UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

  (Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended      SeptemberJune 30, 2017      2019

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  

For the transition period from               to              

Commission File Number.   001-39278

SOLITARIO ZINC CORP.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and emerging“emerging growth companycompany” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 There were 58,443,06658,138,266 shares of $0.01 par value common stock outstanding as of November 8, 2017.

July 29, 2019.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

SOLITARIO ZINC CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

See Notes to Unaudited Condensed Consolidated Financial Statements

SOLITARIO ZINC CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements

SOLITARIO ZINC CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements

SOLITARIO ZINC CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.       Business and Significant Accounting Policies

Recent developments

Purchase of Zazu

On July 12, 2017, Solitario Zinc Corp. (“Solitario” or the “Company”) completed the acquisition of Zazu Metals Corp. (“Zazu”) pursuant to a definitive arrangement agreement between Solitario and Zazu (the "Arrangement Agreement") whereby Solitario agreed to acquire all of the issued and outstanding common shares of Zazu (the "Zazu Shares") by way of a statutory plan of arrangement (the "Arrangement") under theCanada Business Corporations Act (the “Acquisition”). The Arrangement was approved by the Ontario (Canada) Superior Court of Justice on July 7, 2017. Per the Arrangement, Solitario issued 19,788,177 shares of its common stock on July 12, 2017 in exchange for all of the issued and outstanding Zazu Shares, which represented 0.3572 shares of Solitario common stock for each outstanding Zazu Share. Solitario granted stock options to acquire an aggregate of 1,782,428 shares of Solitario common stock to Zazu option holders the (“Replacement Options”) in connection with the Acquisition. The issuance of the shares of Solitario common stock as consideration for the Acquisition was approved at the 2017 annual meeting of Solitario shareholders held on June 29, 2017 (the “Annual Meeting”), with 98.27% of the Solitario shareholders who voted voting “for” the issuance of the shares pursuant to the Arrangement Agreement. The total purchase price of $16,227,000 recorded during the three and nine month periods ending September 30, 2017 is detailed below. Results of operations for Zazu are included in Solitario’s condensed consolidated financial statements from the date of the Acquisition.

The Acquisition was treated as an asset purchase in accordance with Accounting Standards Update No. 2017-01, “Business Combinations,” (“ASU 2017-01”). Solitario adopted the provisions of ASU 2017-01 during the quarter ended September 30, 2017, which provides guidance on the classification of the treatment of business acquisitions as either the purchase of an asset or the purchase of a business. See “Recent Accounting Pronouncements, below. Accordingly, as the purchase of an asset (essentially the interest in the Lik project in Alaska) Solitario capitalized related transaction costs associated with the Acquisition, including the following costs:

The purchase price was allocated to the fair value of the assets and liabilities acquired from Zazu on the date of the Acquisition as follows:

The transaction costs and accounts payable assumed, and subsequently paid, less the cash acquired are shown as the cash transaction costs for the nine months ended September 30, 2017 on the condensed consolidated statement of cash flows.

Name Change to Solitario Zinc Corp.

Solitario shareholders voted at the Annual Meeting in favor of an amendment to Solitario’s Articles of Incorporation to change Solitario’s name to “Solitario Zinc Corp.” from “Solitario Exploration & Royalty Corp.” The name change was subject to the completion of the Acquisition and became effective on July 17, 2017. Subsequent to the Acquisition, Solitario’s core mineral property assets are its 39% ownership in the Florida Canyon zinc project (formerly called the Bongará zinc project) in Peru and its 50% ownership interest in the Lik zinc deposit (acquired in the Acquisition).

Convertible Debenture Financing

On April 26, 2017, concurrent with the signing of the Arrangement Agreement, Solitario provided Zazu interim debt financing through a secured convertible debenture issued by Zazu in the principal amount of US$1.5 million (the "Debenture"). The Debenture was secured by way of a general security and pledge agreement on Zazu’s assets and bore interest at a rate of 5% per annum. The Debenture was convertible, at the option of Solitario into Zazu Shares at a price of US$0.22 per Zazu Share. Upon completion of the Acquisition, the Debenture was cancelled.

Business and company formation

Solitario Zinc Corp. (“Solitario,” or the “Company”) is an exploration stage company as defined in Industry Guide 7, as issued by the United States Securities and Exchange Commission (“SEC”). Solitario was incorporated in the state of Colorado on November 15, 1984 as a wholly owned subsidiary of Crown Resources Corporation ("Crown"). In July 1994, Solitario became a publicly traded company on the Toronto Stock Exchange (the "TSX") through its initial public offering. Solitario has been actively involved in mineral exploration since 1993. Solitario’s primary business is to acquire exploration mineral properties or royalties and/or discover economic deposits on its mineral properties and advance these deposits, either on its own or through joint ventures, up to the development stage. At that point, or sometime prior to that point, Solitario would likely attempt to sell its mineral properties, pursue their development either on its own, or through a joint venture with a focus onpartner that has expertise in mining operations, or create a royalty with a third party that continues to advance the acquisition of precious and base metal properties with exploration potential and the development or purchase of royalty interests. As a result of the Acquisition,property. Solitario is moreprimarily focused on the acquisition and exploration of zinc-related exploration mineral properties. However,properties, however Solitario intends to continue towill evaluate for acquisitionand potentially acquire other mineral propertiesbase and hold a portfolio ofprecious metal mineral exploration properties and assets for future sale, joint venture or to create a royalty prior to the establishment of proven and probable reserves. Although Solitario’s mineral properties may be developed in the future by Solitario, through a joint venture or by a third party, Solitario has never developed a mineral property.properties. In addition to focusing on its current assets and the evaluation of mineral exploration properties, for acquisition or purchase of royalty interests, Solitario also expects to continue to evaluateevaluates potential strategic corporate transactions for the acquisition of new precious and base metal properties and assets with exploration potential or business combinations it believesthat Solitario determines to be favorable to Solitario.

Solitario has recorded revenue in the past from the sale of mineral properties, including the sale of certain mineral royalty properties in 2015 of its former interest in Mount Hamilton LLC (“MH-LLC”), the owner of the Mt. Hamilton project, joint venture property paymentsJanuary 2019, discussed below, and the sale in June 2018 of aits interest in the royalty on its former Mt. Hamiltonthe Yanacocha property. ProceedsRevenues and / or proceeds from the sale or joint venture of Solitario’s properties andor assets although significant, have not historically been a consistent annual source of cash or revenue and would only occur in the future, if at all, on an infrequent basis in the future.basis.

Solitario currently considers its carried interest in the Florida Canyon project and its interest in the Lik project (acquired in the Acquisition) to be its core mineral property assets. Nexa Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, is expected to continuecontinuing the developmentexploration and furtherance of the Florida Canyon project and Solitario will monitoris monitoring progress at Florida Canyon. Solitario is currently evaluatingworking with its 50% joint venture partner, Teck American Incorporated, a wholly owned subsidiary of Teck Resources Limited (both companies are referred to as “Teck”), in the Lik deposit to further the exploration of, and to evaluate potential development plans, for the Lik project.

As of SeptemberJune 30, 2017,2019, Solitario has significant balances of cash and short-term investments that Solitario anticipates using, in part, to further the developmentexploration of the Florida Canyon and Lik projectprojects and to potentially acquire additional mineral property assets. The fluctuations in precious metal and other commodity prices has contributedcontribute to a challenging environment for mineral exploration and development, which has created opportunities as well as challenges for the potential acquisition of early-stage and advanced mineral exploration projects or other related assets at potentially attractive terms.

