the OTC Bulletin Board.
In
late 2006, we concluded to deemphasize our oil and gas operations and
concentrate our efforts in the coal business. In July 2007, we sold our
San Juan gas properties; our remaining oil and gas properties are not
significant.
With that in mind,
the following events have occurred during the last two years:
In
early January 2006, we signed a letter of intent with Sunrise Coal, LLC
(Sunrise) to affect a reorganization/merger between Hallador and Sunrise, a
private company not affiliated with the Yorktown group of
companies.
During the first
quarter of 2006, we loaned Sunrise $7 million in order for Sunrise to begin
development of their second coal mine (the "Carlisle mine"). Their
first mine, Howesville, began producing coal in November 2005. Both
mines are located in western Indiana. During the second quarter of
2006, Sunrise entered into a $30 million line of credit with two Indiana banks,
and our $7 million was repaid. We are a guarantor of this line of
credit. On May 1, 2006, Sunrise informed us that they intend to shut
down the Howesville mine effective June 10, 2006 due to safety
reasons.
Due to the shut
down of the Howesville mine, all of our previous agreements with Sunrise were
voided, and on July 31, 2006, we entered into a joint venture with Sunrise (JV)
to develop the Carlisle mine. Sunrise contributed all of their assets
for a 40% interest and we agreed to a $20.5 million funding commitment (which we
fulfilled during 2007) and guaranteed the aforementioned line of credit for a
60% interest. Through approximately 88% of the JV's cash flow
we are to receive $20.5 million plus interest at
10%. Thereafter, cash flow will be distributed 60% to us and
40% to the original Sunrise members. On July 31, 2006 (date of
acquisition), we began consolidating the Sunrise joint venture.
We
have entered into significant equity transactions with Yorktown and other
entities that invest with Yorktown. Yorktown, our largest shareholder,
owns about 55% of our common stock and represents one of the five seats on our
board.
Liquidity and Capital
Resources
In
late June 2007, our Indiana banks agreed to increase the Sunrise line of
credit (LOC) from $30 million to $40 million. The additional funds were used to
purchase certain mining equipment, build a rail loop, and for working
capital. Our current production capacity is 1,600,000 tons per
year. As of December 31, 2007, we have drawn down about $35.4
million; plus we have outstanding letters of credit for another $3 million that
leaves us with about $1 million left on the $40 million LOC. The
current interest rate is LIBOR (3.15%) plus 3.55% or 6.7%. As
discussed below, Sunrise entered
into two interest rate swaps. Under the LOC with the banks no principal payments
are due until the end of July 2008; assuming the full $40 million LOC is drawn,
we will begin making monthly payments (principal and interest) of about $600,000
through June 2015.
We
have entered into two interest rate swap agreements swapping variable rates for
fixed rates. The first swap agreement is relative to the $30 million LOC and is
effective commencing July 15, 2007 and matures on July 15, 2012. The second swap
agreement relates to the additional $10 million that increased Sunrise's LOC to
$40 million. This second swap agreement went into effect on December 28, 2007
and matures on December 28, 2011. The two swap agreements fix our
interest rate at about 8.8%. At December 31, 2007, we recorded the estimated
fair value of the two swaps as a $1.18 million liability with a corresponding
charge to interest expense. At March 20, 2008, the estimated fair value of
the interest rate swaps was a liability of about $2.2 million.
Accounting rules
require us to recognize all derivatives on the balance sheet at estimated fair
value. Derivatives that are not hedges must be adjusted to estimated fair value
through earnings. We have no derivatives designated as a hedge.
We
have no off-balance sheet arrangements.
Advances to
Sunrise
In
order to expand coal production at the Carlisle mine, additional capital is
necessary to purchase mining equipment. We are in
discussions to advance $2-$3 million to Sunrise during 2008 and enter into a
separate loan agreement with our banks for an additional $2-$3
million.
Terms for the new
short-term line of credit are being discussed among Sunrise, us, and the
banks. In early February 2008, we advanced Sunrise $1 million pending
finalization of the terms for this new line.
Results of
Operations
Coal sales began in
February 2007 and for the year 2007 we sold 972,500 tons at an average selling
price of about $28/ton. During the periods 2008 - 2013, we have
contracts with three utilities. We anticipate our sales under these
contracts to range from 1.4 million tons per year to 1.9 million tons per
year.
We
had no coal operations for the comparable periods in 2006; therefore, there is
no need to discuss changes in these accounts.
The increase in
property sales was due to the sale of our San Juan reserves as discussed
below.
Interest income was
less due to a significantly lower amount of investable funds during the
year.
G&A increased
due to the restricted stock grants to Mr. Stabio, our CEO, and Mr. Bilsland,
Sunrise's President, which were about $1.8 million. In addition,
G&A related to our coal operations were about $900,000 during 2007; we had
no such expenses in 2006.
The interest
expense relates solely to the debt connected with the Sunrise
acquisition.
The income tax
benefit of $118,000 in 2006 was a result of an over-accrual of the 2005 tax
provision.
On
July 31, 2006 (date of acquisition), we began consolidating the Sunrise JV;
because, at the date of acquisition, the original Sunrise members had not
contributed capital in excess of accumulated losses (resulting primarily from
the Howesville mine closure), we have reflected Sunrise's entire losses for the
period since the acquisition. In the first quarter 2007, sufficient capital
contributions were made so that we began recording a minority interest of 12% of
the Sunrise losses.
The reduction in
the equity in Savoy was due to (i) a $550,000 reduction in Savoy's net income of
which we had a 32% share through September 30, 2007 and a 45% share thereafter;
and (ii) in 2006 we amortized the difference between the purchase price and our
pro rata share of our equity in Savoy using proved reserves and for 2007 we
amortized such amounts using proved developed reserves.
Sale of Oil and Gas
Properties
In
early July 2007 we sold our interest in the San Juan properties for $2.3
million. We recognized a gain of about $1.7
million. During 2007, certain unproved properties were sold resulting
in a gain of about $200,000.
Other than our
equity investment in Savoy, our remaining oil and gas properties are not
significant and we will be making minimal disclosures, if any, regarding
them.
Critical Accounting Estimate
and Significant Accounting Policies
We
believe that the estimate of our coal reserves is our only critical accounting
estimate. Since the Carlisle mine has only been in production since
February 2007, we do not have a long history to rely on. Our engineer
that prepared the reserve estimates does have over 20 years of
experience. The reserve estimates are used in the DD&A
calculation and in our impairment test. If these estimates turn out
to be materially under or over-stated then our DD&A expense and impairment
test would be affected.