The accompanying interim condensed consolidated financial statements of Solitario for the three and ninesix months ended SeptemberJune 30, 20172019 are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”). They do not include all disclosures required by generally accepted accounting principles for annual financial statements, but in the opinion of management, include all adjustments, consisting only of normal recurring items, necessary for a fair presentation. Interim results are not necessarily indicative of results, which may be achieved in the future or for the full year ending December 31, 2017.2019.

These financial statements should be read in conjunction with the financial statements and notes thereto which are included in Solitario’s Annual Report on Form 10-K for the year ended December 31, 2016.2018. The accounting policies set forth in those annual financial statements are the same as the accounting policies utilized in the preparation of these financial statements, except as modified for appropriate interim financial statement presentation.

Recent Developments

Royalty sale

On January 22, 2019, Solitario completed the sale of its interest in certain royalties to SilverStream SEZC, a private Cayman Island royalty and streaming company (“SilverStream”) for Cdn$600,000 (the “Royalty Sale”). The Royalty Sale covered (i) a royalty on the formerly Solitario-owned 125,000-acre polymetallic Pedra Branca palladium, platinum, gold, nickel, cobalt and chrome project in Brazil, (ii) a royalty covering 3,880-acres of non-producing exploration properties in Mexico, and (iii) a purchase option on 11 separate non-producing properties covering over 16,500 acres in Montana. On closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and a convertible note from SilverStream in the principal amount of Cdn$350,000 (the “SilverStream Note”). The SilverStream Note is due December 31, 2019, accrues 5% per annum simple interest, payable on a quarterly basis, and is convertible into common shares of SilverStream, at the discretion of SilverStream, by providing Solitario a notice of conversion. Solitario recorded interest income of $3,000 and $6,000, respectively, from the SilverStream Note during the three and six months ended June 30, 2019. SilverStream may only provide a notice of conversion if SilverStream has completed an initial public offering during the term of the SilverStream Note for minimum proceeds of Cdn$5,000,000, otherwise the SilverStream note will be payable in cash at the maturity date. Pursuant to the terms of the SilverStream Note, if converted, Solitario would receive common shares converted at 85% of the weighted average quoted price of a share of SilverStream common stock for the most recent 10-day period prior to the notice of conversion. During the six months ended June 30, 2019, Solitario recorded mineral property revenue of $408,000 for the Royalty Sale, consisting of the fair value of the cash received on the date of the sale of $185,000 and the fair value of the SilverStream Note on the date of the sale of $263,000 less the carrying value of the royalties sold of $40,000. As of June 30, 2019, the approximate fair value of the SilverStream Note was $267,000, based upon the current US Dollar / Canadian Dollar exchange rate, and Solitario recorded a credit to exchange gain and loss of $4,000, included in general and administrative expense during the six months ended June 30, 2019.

Financial reporting

The condensed consolidated financial statements include the accounts of Solitario and its wholly-ownedwholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles and are expressed in U.SU.S. dollars.

Revenue recognition

Solitario records delay rental paymentshas recorded revenue from the sale of exploration mineral properties and joint venture property payments. Solitario’s policy is to recognize revenue from the sale of its exploration mineral properties (those without reserves) on a property by property basis, computed as revenue in the period received. Any paymentscash received and / or expected collectable receivables less any capitalized cost. Payments received for the sale of exploration property interests that are less than the properties cost are recorded as a reduction of the related property's capitalized cost. Proceeds which exceedIn addition, Solitario’s policy is to recognize revenue on any receipts of joint venture property payments in excess of its capitalized costs on a property that Solitario may lease to another mining company.

Solitario has recognized revenue during the capitalized costsix months ended June 30, 2019 of $408,000 related to the property without reserves are recognized as revenue. Payments received onRoyalty Sale, discussed above, in accordance with Accounting Standards Codification (“ASC”) 606. In addition, Solitario recorded revenue during the second quarter of 2018 of $502,000 from the sale of properties with reserves are recognized as revenueits Yanacocha exploration mineral property. Solitario expects any property or asset sales in the future to be on an infrequent basis. Prior to the extentsale of its Yanacocha exploration mineral property, the last proceeds exceedfrom joint venture property payments was in 2015 and Solitario does not expect to record joint venture property payments on any of its currently held properties for the proportionate basis in the assets sold.foreseeable future.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Some of the more significant estimates included in the preparation of Solitario's financial statements pertain to: (i) Solitario’s carrying value of short-term investments; (ii) the recoverability of mineral properties related to its mineral exploration properties and their future exploration potential; (iii) the fair value of stock option grants to employees;employees, to officers and directors and to others; (iv) the ability of Solitario to realize its deferred tax assets; (v) the collectability of the SilverStream Note; and (v)(vi) Solitario's investment in marketable equity securities.

In performing its activities, Solitario has incurred certain costs for mineral properties. The recovery of these costs is ultimately dependent upon the sale of mineral property interests or the development of economically recoverable ore reserves and the ability of Solitario or its joint venture partners to obtain the necessary permits and financing to successfully place the properties into production, and upon future profitable operations, none of which is assured.

Cash equivalents

Cash equivalents include investments in highly liquid money-market securities with original maturities of three months or less when purchased. As of SeptemberJune 30, 2017, a portion2019, $553,000 of Solitario’s cash and cash equivalents are held in brokerage accounts and foreign banks, which are not covered under the Federal Deposit Insurance Corporation (“FDIC”) rules for the United States. At September 30, 2017, Solitario holds short-term investments in United States Treasury securities (“USTS”) of $10,723,000.

Short-term investments

As of SeptemberJune 30, 2017,2019, Solitario has $10,723,000$8,714,000 of its current assets in USTSUnited States Treasury Securities (“USTS”) with maturities of 3015 days to 1918 months. The USTS are recorded at their fair value, based upon quoted market prices. As of September 30, 2017, Solitario has $1,248,000 in separate bank certificates of deposit (“CDs”) each with a maximum value of $250,000,prices and each of which are not covered byunder the FDIC insurance torules for United States deposits, with increases or decreases in fair market value recorded as interest income in the full face valuestatement of operation in the CDs. At September 30, 2017, the CDs have maturities of between 30 days and 18 months.period. Solitario’s short-term investments are recorded at their fair value, based upon quoted market prices. The short-term investmentsUSTS are highly liquid and may be sold in their entirety at any time at their quoted market price and are classified as a current asset.

Mineral properties

Solitario expenses all exploration costs incurred on its mineral properties prior to the establishment of proven and probable reserves through the completion of a feasibility study. Initial acquisition costs of Solitario’sits mineral properties are capitalized. Solitario capitalizes all of its development expenditures on its projects, subsequent to the completion of a feasibility study. Solitario regularly performs evaluations of its investment in mineral properties to assess the recoverability and/or the residual value of its investments in these assets. All long-lived assets are reviewed for impairment whenever events or circumstances change which indicate the carrying amount of an asset may not be recoverable, utilizing established guidelines based upon undiscounted future net cash flows from the asset or upon the determination that certain exploration properties do not have sufficient potential for economic mineralization.