Our significant
accounting policies are set forth in Note 1 to the Financial
Statements.
New Accounting
Pronouncements
Other than SFAS
160, none of the recent FASB pronouncements had, or will have any material
effect on us. In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51. This statement requires an entity to
separately disclose non-controlling interests as a separate component of equity
in the balance sheet and clearly identify on the face of the income statement
net income related to non-controlling interests. This statement is effective for
financial statements issued for fiscal years beginning after December 15,
2008. The adoption of this statement will change how we present our
consolidation with Sunrise.
ITEM
7. FINANCIAL STATEMENTS
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report of
Independent Registered Public Accounting Firm
|
14
|
|
|
|
|
Consolidated
Balance Sheet
|
15
|
|
|
|
|
Consolidated
Statement of Operations
|
16
|
|
|
|
|
Consolidated
Statement of Cash Flows
|
17
|
|
|
|
|
Statement of
Stockholders' Equity
|
18
|
|
|
|
|
Notes to
Consolidated Financial Statements
|
19
|
|
REPORT
OF INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
To
the Board of Directors and Stockholders
Hallador Petroleum
Company
Denver,
Colorado
We
have audited the consolidated balance sheet of Hallador Petroleum Company and
Subsidiaries as of December 31, 2007 and the consolidated statements of
operations, cash flows and stockholders' equity for the years ended December 31,
2007 and 2006. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial condition of Hallador Petroleum
Company and Subsidiaries, as of December 31, 2007 and the results of their
operations and their cash flows for the years ended December 31, 2007 and 2006,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ Ehrhardt Keefe
Steiner & Hottman PC
March 25,
2008
Denver,
Colorado
Consolidated
Balance Sheet
December
31, 2007
(in
thousands)
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$
|
6,978
|
|
Certificate
of deposit – restricted
|
|
1,800
|
|
Accounts
receivable
|
|
2,361
|
|
Coal
inventory
|
|
92
|
|
Other
|
|
861
|
|
Total
current assets
|
|
12,092
|
|
|
|
|
|
Coal
properties, at cost
|
|
64,685
|
|
Less
– accumulated depreciation, depletion, and amortization
|
|
(2,743
|
)
|
|
|
61,942
|
|
|
|
|
|
Investment
in Savoy
|
|
11,893
|
|
|
|
|
|
Other
assets
|
|
1,330
|
|
|
$
|
87,257
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Current
portion of long-term debt
|
$
|
1,893
|
|
Accounts
payable and accrued liabilities
|
|
5,550
|
|
Interest
rate swaps, at estimated fair value
|
|
1,181
|
|
Other
|
|
620
|
|
Total
current liabilities
|
|
9,244
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
Bank
debt, net of current portion
|
|
33,464
|
|
Asset
retirement obligations
|
|
646
|
|
Contract
termination obligation
|
|
4,346
|
|
Total
long-term liabilities
|
|
38,456
|
|
|
|
|
|
Total
liabilities
|
|
47,700
|
|
|
|
|
|
Minority
interest
|
|
384
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
Preferred
stock, $.10 par value, 10,000,000 shares authorized; none
issued
|
|
|
|
Common
stock, $.01 par value, 100,000,000 shares authorized; 16,362,528 shares
issued
|
|
163
|
|
Additional
paid-in capital
|
|
44,990
|
|
Accumulated
deficit
|
|
(5,980
|
)
|
Total
stockholders' equity
|
|
39,173
|
|
|
$
|
87,257
|
|
See
accompanying notes.
Consolidated
Statement of Operations
For the
years ended December 31,
(in
thousands, except per share data)
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Coal
sales
|
$
|
27,228
|
|
$
|
|
|
Gain
on sale of oil and gas properties
|
|
1,933
|
|
|
378
|
|
Equity
income – Savoy
|
|
35
|
|
|
353
|
|
Interest
income
|
|
244
|
|
|
804
|
|
Other
|
|
289
|
|
|
153
|
|
|
|
29,729
|
|
|
1,688
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
Cost
of coal sales
|
|
21,866
|
|
|
|
|
DD&A
|
|
2,420
|
|
|
|
|
G&A
|
|
4,161
|
|
|
1,935
|
|
Interest
|
|
4,113
|
|
|
695
|
|
|
|
32,560
|
|
|
2,630
|
|
|
|
|
|
|
|
|
Loss
before minority interest and income taxes
|
|
(2,831
|
)
|
|
(942
|
)
|
|
|
|
|
|
|
|
Minority
interest
|
|
416
|
|
|
|
|
Loss
before income taxes
|
|
(2,415
|
)
|
|
(942
|
)
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(2,415
|
)
|
$
|
(824
|
)
|
|
|
|
|
|
|
|
Net
loss per share, basic
|
$
|
(0.18
|
)
|
$
|
(.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding-basic
|
|
13,300
|
|
|
11,715
|
|
See
accompanying notes.