Derivative instrumentsLeases

Solitario accounts for its derivative instrumentsleases in accordance with ASC 815, "Accounting for Derivative Instruments842,Leases (“ASC 842”) by recognizing right-of-use assets and Hedging Activities" (“lease liabilities on the condensed consolidated balance sheet and disclosing key information about lease arrangements. Solitario has elected the practical expedient option to use January 1, 2019, the effective date of adoption of ASC 815”).842, as the initial date of transition and not to restate comparative prior periods and to carry forward historical lease classification. In addition, Solitario acquired its investment in Vendetta units, includinghas elected the Vendetta Warrants during 2016. Duringoption not to apply the threerecognition of assets and nine months ended September 30, 2017 Solitario exercised allliabilities provisions of its Vendetta Warrants (as defined below in Note 4) and no longer owns any Vendetta Warrants.ASC 842 to operating leases of less than one year. See Note 4 below. Solitario classified the Vendetta Warrants as derivative instruments under ASC 815“Operating Leases” for more information and prior to their exercise recorded the Vendetta Warrants at their fair value as other assets on the consolidated balance sheet. Changes in fair value of the Vendetta Warrants are recognized in the statement of operations in the period of change as gain or loss on derivative instruments. Solitario has entered into covered calls from time to time on its investment in Kinross Gold Corporation (“Kinross”) marketable equity securities. Solitario has not designated its covered calls as hedging instruments and any changes in the fair value of the covered calls and its Vendetta Warrants are recognized in the statement of operations in the period of the change as gain or loss on derivative instruments.disclosures regarding Solitario’s leases.

Fair value

Financial Accounting Standards Board (“FASB”) ASC 820, “FairFair Value Measurements and Disclosures”measurement (“ASC 820”) establishes established a framework for measuring fair value of financial instruments and requires enhancedrequired disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. For certain of Solitario's financial instruments, including cash and cash equivalents and accounts payable, the carrying amounts approximate fair value due to their short-term maturities. Solitario's short-term investments in USTS, and CDs, its marketable equity securities and any covered call options against those marketable equity securities are carried at their estimated fair value based on quoted market prices. The fair value of Solitario’s investment in the Vendetta Warrants was determined by a Black-Scholes model.See Note 6, “Fair Value,” below.

Marketable equity securities

Solitario's investments in marketable equity securities are classified as available-for-sale and are carried at fair value, which is based upon quoted prices of the securities owned. Solitario records investments in marketable equity securities as available-for-sale for investments in publicly traded marketable equity securities for which it does not exercise significant control and where Solitario has no representation on the board of directors of those companies and exercises no control over the management of those companies. The cost of marketable equity securities sold is determined by the specific identification method. Changes in fair value are recorded in accumulated other comprehensive income within shareholders' equity, unless a decline in fair value is considered other than temporary, in which case the decline is recognized as aunrealized gain or loss in the consolidated statementsstatement of operations.

Foreign exchange

The United States dollar is the functional currency for all of Solitario's foreign subsidiaries. Although Solitario's South American exploration activities during 20172018 and 2016the first half of 2019 have been conducted primarily in Peru, a portion of the payments under the land, leasehold and exploration agreements of Solitario are denominated in United States dollars. Realized foreign currency gains and losses are included in the results of operations in the period in which they occur.

Income taxes

Solitario accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”). Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Accounting for uncertainty in income taxes

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 provides that a company's tax position will be considered settled if the taxing authority has completed its examination, the company does not plan to appeal, and it is remote that the taxing authority would reexamine the tax position in the future. These provisions of ASC 740 had no effect on Solitario's financial position or results of operations.

Earnings per share

The calculation of basic and diluted earnings (loss) per share is based on the weighted average number of shares of common stock outstanding during the three and ninesix months ended SeptemberJune 30, 20172019 and 2016.2018. Potentially dilutive shares totaling 1,928,428 related to outstanding common stock options of 4,373,000 and 4,025,228 for Solitario common shares for the three and ninesix months ended SeptemberJune 30, 20172019 and 2018, respectively, were excluded from the calculation of diluted earnings (loss) per share because the effects were anti-dilutive. There were no similar potentially dilutive securities outstanding during the three and nine months ended September 30, 2016.

Employee stock compensation and incentive plans

Solitario classifies all of its stock options as equity options in accordance with the provisions of ASC 718, “Compensation – Stock Compensation.”

Recent accounting pronouncements

On January 5, 2017, the Financial Accounting Standards Board issued ASU 2017-01. ASU 2017-01 clarified the definition of the acquisition of a business or an asset under Accounting Codification Standard 805 (“ASC 804”). ASU 2017-10 utilizes a series of tests or screens to determine if a business combination is the acquisition of a single identifiable asset or of a business. Under the definition of ASU 2017-01, the Acquisition would fall under the classification of the acquisition of an asset. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted.1, 2019, Solitario adopted the provisions of ASU 2015-01 during the three months ended September 30, 2017, and has accounted for the Acquisition in accordance with the provisions of ASU 2017-01. The adoption of ASU 2017-01 had no other effect on Solitario’s consolidated financial position.

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09,No. 2016-02Revenue from Contracts with Customers (Topic 606,Leases (“ASU No. 2014-09”2016-02”), which amendedrequires the existing accounting standards for revenue recognition. ASU No. 2014-09 establishes principles for recognizing revenue uponapplication of ASC 842 and the transferrecognition of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017. The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectivelyright-of-use assets and related liabilities associated with the cumulative effect recognized as of the date of initial application (modified retrospective). Solitario will adopt ASU 2014-09 in the first quarter of 2018 and apply the full retrospective approach and does not expect the impact on its consolidated financial statements to be material.

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU No. 2016-02”), which will require lessees to recognize a right-of-use asset and a lease liability for all leases that are not short-term in nature. ForAs a lessor, the accounting applied is also largely unchanged from previous guidance. The new rules will be effective for Solitario in the first quarterresult of 2019. Solitario does not anticipate early adoption. As ASU No. 2016-02 does not apply to mineral leases, Solitario does not expect the adoption of ASU No. 2016-02 on January 1, 2019, Solitario recorded both an operating lease asset for its Wheat Ridge Colorado office of $82,000 and an operating lease liability of $82,000 related to materially change its current accounting methods and therefore it does not expect the same lease. The adoption to have a material impact on its consolidated financial position or results of operations.

In January 2016, the FASB issued ASU No 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825) (“ASU No. 2016-01”). ASU No. 2016-01 revises the classification and measurement of investment in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be recognized in net income. ASU No. 2016-01 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. Solitario will adopt ASU No. 2016-01 in the first quarter of 2018. Adoption of ASU No. 2016-01 may result in a cumulative2016-02 did not require the recording of any other assets or liabilities on our condensed consolidated balance sheets and had an immaterial effect adjustment to theon Solitario’s condensed consolidated statement of equity retained earningsoperations for the three and six months ended June 30, 2019, and its condensed consolidated statement of cash flows for the six months ended June 30, 2019. Solitario has elected the practical expedient option to use January 1, 2019, the effective date of adoption, as the initial date of the beginning of the year of adoption. Solitario is evaluating the new guidancetransition and has not determined the impact of ASU No. 2016-01 on its consolidated financial statements.to restate comparative prior periods and to carry forward historical lease classification. See Note 4 “Operating Leases” for more information and disclosures regarding Solitario’s leases.

2.        Mineral Property

The following table details Solitario’s investment in Mineral Property:

Initial acquisition costs on our mineral property are capitalized. All exploration costs on our exploration properties, none of which have proven and probable reserves, including any additional costs incurred for subsequent lease or property payments and ongoingor exploration activities related to our projects are expensed as incurred. Solitario acquired the Lik project during the three and nine months ended September 30, 2017 in the Acquisition, see Note 1 “Recent developments” above.

Discontinued projectsRoyalty Sale

On January 22, 2019, Solitario dropped its royalty interestscompleted the Royalty Sale, discussed above under “Recent Developments” to SilverStream for Cdn$600,000. On closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and the Aconchi and Norcan exploration properties in Mexico duringSilverStream Note with a principal amount of Cdn$350,000, with a maturity date of December 31, 2019. During the ninesix months ended SeptemberJune 30, 2017: however, there were no capitalized2019, Solitario recorded mineral property costs related to theserevenue of $408,000 from the Royalty Sale, consisting of the fair value of the cash received on the date of the sale of $185,000 and the fair value of the SilverStream Note on the date of the sale of $263,000 less the carrying value of the royalties and Solitario did not record any mineral property write-downs during the nine months ended September 30, 2017. During the nine months ended September 30, 2016, Solitario closed its exploration office in Mexico. Solitario recorded a mineral property write-downsold of $10,000 related to the Norcan and Aconchi properties during the nine months ended September 30, 2016. In addition, Solitario recorded a loss on other assets in Mexico of $14,000 related to the exit from its exploration activities in Mexico during the nine months ended September 30, 2016.$40,000.

Exploration expense

The following items comprised exploration expense:

Asset Retirement Obligation

In connection with the Acquisition,acquisition of its interest in the Lik project in 2017, Solitario has recorded an asset retirement obligation of $125,000 as of June 30, 2019 and December 31, 2018 for Solitario’s estimated reclamation cost of the existing disturbance at the Lik project. This disturbance consists of an exploration camp including certain drill sites and access roads at the camp. The estimate wasis based upon Solitario’s estimated cash costs for reclamation as determined by the permitting bond required by the State of Alaska, for whichreclamation. Solitario has purchased a reclamation bond insurance policy for the bonding required by the State of Alaska, in the event Solitario or its 50% partner, Teck, Resources Limited (“Teck”) do not complete any required reclamation.

Solitario has not applied a discount rate to the recorded asset retirement obligation as the estimated time frame for reclamation is not currently known, as reclamation is not expected to occur until the end of the Lik project life, which would follow future development and operations, the start of which cannot be estimated or assured at this time. Additionally no depreciation will be recorded on the related asset for the asset retirement obligation until the Lik project goes into operation, which cannot be assured.

3.        Marketable Equity Securities

Solitario's investments in marketable equity securities are classified as available-for-sale and are carried at fair value, which is based upon quoted prices of the securities owned. The cost of marketable equity securities sold is determined by the specific identification method. Changes in market value are recorded in accumulated other comprehensive income or loss within shareholders' equity, unless a decline in market value is considered other than temporary, in which case the decline is recognized as a loss in thecondensed consolidated statement of operations. During the three and six months ended June 30, 2019, Solitario recorded an unrealized loss on marketable equity securities of $63,000 and $389,000, respectively. During the three and six months ended June 30, 2018, Solitario recorded an unrealized loss on marketable equity securities of $222,000 and $663,000, respectively.

The following tables summarize Solitario’s marketable equity securities and accumulated other comprehensive income relatedadjustments to its marketable equity securities:fair value:

The following table represents changes, including sales, in marketable equity securities.securities during the three and six months ended June 30, 2019 and 2018:

Solitario did not sell any marketable equity securities during the three and six months ended June 30, 2019 or 2018 and the change in the fair value of marketable equity securities was related entirely to the unrealized loss on marketable equity securities related to their fair values based upon quoted market prices for the marketable equity securities held by Solitario during the periods.

4.        Operating Leases

Solitario adopted ASU 2016-02 effective January 1, 2019 and accounts for its leases in accordance with ASC 842. Solitario leases one facility, its Wheat Ridge, Colorado office (the “WR Lease”), that has a term of more than one year. Solitario has no other material operating lease costs. The WR Lease is classified as an operating lease and has a term of 20 months at June 30, 2019, with no renewal option. At June 30, 2019, the right-of-use office lease asset for the WR Lease is classified as other assets and the related liability separated between current and non-current office lease liabilities in the condensed consolidated balance sheet. Lease expense is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. During the three and ninesix months ended SeptemberJune 30, 2017,2019, Solitario sold 2,000,000recognized $10,000 and 3,480,000,$20,000, respectively, Vendetta common shares,of non-cash lease expense for cash proceedsthe WR Lease included in general and administrative expense. Cash lease payments of $407,000$7,000 and $666,000. In addition,$17,000, respectively, were made on the WR Lease during the three and ninesix months ended SeptemberJune 30, 2017, Solitario exercised Vendetta Warrants, discussed below in Note 4, “Other assets”2019 and received 5,000,000this amount, less $1,000 and 7,240,000,$2,000, respectively, common shares of Vendetta. Solitario transferredimputed interest during the fair value ofthree and six months ended June 30, 2019, reduced the Vendetta Warrantsrelated liability on the dateWR Lease. The discount rate within the WR Lease is not determinable and Solitario has applied a discount rate of exercise5% based upon Solitario’s estimate of $642,000 and $949,000, respectively, along with the cash paid to exercise the Vendetta Warrants of $411,000 and $578,000, respectively, to marketable equity securities as theits cost of the 5,000,000 and 7,240,000 common sharescapital.

The maturities of Vendetta acquired,Solitario’s lease liability for its WR Lease are as discussed below in Note 4, “Other Assets.”follows at June 30, 2019:

4.

The following is supplemental cash flow information related to our operating lease for the six months ended June 30, 2019:

5        Other Assets

The following items comprised other assets:

During the three and nine months ended September 30, 2017, Solitario acquired $100,000 of exploration-related equipment at the Lik project as part of the Acquisition. See Note 1, “Recent developments’” above. The equipment is being depreciated over a five-year life on a straight-line basis and Solitario recorded depreciation expense of $5,000 during the three and nine months ended September 30, 2017 related to this equipment.

During the nine months ended September 30, 2016, Solitario purchased 7,240,000 units of Vendetta for $289,000. Each unit included one common share and one purchase warrant which allows the holder to purchase one share of Vendetta common stock at a price of Cdn$0.10 per share for a period of two years (the “Vendetta Warrants”). As of September 30, 2017, the Vendetta shares are carried at their fair value and included in marketable equity securities, see Note 3, above. The Vendetta Warrants are carried at their fair value, based upon a Black-Scholes valuation model, see Note 5, “Derivative Instruments,” below.

During the three and nine months ended September 30, 2017, Solitario exercised 5,000,000 and 7,240,000, respectively, of its Vendetta Warrants and received 5,000,000 and 7,240,000, respectively, Vendetta common shares, by paying $411,000 and $578,000, respectively, in cash to Vendetta. As a result, as of September 30, 2017, Solitario no longer owns any Vendetta Warrants. Upon the exercise of the Vendetta Warrants, during the three and nine months ended September 30, 2017 Solitario transferred the fair value of the Vendetta Warrants on the date of exercise of $642,000 and $949,000, respectively, along with the cash paid to exercise the Vendetta Warrants of $411,000 and $578,000, respectively, to marketable equity securities as the cost of the 5,000,000 and 7,240,000 common shares of Vendetta acquired.

5.        Derivative Instruments

Vendetta Warrants

During the three and nine months ended September 30, 2017 Solitario recorded a (loss) gain on derivative instruments of $(31,000) and $216,000, respectively, related to the Vendetta Warrants, based upon the changes in fair value of Vendetta Warrants determined based upon a Black-Scholes model. During the three and nine months ended September 30, 2016, Solitario recorded a gain on derivative instruments of $91,000 and $306,000, respectively, related to the Vendetta Warrants.

RMB Warrants

The warrants originally issued by Solitario in 2012 to RMB Australia Holdings Limited (the “RMB Warrants”) entitled the holder to purchase a total of 1,624,748 shares of Solitario common stock. The RMB Warrants had an exercise price of $1.54 per share and expired on August 21, 2016. Solitario recorded a gain on the RMB Warrants of $4,000 during the nine months ended September 30, 2016.