Condensed
Consolidated Statement of Cash Flows
For the
years ended December 31,
(in
thousands)
|
2007
|
|
2006
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
loss
|
$
|
(2,415
|
)
|
$
|
(824
|
)
|
Minority
interest
|
|
(416
|
)
|
|
|
|
Equity
income of Savoy
|
|
(35
|
)
|
|
(353
|
)
|
Gain
on sale of oil and gas properties
|
|
(1,933
|
)
|
|
(378
|
)
|
Depreciation,
depletion, and amortization
|
|
2,420
|
|
|
|
|
Change
in fair value of interest rate swaps
|
|
1,181
|
|
|
|
|
Stock-based
compensation
|
|
1,899
|
|
|
460
|
|
Other
|
|
195
|
|
|
(59
|
)
|
Change
in current assets and liabilities:
|
|
|
|
|
|
|
Accounts
receivable
|
|
(2,361
|
)
|
|
|
|
Inventory
|
|
(92
|
)
|
|
|
|
Accounts
payable and accrued liabilities
|
|
1,368
|
|
|
(779
|
)
|
Other
|
|
(136
|
)
|
|
(165
|
)
|
Cash
used in operating activities
|
|
(325
|
)
|
|
(2,098
|
)
|
Investing
activities:
|
|
|
|
|
|
|
Certificate
of deposit
|
|
(1,800
|
)
|
|
|
|
Capital
expenditures for coal properties
|
|
(17,244
|
)
|
|
(10,215
|
)
|
Sales
of oil and gas properties
|
|
2,548
|
|
|
3,423
|
|
Investment
in Savoy
|
|
(6,020
|
)
|
|
|
|
Distributions
from Savoy
|
|
211
|
|
|
518
|
|
Investment
in Sunrise, net of acquired cash of $1,892
|
|
|
|
|
(5,895
|
)
|
Other
|
|
88
|
|
|
32
|
|
Cash
used in investing activities
|
|
(22,217
|
)
|
|
(12,137
|
)
|
Financing
activities:
|
|
|
|
|
|
|
Proceeds
from bank debt
|
|
10,140
|
|
|
2,180
|
|
Stock
sale to related parties
|
|
11,050
|
|
|
7,000
|
|
Capital
contributions from Sunrise minority owners
|
|
800
|
|
|
|
|
Proceeds
from exercise of stock options
|
|
460
|
|
|
|
|
Other
|
|
(136
|
)
|
|
|
|
Cash provided by financing activities
|
|
22,314
|
|
|
9,180
|
|
Decrease
in cash and cash equivalents
|
|
(228
|
)
|
|
(5,055
|
)
|
Cash
and cash equivalents, beginning of year
|
|
7,206
|
|
|
12,261
|
|
Cash
and cash equivalents, end of year
|
$
|
6,978
|
|
$
|
7,206
|
|
|
|
|
|
|
|
|
Cash
paid for interest (net of amount capitalized)
|
$
|
-2,290
|
|
$
|
695
|
|
Cash
paid for income taxes
|
|
|
|
$
|
439
|
|
Non-cash
investing activity -accounts payable for coal properties
|
$
|
2,136
|
|
|
|
|
See
accompanying notes
Statement
of Stockholders' Equity
(in
thousands)
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2005
|
$
|
90
|
|
$
|
24,194
|
|
$
|
(2,741
|
)
|
$
|
21,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
sale to Yorktown and others (3,181,816 shares)
|
|
31
|
|
|
6,969
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
460
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
(824
|
)
|
|
(824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2006
|
|
121
|
|
|
31,623
|
|
|
(3,565
|
)
|
|
28,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
sale to Yorktown and others (3,564,517
shares)
|
|
36
|
|
|
11,014
|
|
|
|
|
|
11,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of 200,000 stock options
|
|
2
|
|
|
458
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock awards
|
|
4
|
|
|
1,393
|
|
|
|
|
|
1,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
502
|
|
|
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
(2,415
|
)
|
|
(2,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2007
|
$
|
163
|
|
$
|
44,990
|
|
$
|
(5,980
|
)
|
$
|
39,173
|
|
See
accompanying notes.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary
of Significant Accounting Policies
Basis
of Presentation and Consolidation
The accompanying
consolidated financial statements include the accounts of Hallador Petroleum
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. We are engaged in the production of
coal from a shallow underground mine located in western Indiana. We
also own a 45% equity interest in Savoy Energy, L.P., a private oil and gas
company which has operations in Michigan.
We
have entered into significant equity transactions with Yorktown and other
entities that invest with Yorktown. Yorktown currently owns about 55% of
our common stock and represents one of the five seats on our board.
Reclassification
Certain amounts in
the 2006 financial statements have been reclassified to conform with the
classifications in the current year's statement with no effect on
previously-reported net income.
Consolidation
The consolidated
financial statements include the accounts of Hallador Petroleum Company (the
Company) and its majority-owned subsidiary Sunrise Coal, LLC
(Sunrise).
Inventories
Coal and supplies
inventories are valued at the lower of average cost or market. Coal inventory
costs include labor, supplies, equipment costs and overhead.
Advance
Royalties
Rights to develop
leased coal lands may require payments of advance royalties. When those advance
royalties may be recouped through future production, the payments are reflected
as current or long-term assets, depending on the expected recovery period. As
coal is produced, the payments are statutorily amortized and reflected as cost
of coal sales in the consolidated statements of operations.
Property,
Plant and Equipment
Property, plant and
equipment are recorded at cost. Interest costs applicable to major asset
additions are capitalized during the construction period. Expenditures that
extend the useful lives of existing property, plant and equipment 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. Property, plant and equipment are depreciated
using the units of production method over the estimated recoverable
reserves.
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.
For the period from
July 31, 2006 (date of Sunrise acquisition) through December 31, 2006, we
capitalized $403,000 of interest. During 2007 we capitalized
$148,000 of interest.
Coal
properties, at cost:
|
|
|
Coal
lands and mineral rights
|
$
|
15,545
|
Plant
and equipment
|
|
32,123
|
Deferred
mine development
|
|
17,017
|
|
|
64,685
|
|
|
|
Less
- accumulated depreciation, depletion, and amortization
|
|
(2,743)
|
|
$
|
61,942
|
Deferred
Mine Development
Costs of developing
new coal 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 (proved and probable)
reserves.
Coal
Land and Mineral Rights
Certain of our coal
reserves were obtained through leases. The cost of those leases is capitalized
and will be depleted using the units of production method over estimated
recoverable (proved and probable) reserves.
Asset
Retirement Obligations
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 asset retirement obligation assets. Obligations are
typically incurred when we commence development of underground mines, and
include reclamation of support facilities, refuse areas and slurry
ponds.
Obligations are
reflected at the present value of their discounted cash flows. We
reflect accretion of the obligations for the period from the date they are
incurred through the date they are extinguished. The asset retirement obligation
assets are amortized using the units of production method over estimated
recoverable (proved and probable) reserves.
Our asset
retirement obligations (ARO) arise from the federal Surface Mining Control and
Reclamation Act of 1977 (SMCRA) and similar state statutes. SMCRA and states
require that mines be reclaimed to their previous condition 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
assess our ARO at least annually, and reflect revisions for permit changes, as
granted by state authorities, for revisions to the estimated reclamation costs,
and for revisions to the timing of those costs.
The following table
reflects the changes to our ARO:
Balance,
January 1, 2007
|
|
$
|
912
|
|
Accretion
|
|
|
38
|
|
Settlements
|
|
|
(304
|
)
|
Balance,
December 31, 2007
|
|
$
|
646
|
|
|
|
|
|
|
Customers
Coal sales began in
February 2007 and for the year 2007 we sold 972,500 tons at an average selling
price of about $28/ton to three customers. One customer purchased 55%
and another purchased 38%.