Covered Call Options

From time to time Solitario has sold covered call options against its holdings of Kinross. The business purpose of selling covered calls is to provide additional liquidity on a limited portion of shares of Kinross that Solitario may sell in the near term, which is generally defined as less than one year. Solitario has not designated its covered calls as hedging instruments and records gains or loss on the covered call in the period of the change. During the three and nine months ended September 30, 2017, Solitario sold covered calls for cash proceeds of $12,000 and $55,000, respectively.

Solitario recorded the following gain (loss) on derivative instruments:

The following table provides the location and amount of the fair values of Solitario's derivative instruments presented in the consolidated balance sheets as of September 30, 2017 and December 31, 2016:

6.        Fair Value

For certain of Solitario’s financial instruments, including cash and cash equivalents, short-term investments and payables, the carrying amounts approximate fair value due to their short term maturities. Solitario’s marketable equity securities are carried at their estimated fair value based on quoted market prices. The Vendetta Warrants are carried at their estimated fair value at December 31, 2016 of $735,000; based upon a Black-Scholes valuation model, see Note 4, “Other Assets,” above.

Solitario accounts for its financial instruments under ASC 820. ASC 820 establishes a framework for measuringFor certain of Solitario’s financial instruments, including cash and cash equivalents and payables, the carrying amounts approximate fair value due to their short-term maturities. Solitario’s short-term investments in USTS, and requires enhanced disclosures aboutmarketable equity securities are carried at their estimated fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped,primarily based on significant levels of inputs as follows:

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.quoted market prices. During the three and ninesix months ended SeptemberJune 30, 20172019 there were no reclassifications in financial assets or liabilities between Level 1, 2 or 3 categories.

The following is a listing of Solitario’s financial assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the hierarchy as of SeptemberJune 30, 2017:2019:

The following is a listing of Solitario’s financial assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the hierarchy as of December 31, 2016:2018:

7.        Income Taxes

Solitario accounts for income taxes in accordance with ASC 740. Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

At SeptemberJune 30, 20172019 and December 31, 2016, Solitario2018, a valuation allowance has been recorded, nowhich fully offsets Solitario’s net deferred tax assets. A valuation allowance, which fully offsets the net deferred tax assets, has been recorded because it is more likely than not that the Company will not realize some portion or all of its deferred tax assets.  The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that the deferred tax assets can be realized prior to their expiration.

During the three and ninesix months ended SeptemberJune 30, 2017,2019 and 2018, Solitario recorded no current or deferred tax expense.

8.       Commitments and contingencies

Solitario has recorded an asset retirement obligation of $125,000 related to its Lik project in Alaska. See Note 2, “Mineral Property,” above.

In August of 2018, Solitario agreed to fund a portion of a 2018 – 2019 drilling program at the Florida Canyon project. Pursuant to the agreement, Solitario will fund up to $1,580,000 of a planned 41-hole 17,000-meter drilling program to be conducted through December 31, 2019 (the “Drilling Program”). Upon Nexa completing the first 1,700 meters of the Drilling Program, Solitario will pay Nexa $527,000, upon completion of the next 1,700 meters (3,400 meters total) of the Drilling Program, Solitario will pay Nexa $527,000, and upon completion of the next 1,700 meters (5,100 meters total) of the Drilling Program, Solitario will pay Nexa the balance remaining on its $1,580,000 funding commitment, or $526,000. Solitario has no obligation to pay Nexa prior to the attainment of the separate 1,700-meter thresholds. The funding commitments are in the form of an advance on Solitario’s commitment to fund 30% of any future development of Florida Canyon under the existing joint venture agreement with Nexa. Accordingly, in the event Florida Canyon is developed, which cannot be assured at this time, any funds paid to Nexa under this agreement, will reduce the amount of Solitario’s obligation to fund 30% of future development costs, and / or repay loans from Nexa for future development costs at the Florida Canyon project. During 2018, Nexa completed a total of 2,203 meters under the Drilling Program and Solitario recorded a charge to exploration expense of $74,000 and$527,000, which Solitario paid during 2019. During the six months ended June 30, 2019, Nexa completed additional drilling to meet the second required meter threshold of 1,700 meters (or a deferred income tax benefittotal of $15,000, respectively, in the statement of operations and3,400 meters). Solitario recorded a deferred tax benefit of $74,000, and a deferred taxcharge to exploration expense of $15,000 to other comprehensive income related to realized and unrealized gains and losses on marketable equity securities in other comprehensive income. During$527,000 during the three and ninesix months ended SeptemberJune 30, 2016,2019 and Solitario has recorded deferred tax benefitsan account payable as of $27,000 and $264,000, respectively,June 30, 2019 to Nexa of $527,000, which was paid in July 2019 for the statementcompletion of operations and recorded a deferred tax expensethis second phase of the same amountdrilling during the six months ended June 30, 2019. Should Nexa complete the remaining 1,700 meters (5,100 meters less the completed 3,400 meters) during the remainder of 2019, Solitario will be obligated to other comprehensive income related to realized and unrealized gains on marketable equity securities in other comprehensive income.pay Nexa the final tranche under the agreement of $526,000 during the remainder of 2019.

8.9.       Employee Stock Compensation Plans

The 2006 Plan

On June 27, 2006, Solitario’s shareholders approved the 2006 Stock Option Incentive Plan (the “2006 Plan”). On June 27, 2016, the 2006 Plan terminated and as of that date no additional options may be granted pursuant to the 2006 Plan. During the nine months ended September 30, 2016, Solitario granted options to acquire 350,000 shares of common stock under the 2006 Plan. These options were subsequently surrendered by the holders and cancelled on August 24, 2016. As a result of the cancellation Solitario recognized $84,000 of unamortized grant date fair value as of the date of the cancellation under the 2006 Plan. No options were exercised during the three and nine months ended September 30, 2017 and 2016 under the 2006 Plan.

The 2013 Plan

On June 18, 2013, Solitario’s shareholders approved the 2013 Solitario Exploration & Royalty Corp. Omnibus Stock and Incentive Plan (the “2013 Plan”). Under the terms of the 2013 Plan, a total of 1,750,000 shares of Solitario common stock were reserved for awards to directors, officers, employees and consultants. On June 29, 2017, Solitario shareholders approved an amendment to the 2013 Plan, which increased the number of shares available of common stock available for issuance under the 2013 Plan from 1,750,000 to 5,750,000. Under the terms ofAwards granted under the 2013 Plan the Board of Directors may grant awards to directors, officers, employees and consultants. Such awards may take the form of stock options, stock appreciation rights, restricted stock, and restricted stock units. The terms and conditions of the awards are pursuant to the 2013 Plan and are granted by the Board of Directors or a committee appointed by the Board of Directors.

In connection

As of June 30, 2019, and December 31, 2018 there were options outstanding that are exercisable to acquire 4,373,000 and 5,223,160 shares, respectively, of Solitario common stock, with option prices between $0.28 and $0.77 per share. During the Acquisition, on July 12, 2017,three months ended June 30, 2019 and 2018 Solitario did not grant any additional options. During the six months ended June 30, 2019, Solitario granted 1,782,428 Replacement Options. The Replacement Options were priced between $2.24 per share and $0.70 per shareoptions exercisable to acquire 150,000 shares of common stock, with terms between 10 months and 18 months. In accordance with the terms of the Acquisition, the Replacement Options were fully vested upon grant. The Replacement Options had a grant date fair value of $164,000, based upon Black-Scholes models with an expected volatility of 67% and a risk-free interest rate of 1.00%. The grant date fair value was capitalized as part of the purchase price of the Zazu assets acquired in the Acquisition. See Note 1, “Recent developments” above.

On September 1, 2017, the Board of Directors granted 200,000 stock options under the 2013 Plan. The options have a five-year life, vested 25% on the date of grant and vest 25% on each of the next three anniversary dates of the date of grant, and have an exercise price of $0.77$0.28 per share, a five-year term, and a grant date fair value of $84,000,$23,000 based upon a Black-Scholes model, with a an expected64% volatility of 64%, and a risk free2.4% risk-free interest raterate. In addition, during the six months ended June 30, 2019, options exercisable to acquire 1,000,160 shares of 1.70%.common stock, with exercise prices between $1.68 and $0.70 per share, expired unexercised. During the six months ended June 30, 2018, Solitario granted options exercisable to acquire 100,000 shares of common stock to a consultant, with an exercise price of $0.62 per share, a seven-month term and a grant date fair value of $12,000 based upon a Black-Scholes model with a 66% volatility and a 1% risk-free interest rate. There were no exercises of options under the 2013 Plan during the three and six months ended June 30, 2019 and 2018. During the three and ninesix months ended SeptemberJune 30, 2017,2019, Solitario recorded stock option compensation related to these optionsexpense of $23,000.$85,000 and $173,000, respectively. During the three and six months ended June 30, 2018, Solitario recorded non-cash stock option compensation expense of $432,000 and $442,000, respectively.

On September 1, 2017, the Board of Directors granted, subject to shareholder approval at the next meeting of shareholders, an additional 2,300,000 stock options under the 2013 Plan to officers and members of the Board of Directors. These optionsDirectors (the “Conditional Options”). The Conditional Options were approved at Solitario’s annual meeting on June 19, 2018. The Conditional Options have a five-year life, andan exercise price of $0.77 per share, and a grant date fair value of $970,0000,$970,000, based upon a Black-Scholes model with a volatility of 64%, and a risk freerisk-free interest rate of 1.70%. Although the options willThe Conditional Options vest on the schedule of 25% on date of approval of the grant (June 19, 2018) and 25% on each of the next three anniversary dates of the date of grant (September 1, 2018, 2019 and 2020).

At June 30, 2019, the total unrecognized stock option compensation cost related to non-vested options will not become exercisableis $487,000 and is expected to be recognized over a weighted average period of 19 months.

10.        Shareholders’ Equity

Shareholders’ Equity for the six months ended June 30, 2018:

Solitario adopted Accounting Standards Update No. 2016-01Recognition and Measurement of Financial Assets and Financial Liabilities(“ASU 2016-01”) in whole orthe first quarter of 2018. ASU No. 2016-01 revised the classification and measurement of investment in part unless Solitario shareholders approve the grants,certain equity investments and the option grants willpresentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be void ifrecognized in net income. Solitario shareholders do not approverecorded a cumulative-effect adjustment for the grants. Solitario will not record any stock option expensechange in accounting principle to retained earnings of $576,000 related to these options until the shareholder approval is received.adoption of ASU 2016-01.

On July 28, 2016, the Board of Directors granted 1,699,000 stock options under the 2013 Plan. These options were subsequently surrendered by the holders and cancelled on August 24, 2016. As a result of the cancellation, Solitario recognized $637,000 of unamortized grant date fair value as of the date of the cancellation under the 2013 Plan. There were no exercises of options or awards under the 2013 Plan during the three and nine months ended September 30, 2017 or 2016.

9.        Shareholders’ Equity and Accumulated Other Comprehensive Incomefor the six months ended June 30, 2019:

Share Repurchase Program

On October 28, 2015, Solitario’s Board of Directors approved a share repurchase program that initially authorized Solitario to purchase up to two million shares of its outstanding common stock. On November 7, 2017,During 2018, Solitario’s Board of Directors extended the expiration date of the share repurchase program through December 31, 2018. During the nine months ended September 30, 2017, Solitario purchased 38,700 shares of Solitario common stock for an aggregate purchase price of $28,000.2019. During the three and nine months ended SeptemberJune 30, 2016,2019 and 2018, Solitario purchased 18,0005,300 and 424,00092,566 shares of Solitario common stock, respectively, for an aggregate purchase price of $13,000$2,000 and $214,000,$39,000, respectively. During the six months ended June 30, 2019 and 2018, Solitario purchased 33,200 and 145,200 shares of Solitario common stock, respectively, for an aggregate purchase price of $11,000 and $65,000, respectively. As of SeptemberJune 30, 2017,2019, Solitario has purchased a total of 659,300964,100 shares for an aggregate purchase price of $343,000$460,000 under the share repurchase program since its inception.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the information contained in the consolidated financial statements of Solitario for the years ended December 31, 20162018 and 2015,2017, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Solitario’s Annual Report on Form 10-K for the year ended December 31, 2016.2018. Solitario's financial condition and results of operations are not necessarily indicative of what may be expected in future periods. Unless otherwise indicated, all references to dollars are to U.S. dollars.

(a) Recent Developments

As further described in Note 1 “Business and Significant Accounting Policies,” “Recent developments,” on July 12, 2017 we completed the acquisition of Zazu pursuant to the Arrangement Agreementand acquired all of the Zazu Shares by way of the Arrangement. As a result of the Acquisition Zazu became a wholly-owned subsidiary of Solitario. At closing, we issued 19,788,177 shares of common stock for all of the issued and outstandingZazu Shares. We also grantedtheReplacement Options in connection with the Acquisition. The Acquisition was recorded during the three and nine months ended September 30, 2017 as the acquisition of assets in accordance with ASU 2017-01. The total purchase pricefor the Acquisition was $16,227,000 and has been allocated to the assets acquired, less liabilities.Results of operations for Zazu have been included in our consolidated financial statements from the date of Acquisition.

Effective July 17, 2017 an amendment to our Articles of Incorporation became effective that served to change our name to “Solitario Zinc Corp.” from “Solitario Exploration & Royalty Corp.” Subsequent to the Acquisition, our core mineral property assets are the 39% interest in the Florida Canyon zinc project in Peru and the 50% ownership interest in the Lik zinc deposit (acquired in the Acquisition). We believe the name “Solitario Zinc Corp.” reflects the increased focus of the Company on zinc-related assets.

(b) Business Overview and Summary

We are an exploration stage company under Industry Guide 7, as issued by the SEC, with a focus ofon the acquisition of precious and base metal properties with exploration potential and the development or purchase of royalty interests. Upon the completion of the Acquisition, we have shifted. Currently our primary focus towardis the acquisition and exploration of zinc-related exploration mineral properties. However, we will continue to evaluate other mineral properties for acquisition and hold a portfolio of mineral exploration properties and assets for future sale, joint venture or to create a royalty prior to the establishment of proven and probable reserves. Although our mineral properties may be developed in the future by us, through a joint venture or by a third party, we have never developed a mineral property. In addition to focusing on our current assets and the evaluation of mineral exploration properties, for acquisition or purchase of royalty interests, we also from time to time evaluate potential strategic corporate transactions for the acquisition of new precious and base metal properties and assets with exploration potential.

Our geographic focus for the evaluation of potential mineral property assets is in North and South America; however, we have conducted property evaluations for potential acquisition in other parts of the world. Our exploration properties may be developed in the future by us or through a joint venture, although we have never developed a mineral property. At June 30, 2019, we consider our carried interest in the Florida Canyon project in Peru and our interest in the Lik project in Alaska to be our core mineral property assets. In addition, at June 30, 2019, we have one exploration property in Peru. We are conducting independent exploration activities in Peru and through joint ventures operated by our partners in Peru and the United States. We conduct potential acquisition evaluations in other countries located in South and North America.