Statement
of Cash Flows
Cash equivalents
include investments, which includes mutual funds, with maturities when purchased
of three months or less.
Income
Taxes
Income taxes are
provided based on the liability method of accounting pursuant to SFAS 109,
Accounting for Income Taxes. The provision for income taxes is based on
pretax financial taxable 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. We have concluded it is more likely than not that none of our
deferred tax assets will be realized.
Earnings
per Share
We
follow the provisions of SFAS 128, Earnings Per Share. Basic earnings
per share are computed based on the weighted average number of common shares
outstanding. Diluted earnings per share are computed based on the weighted
average number of common shares outstanding adjusted for the incremental shares
attributed to outstanding stock options. Diluted earnings per share
for the year ended December 31, 2007 excludes 750,000 shares issuable for
outstanding stock options as their effect was antidilutive.
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.
Revenue
Recognition
We
recognize revenue from coal sales at the time risk of loss passes to the
customer at contracted amounts.
Concentration
of Credit Risk
We
market our coal to three electric utilities in Indiana. We are paid
every two to four weeks and do not expect any credit losses.
Long-term
Contract
The Carlisle mine,
our primary asset, was under development during 2006 and first sales occurred in
February 2007. A large portion of our current production capacity is contracted
with two utilities for six years. One of our coal contracts is
contracted at market prices that were in effect at July 1, 2005. The
second contract, our most recent contract, is contracted at current market
prices and we started shipments in January 2008. We are talking to
other coal purchasers about additional contracts, and if coal prices continue to
rise, we believe coal production could peak at about 3 million tons per year in
five or six years. Recoverable reserves that are presently leased are about 36
million tons.
Transportation
Currently, we
depend on truck transportation to deliver coal to our
customers. During 2008, we will use both truck and rail
transportation. Disruption of these services due to weather,
mechanical issues, strikes, lockouts, bottlenecks and other events may have a
temporary adverse impact on shipments and, consequently, to coal
sales.
Stock
Based Compensation
Effective January
1, 2006, we adopted the fair value recognition provisions of SFAS 123R, using
the modified prospective transition method. Future amortization of
transitional stock based compensation expense is expected to be $120,000 for
2008.
We estimated the
fair value of the option grant using the Black-Scholes option-pricing model,
with the following assumptions: (i) risk free interest rate of 4.24%; (ii)
expected life of 10 years; (iii) expected volatility of 120%; and (iv) expected
default rate of 5%, and (v) no dividend yield. At December 31, 2007, our
550,000 outstanding stock options had a remaining contractual maturity of eight
years and an aggregate intrinsic value of about $660,000. At December 31, 2007,
300,000 stock options were vested and exercisable with an aggregate intrinsic
value of approximately $360,000.
The compensation
expense related to this plan was $478,000 for 2007 and $460,000 for 2006. The
impact on earnings per share was $.04 for each year.
No
options were granted during 2006 and 2007.
New
Accounting Pronouncements
Other than SFAS
160, none of the recent FASB pronouncements had, or will have any material
effect on us. In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51. This statement requires an entity to
separately disclose non-controlling interests as a separate component of equity
in the balance sheet and clearly identify on the face of the income statement
net income related to non-controlling interests. This statement is effective for
financial statements issued for fiscal years beginning after December 15,
2008. The adoption of this statement will change how we present our
consolidation with Sunrise.
(2) Income
Taxes (in thousands)
We
had no tax provision for 2007 and our 2006 provision was a federal benefit of
$118,000.
Our income tax is
different than the expected amount computed using the applicable federal and
state statutory income tax rates. The reasons for and effects of such
differences are as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Expected
amount
|
$
|
(821)
|
$
|
(320)
|
|
State income
taxes, net of federal benefit
|
|
(70)
|
|
(31)
|
|
Change in
valuation allowance
|
|
915
|
|
123
|
|
Other
|
|
(24)
|
|
110
|
|
|
$
|
0
|
$
|
(118)
|
|
The deferred tax
assets and liabilities resulting from temporary differences between book and tax
basis are comprised of the following at December 31, 2007:
|
|
|
|
Long-term
deferred tax assets:
|
|
|
|
|
Federal net
operating loss carry forwards
|
|
$
|
2,734
|
|
Stock-based
compensation
|
|
|
219
|
|
Investment in
Savoy
|
|
|
567
|
|
Other
|
|
|
313
|
|
Valuation
allowance
|
|
|
(1,257)
|
|
Net
long-term deferred tax assets
|
|
|
2,576
|
|
Long-term
deferred tax liabilities:
|
|
|
|
|
Investment in
Sunrise Coal
|
|
|
2,576
|
|
|
|
|
|
|
Net
|
|
$
|
-
|
|
At
December 31, 2007, we had federal net operating loss carry forwards of about
$8.8 million. These NOLs will expire from 2026 to
2027.
(3) Restricted
Stock and Stock Options
Restricted
Stock
On
June 20, 2007, our Board authorized and granted the issuance of 600,000 shares
of restricted stock. Victor Stabio, our CEO, received 390,000 shares,
Brent Bilsland, Sunrise’s President, received 165,000 shares and two consultants
received 45,000 shares. The Board allowed Mr. Stabio's shares to vest
on July 9, 2007. Mr. Stabio's shares for GAAP accounting purposes
were valued at $3.25 on the date of grant based on the closing price on that
date. The Board allowed Mr. Bilsland's shares to vest on August 9,
2007. Mr. Bilsland's shares for GAAP accounting purposes were valued
at $3.25 on the date of grant based on the closing price on that
date. The other shares vest at the end of three years.
We
took a charge of about $1.8 million for these vested shares. We will
amortize $146,000 to expense over 36 months for the other shares. We
recorded stock based compensation of $24,000 related to the 45,000 shares issued
to consultants which are not yet vested.
Of
the 390,000 shares granted to Mr. Stabio, 125,000 shares were relinquished back
to the company as consideration for the income taxes due. Mr. Stabio
also exercised 200,000 of his 400,000 options at an exercise price of $2.30 per
share.
Stock
Options
In
April 2005, we granted 750,000 options at an exercise price of
$2.30. These options vest at 1/3 per year from the date of grant and
expire in April 2015. On July 9, 2007 Mr. Stabio, our CEO, exercised
200,000 options, which are now available for re-issuance. During 2006
no options were exercised nor granted and no options were granted during
2007.
(4) Sunrise
Coal Acquisition
In
early January 2006, we signed a letter of intent with Sunrise Coal, LLC
(Sunrise) to affect a reorganization/merger between Hallador and Sunrise, a
private company not affiliated with the Yorktown group of
companies.
During the first
quarter of 2006, we loaned Sunrise $7 million in order for Sunrise to begin
development of their second coal mine (the "Carlisle mine"). Their
first mine, Howesville, began producing coal in November 2005. Both
mines are located in western Indiana. During the second quarter of
2006, Sunrise entered into a $30 million line of credit with two Indiana
banks, and our $7 million was repaid. We are a guarantor of this line of
credit. On May 1, 2006, Sunrise informed us that they intend to shut
down the Howesville mine effective June 10, 2006 due to safety
reasons.
Due to the shut
down of the Howesville mine, all of our previous agreements with Sunrise were
voided, and on July 31, 2006, we entered into a joint venture with Sunrise to
develop the Carlisle mine. Sunrise contributed all of their assets
for a 40% interest and we agreed to a $20.5 million funding commitment (which we
fulfilled during 2007) and guaranteed the aforementioned line of credit for a
60% interest. Through approximately 88% of the JV's cash flow
we are to receive $20.5 million plus interest at
10%. Thereafter, cash flow will be distributed 60% to us and
40% to the original Sunrise members.
On
July 31, 2006 (date of acquisition), we began consolidating the Sunrise JV;
because, at the date of acquisition, the original Sunrise members had not
contributed capital in excess of accumulated losses (resulting primarily from
the Howesville mine closure), we have reflected Sunrise's entire losses for the
period since the acquisition. In the first quarter 2007, sufficient capital
contributions were made so that we began recording a minority interest of 12% of
the Sunrise losses.
The following table
summarizes the costs and allocations of the Sunrise acquisition:
Acquisition
costs:
|
|
|
|
|
Cash
consideration
|
|
$
|
7,500
|
|
Direct
acquisition costs
|
|
|
308
|
|
|
|
$
|
7,808
|
|
|
|
|
|
|
Allocation of
acquisition costs:
|
|
|
|
|
Current
assets
|
|
$
|
1,892
|
|
Coal
properties
|
|
|
35,400
|
|
Other
assets
|
|
|
192
|
|
Liabilities
assumed
|
|
|
(29,676
|
)
|
|
|
$
|
7,808
|
|
|
|
|
|
|
Included in
liabilities assumed for the Sunrise acquisition is the estimated present value
of the possible contract termination obligation (about $4 million; $4.3 million
considering accretion charges) with the utility that was to purchase the coal
from the Howesville mine; such mine was closed for safety reasons in June
2006. This obligation was based on an offer made to the utility at
the time, but such offer was never accepted and has since been
withdrawn. Our legal counsel has advised us that we have a strong
force majeure case regarding the closing of the mine since it was closed for
safety reasons. This same utility is one of the major customers
of the Carlisle mine. Although we believe we have a strong force
majeure case, we have decided to leave the $4.3 million obligation on our
balance sheet pending a final resolution of this matter. At this
point we have no offer on the table to the utility; however, negotiations
continue with the utility. Beginning January 1, 2008 we will cease
recording accretion charges.
(5) Notes
Payable
In
late June 2007, our Indiana banks agreed to increase the Sunrise line of
credit (LOC) from $30 million to $40 million. We are the guarantor of
this LOC. The additional funds were used to purchase certain mining equipment,
build a rail loop, and for working capital. As of December 31, 2007, we have
drawn down about $35.4 million; plus we have outstanding letters of credit for
another $3 million that leaves us with about $1 million left on the $40 million
LOC. The current interest rate is LIBOR (3.15%) plus 3.55% or
6.7%. As discussed below, Sunrise entered into two interest rate
swaps.
Under the LOC no
principal payments are due until the end of July 2008; assuming the full $40
million LOC is drawn, we will begin making monthly payments (principal and
interest) of about $600,000 through June 2015.
We
have entered into two interest rate swap agreements swapping variable rates for
fixed rates. The first swap agreement is relative to the $30 million LOC and is
effective commencing July 15, 2007 and matures on July 15, 2012. The second swap
agreement relates to the additional $10 million that increased Sunrise's LOC to
$40 million. This second swap agreement is effective commencing December 28,
2007 and matures on December 28, 2011. The two swap agreements fix our interest
rate at about 8.8%. At December 31, 2007, we recorded the estimated fair value
of the two swaps as a $1.18 million liability with a corresponding charge to
interest expense.
Accounting rules
require us to recognize all derivatives on the balance sheet at estimated fair
value. Derivatives that are not hedges must be adjusted to estimated fair value
through earnings. We have no derivatives designated as a hedge.
Aggregate
contractual maturities of debt are $1,893,000 in 2008, $4,035,000 in 2009,
$4,389,000 in 2010, $4,775,000 in 2011, $5,194,000 in 2012 and $15,071,000
thereafter.
(6) Equity
Investment in Savoy
On
December 31, 2005, we acquired a 32% interest in Savoy Energy L.P., a private
company engaged in the oil and gas business primarily in the State of
Michigan. A value of $6.1 million was assigned for this
investment. On October 5, 2007, we acquired for $6 million an
additional 13% interest in Savoy, bringing our total interest to about
45%. We account for our interest in Savoy using the equity method of
accounting.
Below (in
thousands) are: (i) a condensed balance sheet at December 31, 2007,
and (ii) a condensed statement of operations for the years ended December 31,
2007 and 2006.
Condensed Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
$
|
14,600
|
|
|
PP&E,
net
|
|
10,700
|
|
|
|
$
|
25,300
|
|
|
|
|
|
|
|
Total
liabilities
|
$
|
3,900
|
|
|
Partners'
capital
|
|
21,400
|
|
|
|
$
|
25,300
|
|
Condensed Statement of
Operations
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
6,220
|
|
$
|
6,850
|
|
|
Expenses
|
|
(5,270)
|
|
|
(5,350)
|
|
|
Net
income
|
$
|
950
|
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
For 2007, the
difference between the purchase price and our pro rata share of the equity of
Savoy was amortized based on Savoy's units of production rate using proved
developed oil and gas reserves. Such amount was $279,000 for 2007 and
$127,000 for 2006. For 2006 such amounts were amortized using proved
reserves.