We have recorded revenue in the past from the sale of mineral properties, including the Royalty Sale and the sale in June 2018 of our interest in the royalty on the Yanacocha property. In addition, we have received proceeds from the sale in 2015 of our former interest in MH-LLC during 2015,the owner of our former Mt. Hamilton project, and joint venture property payments and the sale of a royalty on our former Mt. Hamilton property. Proceedsproject. Revenues and / or proceeds from the sale or joint venture of our properties or assets, although generally significant when they occur, have not historically been a consistent annual source of cash or revenue and would only occur in the future, if at all, on an infrequent basisbasis. We have reduced our exposure to the costs of our exploration activities in the future.

We currently consider our carried interest in our Florida Canyon project in Peru and our recently acquired interest inpast through the Lik project in Alaska to be our core mineral property assets. We expect ouruse of joint ventures. Although we anticipate that the use of joint venture partnerfunding for some of our exploration activities will continue the development and furtherance of the Florida Canyon project and we will monitor progress at Florida Canyon. We are currently evaluating potential exploration and development plans for the Lik project.foreseeable future, we can provide no assurance that these or other sources of capital will be available in sufficient amounts to meet our needs, if at all.

As of SeptemberJune 30, 2017,2019, we have significant balances of cash and short-term investments that we anticipate using, in part, to (i) further the development of the Lik project, (ii) fund exploration, including drilling at the Florida Canyon project, and toconduct reconnaissance exploration and (iii) potentially acquire additional mineral property assets. The fluctuations in precious metal and other commodity prices has contributedcontribute to a challenging environment for mineral exploration and development, which has created opportunities as well as challenges for the potential acquisition of advanced mineral exploration projects or other related assets at potentially attractive terms.

(c)(b) Results of Operations

Comparison of the quarter ended SeptemberJune 30, 20172019 to the quarter ended SeptemberJune 30, 20162018

We had a net incomeloss of $77,000$1,002,000 or approximately $0.00$0.02 per basic and diluted share for the three months ended SeptemberJune 30, 2017,2019 compared to a net loss of $1,119,000$613,000 or approximately $0.03$0.01 per basic and diluted share for the three months ended SeptemberJune 30, 2016.2018. As explained in more detail below, the primary reasonreasons for the change toincrease in the net income forloss in the three months ended SeptemberJune 30, 2017 from a2019 compared to the net loss forin the three months ended SeptemberJune 30, 2016 was2018 were (i) recording a creditthe mineral property revenue, net, of $502,000 during the 2017 periodthree months ended June 30, 2018 with no similar mineral property revenue during the three months ended June 30, 2019; and (ii) an increase in exploration expense to $702,000 during the three months ended June 30, 2019, primarily related to the drilling completed by Nexa at the Florida Canyon project, compared to $162,000 in exploration expense during the three months ended June 30, 2018, when we were primarily doing reconnaissance exploration. Partially offsetting the above items which increased the net loss, were (i) a reduction in the non-cash loss on unrealized loss on marketable equity securities to $63,000 during the three months ended June 30, 2019 compared to a non-cash unrealized loss on marketable equity securities of $222,000 during the three months ended June 30, 2018; (ii) a decrease in general and administrative expense to $321,000 during the three months ended June 30, 2019 compared to general and administrative expense for certain Acquisition related costs, previously expensed, which were capitalized to the purchase price of the Acquisition upon the adoption of ASU 2017- 01; (ii) a decrease in non-cash stock option compensation expense, included in general and administrative expenses to $23,000$762,000 during the three months ended SeptemberJune 30, 2017 compared to $939,000, which included expenses related to the cancellation of options of $721,000 during the three months ended September 30, 2016;2018; and (iii) an increase in interest income (net) to $38,000$90,000 during the three months ended SeptemberJune 30, 20172019 compared to interest income of $27,000$37,000 during the three months ended SeptemberJune 30, 2016; and (iv) an increase in gain on sale2018. Each of marketable equity securities to $357,000 during the three months ended September 30, 2017 compared to gain on salemajor components of marketable equity securities of $10,000 during the three months ended September 30, 2016. These were partially offset by an (i) increase in exploration expense to $180,000 during the three months ended September 30, 2017 compared to exploration expense of $132,000 during the three months ended September 30, 2016; (ii) a reduction in the gain on derivative instruments to a loss of $18,000 during the three months ended September 30, 2017 compared to a gain of $163,000 during the three months ended September 30, 2016; and (iii) income tax expense of $74,000 during the three months ended September 30, 2017 compared to and income tax benefit of $27,000 during the three months ended September 30, 2016. The significant changes for these items areis discussed in more detail below.

          Our net exploration expense increased to $180,000$702,000 during the three months ended SeptemberJune 30, 20172019 compared to exploration expense of $132,000$162,000 during the three months ended SeptemberJune 30, 2016.2018. During the three months ended June 30, 2019, Nexa met the second required total drilling target of 3,400 meters of drilling at the Florida Canyon project and Solitario was responsible for $527,000 of the total drilling costs incurred by Nexa, with Nexa responsible for any excess. We increased our reconnaissancerecorded $527,000 of exploration activitiesexpense during the three months ended SeptemberJune 30, 2017 primarily2019 related to the completiondrilling at Florida Canyon and recorded an account payable of the same amount, which was paid to Nexa in July of 2019. There was no similar item during the three months ended June 30, 2018. In addition, we incurred $24,000 of exploration expense at our Lik project in Alaska during the three months ended June 30, 2019 compared to Lik project expenditures of $10,000 during the three months ended June 30, 2018 and we incurred $35,000 of exploration expense related to permitting and site work at our La Promesa project in Peru, compared to $23,000 of exploration expense at La Promesa during the six months ended June 30, 2018. During the three and six months ended June 30, 2019 we had three contract geologists in Peru, and our Denver personnel spent a preliminary economic assessmentmajority of their time on reconnaissance exploration activities described above and related matters. We anticipate Nexa will complete the 2019 exploration program at our Florida Canyon project (the Florida Canyon PEA”). The Florida Canyon PEA was completed by SRK Consulting (U.S.), Inc., an independent and internationally recognized mining engineering firm, and reported during the third quarter of 2017.2019, as discussed above in Note 8, “Commitments and Contingencies.” Should Nexa complete the drilling program as budgeted, we anticipate we will record the final amount due under the program of $526,000 in exploration expense at Florida Canyon during the third quarter of 2019. In addition, we continued to evaluatehave budgeted approximately $178,000 for our share of exploration properties and /or companies for potential acquisitions or other strategic transactions. We anticipate we will continue withat our current exploration activities, including evaluation of our newly-acquired Lik project in Alaska for the full year of 2019, which the bulk of those expenses are planned for the third and asfourth quarter of 2019. As a result, we expect our full-year exploration expenditures for 2017 will2019 to exceed the expenditures for full-year 2016.2018.