Unaudited
Our 45% equity
interest in Savoy's proved developed oil and gas reserves at December 31, 2007
were 86,000 barrels and 581,000 mcf, respectively. Our equity
interest in Savoy's standardized measure of discounted future net cash flows at
December 31, 2007 was about $5.7 million.
(7) Commitments
and Contingencies
During the fourth
quarter we entered into a lease agreement with Joy Manufacturing for a flexible
conveyor train (FCT). A FCT operates in a way that eliminates the need for
underground coal-hauling trucks. The original intent was for the FCT
to be placed in service during the fourth quarter 2008. Recently, we
have encountered mining conditions that are not compatible with an FCT and are
in discussions with Joy to delay the commencement of the lease for two
years. In December 2007, we made a $100,000 deposit and annual lease
payments could be in the $2 - $3 million range based upon quantities of coal
produced.
(8) Sale
of Oil and Gas Properties
In
early July 2007 we sold our interest in the San Juan properties for $2.3
million. We recognized a gain of about $1.7
million. During 2007, certain unproved properties were sold resulting
in a gain of about $200,000.
(9) Subsequent
Events
In
order to expand coal production at the Carlisle mine, additional capital is
necessary to purchase mining equipment. We are in discussions to
advance $2-$3 million to Sunrise during 2008 and enter into a separate loan
agreement with our banks for an additional $2-$3 million.
Terms for the new
short-term line of credit are being discussed among Sunrise, us, and the
banks. In early February 2008, we advanced Sunrise $1 million pending
finalization of the terms for this new line.
On
March 24, 2008, our Board authorized the creation of a restricted stock units
plan. The Board authorized up to 450,000 units to be issued over the
next several years. These units are to be granted to certain key
employees of Sunrise. The terms and grant dates are yet to be
determined.
ITEM
8.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Not applicable.
ITEM
8A(T). CONTROLS AND PROCEDURES
Disclosure
Controls
We
maintain a system of disclosure controls and procedures that are designed for
the purposes of ensuring that information required to be disclosed in our SEC
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our CEO as appropriate to allow timely decisions regarding
required disclosure.
As
of the end of the period covered by this report, we carried out an evaluation,
under the supervision and with the participation of our CEO of the effectiveness
of the design and operation of our disclosure controls and procedures. Based
upon that evaluation, our CEO, who is also our CFO, concluded that our
disclosure controls and procedures are effective for the purposes discussed
above.
Internal Control Over
Financial Reporting (ICFR)
We
are responsible for establishing and maintaining adequate ICFR.
We
assessed the effectiveness of our ICFR based on criteria for effective ICFR
described in Internal Control- Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on our
assessment, we concluded that we maintained effective ICFR as of December 31,
2007.
There has been no
change in our internal control over financial reporting during the quarter ended
December 31, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
This annual report
does not include an attestation report from EKS&H, our auditors, regarding
ICFR. Our report was not subject to attestation by EKS&H pursuant
to temporary rules of the SEC that permit us to provide only our report in this
annual report.
ITEM
8B. OTHER INFORMATION
None.
ITEM
9.
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
|
CORTLANDT S.
DIETLER, 86, has served as a director since 1995 and is currently the owner of
Poison Spider Oil Company LLC. From April 1995 through September 1,
2006, he was Chairman of the Board of TransMontaigne, Inc. and Chief
Executive Officer of TransMontaigne from April 1995 through September
1999. Mr. Dietler is also a director of Cimarex Energy Co., Ellora
Energy, and National Energy Resources Acquisition Company.
DAVID HARDIE, 57,
is the Chairman of the Board and has served as a director since July 1989.
He is the President of Hallador Investment Advisors Inc., which manages Hallador
Equity Fund, Hallador Fixed Income Fund, Hallador Alternative Assets Fund and
Hallador Balance Fund; he also is a General Partner of Hallador Venture Partners
LLC, the General Partner of Hallador Venture Fund II & III. Mr. Hardie
is and serves as a director and partner of other private entities that are owned
by members of his family and is also a director of Sunrise Coal, LLC. Mr. Hardie
is a graduate of California Polytechnic University, San Luis
Obispo. He also attended the Owner/President Management program
offered by Harvard Business School.
STEVEN HARDIE, 54,
has been a director since 1994. He and David Hardie are
brothers. For the last 24 years he has been a private investor.
He is the Vice- President of Hallador Investment Advisors, which manages
Hallador Equity Fund, Hallador Fixed Income Fund, Hallador Alternative
Assets Fund and Hallador Balance Fund. He also serves as a director and partner
of other private entities that are owned by members of his family.
BRYAN H. LAWRENCE,
65, has been one of our directors since November 1995. He is a founder and
senior manager of Yorktown Partners LLC which manages investment partnerships
formerly affiliated with Dillon, Read & Co. Inc., an investment-banking firm
(Dillon Read). He had been employed with Dillon, Read since 1966, serving
most recently as a Managing Director until the merger of Dillon, Read with SBC
Warburg in September 1997. He also serves as a Director of Approach
Resources, Inc., Star Gas Partners, L.P., Crosstex Energy, Inc. and
Crosstex Energy, L.P. (each a United States public company), Winstar Resources
Ltd. (a Canadian Public Company) and certain non-public companies in the energy
industry in which Yorktown partnership holds equity interests, one of which is
Sunrise Coal, LLC. Mr. Lawrence is a graduate of Hamilton College and
has a MBA from Columbia University.
VICTOR P. STABIO,
60, is our President, CEO, CFO and a director. He joined us in March 1991
as our President and CEO and has been active in the oil and gas business for the
past 32 years. Mr. Stabio is a director of Sunrise Coal, LLC.
BRENT K. BILSLAND,
34, has been President and a director of Sunrise Coal, LLC since July 31, 2006.
Previously, Mr. Bilsland was Vice President of Knapper Corporation, a
family owned farming business from 1998 to 2004. Mr. Bilsland is a
graduate of Butler University located in Indianapolis, Indiana. Mr.
Bilsland is a 4% owner of Sunrise Coal, LLC.
LARRY MARTIN, 42,
was appointed Chief Financial Officer of Sunrise Coal, LLC on January 29,
2008. Prior to his employment with Sunrise in October 2007, he worked
11 years for Clifton Gunderson (12th largest U.S. Public Accounting Firm) from
January 1989 to October 2007. Mr. Martin was a Senior Manager in Tax
for the previous 6 years and an Audit Senior Manager for the 5 preceding
years. Mr. Martin is a graduate from Indiana State University
and has his Bachelor of Science in Accounting. He received his C.P.A
in 1991.
Section
16(a) Beneficial Ownership Reporting Compliance
Our directors,
executive officers and 10% shareholders are required to report any stock
transactions in a timely manner on Forms 3, 4 or 5. The table
below lists the persons or entities that had late filings for transactions
during 2007.
Name and
principal position
|
Number
of
late
reports
|
Transactions
not
timely
reported
|
Yorktown
Energy VII, LP
|
1
|
1
|
Cortlandt S.
Dietler
|
1
|
1
|
Victor P.
Stabio
|
1
|
3
|
Brent
Bilsland
|
1
|
1
|
|
|
|
Our Code of Ethics
is filed as Exhibit 14 to this Form 10-KSB.
ITEM
10. EXECUTIVE
COMPENSATION
|
|
|
|
|
|
|
Name and
Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
All Other
Compensation
|
Total
|
(a)
|
(b)
|
(c
)
|
(d)
|
(e)
(1)
|
(i)
(2)
|
(j)
|
|
|
|
|
|
|
|
Victor
P. Stabio, CEO
|
2007
2006
|
$144,000
140,000
|
$36,000
50,000
|
$1,268,000
|
$245,000(2)
|
$
1,448,000
435,000
|
Brent
Bilsland, President - Sunrise
|
2007
|
90,000
|
15,000
|
536,000
|
3,000
|
644,000
|
(1) These
restricted stock grants fully vested during 2007.
(2)
Represents a cash payment under a compensation plan relating to an option to
purchase an interest in Hallador Petroleum, LLP which was liquidated in
2005.
In
April 2005, we granted 750,000 options at an exercise price of $2.30 per share
to our employees of which 400,000 were issued to Mr. Stabio. On July 9,
2007 Mr. Stabio exercised 200,000 options at an exercise price of
$2.30. No options were granted or exercised in
2006.
At December 31,
2007, Mr. Stabio's in-the-money value of his exercisable (66,666) and
unexercisable (133,334) options was about $240,000.
Compensation of
Directors
Our directors are
not compensated for sitting on our board.
ITEM
11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The following table
is as of March 27, 2008.
Name
|
No.
Shares
(1)
|
|
%
of Class (1)
|
|
|
|
|
Bryan H.
Lawrence (2)
|
9,026,521
|
|
55
|
|
|
|
|
David Hardie
and Steven Hardie as Nominee for Hardie Family Members (3)
|
3,550,370
|
|
22
|
|
|
|
|
Victor P.
Stabio(4)
|
671,093
|
|
4
|
|
|
|
|
Brent K.
Bilsland
|
165,000
|
|
1
|
|
|
|
|
Cortlandt S.
Dietler
|
96,129
|
|
<1
|
|
|
|
|
All directors
and executive officers as a group
|
13,515,863
|
|
82
|
|
|
|
|
Lubar &
Associates (5)
|
1,493,018
|
|
9
|
|
|
|
|
(1)
|
Based on
total outstanding shares of 16,362,528. Beneficial ownership of
certain shares has been, or is being, specifically disclaimed by certain
directors in ownership reports filed with the SEC.
|
(2)
|
Mr.
Lawrence’s address is 410 Park Avenue, 19th
Floor, New York, NY 10022. Mr. Lawrence owns 50,000 shares directly,
and the remainder is held by Yorktown Energy Partners VI, L.P., and
Yorktown Energy Partners VII, L.P., both affiliated with Mr.
Lawrence.
|
(3)
|
The Hardie
family business address is 3000 S Street, Suite 200, Sacramento,
California, 95816.
|
(4)
|
Includes
200,000 options exercisable within sixty days of March 27,
2008.
|
(5)
|
Lubar &
Associates address is 700 North Water Street, Suite 1200, Milwaukee,
WI 53202.
|
ITEM
12.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Our Audit Committee
consists of all board members other than Mr. Stabio. Our Compensation
Committee consists of Messrs. David and Steven Hardie and Mr.
Lawrence. We have no nominating committee. None of our
committees have charters.
We
do not have an audit committee financial expert serving on our audit
committee. We believe that the additional costs to recruit a financial
expert exceed the benefits, if any.
We
had three board meetings and four audit committee meetings during 2007 and all
members attended at least 75% of the meetings.
We
have entered into significant equity transactions with Yorktown and other
entities that invest with Yorktown. Yorktown, our largest shareholder,
owns about 55% of our common stock and represents one of the five seats on our
board.
ITEM
13. EXHIBITS
(a)
Exhibits
3.1
|
Restated
Articles of Incorporation of Kimbark Oil and Gas Company, effective
September 24, 1987 (1)
|
3.2
|
Articles of
Amendment to Restated Articles of Incorporation of Kimbark Oil & Gas
Company, effective December 14, 1989, to effect change of name to Hallador
Petroleum Company and to change the par value and number of authorized
shares of common stock (1)
|
3.3
|
Amendment to
Articles of Incorporation dated December 31, 1990 to effect the
one-for-ten reverse stock split (2)
|
3.4
|
By-laws of
Hallador Petroleum Company, effective November 9, 1993 (4)
|
10.1
|
Composite
Agreement and Plan of Merger dated as of July 17, 1989, as amended as
of August 24, 1989, among Kimbark Oil & Gas Company, KOG
Acquisition, Inc., Hallador Exploration Company and Harco Investors, with
Exhibits A, B, C and D (1)
|
10.2
|
Hallador
Petroleum Company 1993 Stock Option Plan *(5)
|
10.3
|
First
Amendment to the 1993 Stock Option Plan *(5)
|
10.4
|
Stock
Purchase Agreement with Yorktown dated November 15, 1995 (6)
|
10.5
|
Hallador
Petroleum, LLP Agreement (6)
|
10.6
|
Subscription
Agreement - by and between Hallador Petroleum Company and Yorktown Energy
Partners VI, L.P, dated December 20, 2005.(7)
|
10.7
|
Purchase and
Sale Agreement dated December 31, 2005 between Hallador Petroleum Company,
as Purchase and Yorktown Energy Partners II, L.P., as Seller relating to
the purchase and sale of limited partnership interests in Savoy Energy
Limited Partnership
(8)
|
10.8
|
Letter of
Intent dated January 5, 2006 between Hallador Petroleum Company and
Sunrise Coal, LLC
(9)
|
10.9
|
Subscription
Agreement - by and between Hallador Petroleum Company and Yorktown Energy
Partners VI, L.P., et al dated February 22, 2006.
(10)
|
10.10
|
Subscription
Agreement - by and between Hallador Petroleum Company and Hallador
Alternative Assets Fund LLC dated February 14, 2006.
(11)
|
10.11
|
Subscription
Agreement - by and between Hallador Petroleum Company and Tecovas Partners
V LP dated February 14, 2006.
(11)
|
10.12
|
Subscription
Agreement - by and between Hallador Petroleum Company and Lubar
Equity Fund LLC dated February 14, 2006.
(11)
|
10.13
|
Subscription
Agreement - by and between Hallador Petroleum Company and Murchison
Capital Partners LP dated February 14, 2006.
(11)
|
10.14
|
Continuing
Guaranty, dated April 19, 2006, by Hallador Petroleum Company in favor of
Old National Bank (12)
|
10.15
|
Collateral
Assignment of Hallador Master Purchase/Sale Agreement, dated April 19,
2006, among Hallador Petroleum Company, Hallador Petroleum, LLLP, and
Hallador Production Company and Old National Bank (12)
|
10.16
|
Reimbursement
Agreement, dated April 19, 2006, between Hallador Petroleum Company and
Sunrise Coal, LLC (12)
|
10.17
|
Membership
Interest Purchase Agreement dated July 31, 2006 by and between Hallador
Petroleum Company and Sunrise Coal, LLC. (13)
|
10.18
|
Subscription
Agreement - by and between Hallador Petroleum Company and Yorktown Energy
Partners VII, L.P., et al dated October 5, 2007
(14)
|
10.19
|
Subscription
Agreement - by and between Hallador Petroleum Company and Cortlandt S.
Dietler dated October 5, 2007.
(14)
|
10.20
|
Subscription
Agreement - by and between Hallador Petroleum Company and Tecovas Partners
V LP dated October 5, 2007.
(14)
|
10.21
|
Subscription
Agreement - by and between Hallador Petroleum Company and Lubar
Equity Fund LLC dated October 5, 2007.
(14)
|
10.22
|
Subscription
Agreement - by and between Hallador Petroleum Company and Murchison
Capital Partners LP dated October 5, 2007.
(14)
|
10.23
|
Purchase and
Sale Agreement dated effective as of October 5, 2007 between Hallador
Petroleum Company, as Purchaser and Savoy Energy Limited Partnership, as
Seller
|
10.24
|
First
Amendment to Credit Agreement, Waiver and Ratification of Loan Documents
dated June 28, 2007 by and between Sunrise Coal, LLC, Hallador Petroleum
Company and Old National Bank (15)
|
10.25
|
Amended and
Restated Continuing Guaranty, dated as of June 28, 2007, between Hallador
Petroleum Company, Sunrise Coal, LLC, and Old National Bank.
(16)
|
10.26
|
Hallador
Petroleum Company Restricted Stock Unit Issuance Agreement dated as of
June 28, 2007, between Hallador Petroleum Company and Victor P.
Stabio(16)*
|
10.27
|
Hallador
Petroleum Company Restricted Stock Unit Issuance Agreement dated as of
June 28, 2007, between Hallador Petroleum Company and Brent
Bilsland(17)*
|
14.
|
Code Of
Ethics For Senior Financial Officers. (14)
|
21.1
|
List of
Subsidiaries
(2)
|
31
|
SOX 302
Certification
(17)
|
32
|
SOX 906
Certification (17)
|
-----------------------------------------------
|
(1)
Incorporated by reference (IBR) to the 1989 Form
10-K.
|
(10) IBR to
Form 8-K dated February 27, 2006
|
(2) IBR
to the 1990 Form 10-K.
|
(11) IBR to
the 2005 Form 10-KSB.
|
(3) IBR
to the 1992 Form 10-KSB.
|
(12) IBR to
Form 8-K dated April 25, 2006
|
(4) IBR
to the 1993 Form 10-KSB.
|
(13) IBR to
Form 8-K dated August 1, 2006.
|
(5) IBR
to the 1995 Form 10-KSB
|
(14) IBR to Form 10-QSB dated September 30, 2007
|
(6) IBR
to the 1997 Form 10-KSB.
|
(15) IBR to
Form 10-QSB dated June 30, 2007
|
(7) IBR
to Form 8-K dated December 31, 2005.
|
(16) IBR to
Form 8-K dated July 2, 2007.
|
(8) IBR
to Form 8-K dated January 3, 2006
|
(17) Filed
herewith.
|
(9) IBR
to Form 8-K dated January 6, 2006
|
|
|
|
* Management contracts or
compensatory plans.
|
|
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
The fees incurred
for 2007 and 2006 were:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Audit
Fees
|
$
|
150,500
|
|
$
|
130,000
|
|
Audit related
fees
|
|
|
|
|
40,000
|
|
Tax
fees
|
|
51,000
|
|
|
32,000
|
|
Total
fees
|
$
|
201,500
|
|
$
|
202,000
|
|
Audit related fees
consist of fees paid related to the Sunrise Coal, LLC acquisition audit and
related SEC filings.
Pre-approval
Policy
In
2003 the Audit Committee adopted a formal policy concerning approval of audit
and non-audit services to be provided by Ehrhardt Keefe Steiner & Hottman PC
(EKSH). The policy requires that all services EKSH provides to us be
pre-approved by the Committee. The Committee approved all services
provided by EKSH during 2007 and 2006.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
HALLADOR
PETROLEUM COMPANY
|
|
|
|
|
|
|
|
|
|
Dated: March
27, 2008
|
|
BY:/S/ VICTOR
P. STABIO
VICTOR P. STABIO, CEO
|
|
|
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/S/ DAVID
HARDIE
DAVID
HARDIE
|
Chairman
|
March 27,
2008
|
|
|
|
/S/ VICTOR P.
STABIO
VICTOR
P. STABIO
|
CEO, CFO, CAO
and Director
|
March 27,
2008
|
|
|
|
/S/ BRYAN
LAWRENCE
BRYAN
LAWRENCE
|
Director
|
March 27,
2008
|
|
|
|