Exploration expense (in thousands) by project for the three and ninesix months ended SeptemberJune 30, 20162019 and 20152018 consisted of the following:

General and administrative costs, excluding stock option compensation costs, discussed below, were $17,000$236,000 during the three months ended SeptemberJune 30, 20162019 compared to $274,000$330,000 during the three months ended SeptemberJune 30, 2016.2018. The major components of these costs were related to (i) salaries and benefit expense of $108,000 during the three months ended SeptemberJune 30, 20172019 compared to salary and benefit costs of $162,000 compared to salariesduring the three months ended June 30, 2018, as we have reduced staff and benefits expense of $150,000 in the same period of 2016;taken salary reductions during 2019; (ii) a net credit of $224,000 to legal and accounting related to previously expensed Acquisition expenditures which were capitalized as part of the Acquisition purchase price upon the adoption of ASU 2017-10$54,000 in the three months ended SeptemberJune 30, 2017, see Note 1 to the condensed consolidated statements “Recent developments,” above,2019 compared to $67,000 in the three months ended September 30, 2016; (iii) office rent and expenses of $24,000$85,000 during the three months ended SeptemberJune 30, 2017 compared to $23,0002018; (iii) office and other expenses of $27,000 during the three months ended SeptemberJune 30, 2016; (iv)Directors and officer liability insurance charged2019, compared to operations of $14,000$35,000 during the three months ended SeptemberJune 30, 2017, with no similar item during the same period of 20162018; and (v)(iv) travel and shareholder relation costs of $39,000$48,000 during the three months ended SeptemberJune 30, 20172019 compared to $32,000$47,000 during the three months ended SeptemberJune 30, 2016.2018. We anticipate the non-stock option compensation and non-Acquisition general and administrative costs will be incurred at a comparable rate to the rate in the three months ended September 30, 2017quarterly amounts for the remainder of 2017.2019.

We recorded $85,000 of stock option expense for the amortization of unvested grant date fair value with a credit to additional paid-in-capital of $23,000 during the three months ended SeptemberJune 30, 20172019 compared to $218,000$432,000 of stock option compensation expense during the three months ended SeptemberJune 30, 2016. During2018. The decrease was primarily related to $422,000 of stock option expense recorded during the three months ended SeptemberJune 30, 2016, the holders of options to acquire our common stock voluntarily surrendered for cancellation all options previously granted to such persons and we cancelled the options upon surrender. Upon cancellation, we recorded an additional $721,000 of non-cash stock option compensation expense2018, for the unamortizedamortization of vested grant date fair value for the Conditional Options which were granted on September 1, 2017, but were subject to shareholder approval, which was received on June 19, 2018 as of the date of cancellation. Seediscussed in Note 9, “Employee Stock Compensation Plans,” above. We anticipate our stock option expense related to vesting of grant date fair value for the remainder of 2019 will be comparable to the condensed consolidated financial statements, above.expense incurred through June 30, 2019.

We recorded an unrealized loss on marketable equity securities of $63,000 during the three months ended June 30, 2019 compared to an unrealized loss on marketable equity securities of $222,000 during the three months ended June 30, 2018. The loss during each of the three months ended June 30, 2019 and 2018 was primarily related to a decrease in the value of our holdings of 11,000,000 shares of Vendetta common stock which decreased from a fair value, based on quoted market prices, of $906,000 and $1,792,000, respectively, at March 31, 2019 and 2018, to a fair value of $800,000 and $1,589,000, respectively at June 30, 2019 and 2018. During the three months ended SeptemberJune 30, 2017 we sold marketable equity securities for proceeds of $407,000 and recorded a gain on2019 the sales of $357,000, compared to sales of marketable equity security sales for proceeds of $16,000 and a recorded gain on the sales of $10,000 for the three months ended September 30, 2016. During the three months ended September 30, 2017 we sold 2,000,000 Vendetta common shares, and used the bulk of the proceeds of $407,000 to exercise 5,000,000 Vendetta Warrants for $411,000. See Note 3, “Marketable Equity Securities,” above. The sale of marketable equity securities during 2016 consisted of the sale of 3,000 shares of Kinross common stock. We anticipate we will continue to sell somevalue of our holdings of marketable equity securities during the remainder100,000 shares of 2017 related to our overall cash management strategy.

We adjust the fairKinross Gold Corp (“Kinross”) common stock increased in value of the Vendetta Warrants at each balance sheet date, based upon a Black-Scholes model. During the three months ended September 30, 2017 we recorded a loss on derivative instruments of $31,000 related to the Vendetta Warrants,quoted market prices by $43,000, compared to a gain on derivative instrumentsloss of $91,000$19,000 during the three months ended SeptemberJune 30, 2016. During the three months ended September 30, 2017 we2018.

We recorded a gain on derivative instruments related to our Kinross callsinterest income of $13,000 compared to a gain on derivative instruments$90,000 during the three months ended SeptemberJune 30, 2017 of $72,000. Upon the exercise of the Vendetta Warrants discussed above, we no longer have any Vendetta Warrants as of September 30, 2017, and as a result do not expect to record significant swings in our gain or loss on derivative instruments during the remainder of 2017.

We recorded a deferred tax expense of $74,000 and a deferred tax benefit of $15,000, respectively, during the three and nine months ended September 30, 2017 related to the gains and losses and related valuation allowance related to gains and losses in other comprehensive income during 2017. During the three and nine months ended September 30, 2016, we recorded deferred tax benefits of $27,000 and $264,000, respectively, related to changes in other comprehensive income in the three and nine months ended September 30, 2016. As a result of our exploration activities and other tax deductible expenses, we anticipate we will not have currently payable income taxes during 2017. We provide a valuation allowance for our United States and foreign net operating losses, which are primarily related to our general and administrative expenses and our exploration activities in Peru, respectively. We anticipate we will continue to provide a valuation allowance for these net operating losses until we are in a net tax liability position with regards to those countries where we operate or until it is more likely than not that we will be able to realize those net operating losses in the future.

Comparison of the nine months ended September 30, 2017 to the nine months ended September 30, 2016

We had a net loss of $453,000 or $0.01 per basic and diluted shared for the nine months ended September 30, 2017 compared to a net loss of 1,770,000 or $0.05 per basic and diluted share for the nine months ended September 30, 2016. As explained in more detail below, the primary reasons for the decrease in the net loss during the nine months ended September 30, 2017 compared to the net loss during the nine months ended September 30, 2016 were (i) a decrease in non-cash stock option compensation expense, included in general and administrative expenses to $23,000 during the nine months ended September 30, 2017 compared to $939,000, which included expenses related to the cancellation of options, discussed above, of $721,000 during the nine months ended September 30, 2016; (ii) we recorded interest income of $114,000 during the nine months ended September 30, 20172019 compared to interest income of $40,000$37,000 during the three months ended June 30, 2018 primarily due to (i) an increase in the value of our short-term investments in USTS as a result of increaseda decrease in interest rate on our outstanding short-term investmentsrates during 2017 compared to 2016; (iii) an increase in gain on sale of marketable equity securities to $578,000 during the nine months ended September 30, 207 compared to gain on sale of marketable equity securities of $40,000 during the nine months ended September 30, 2016; and (iv) we recorded a loss on the sale of other assets of $14,000 during the nine months ended September 30, 2016 related to the closure of our Mexico exploration office, with no similar item during 2017. These reductions in net loss were partially offset by (i) an increase in exploration expense to $519,000 during the nine months ended September 30, 2017 compared to exploration expense of $474,000 during the nine months ended September 30, 2016; (ii) depreciation expense increased to $8,000 during the nine months ended September 30, 2017 compared to $4,000 during the same period in 2016 as a result of the addition of $100,000 of exploration equipment at Lik during 2017; (iii) we recorded a reduction in the gain on derivative instruments to $267,000 during the nine months ended September 30, 2017 compared to a gain on derivative instruments of $295,000 during the nine months ended September 30, 2016; and (iv) we recorded a deferred tax benefit of $15,000 during the nine months ended September 30, 2017 related to changes in other comprehensive income compared to deferred tax benefit of $27,000 during the nine months ended September 30, 2016, as discussed above.

Our net exploration expense increased to $519,000 during the nine months ended September 30, 2017 compared to $474,000 in the comparable period of 2016. See the discussion of the comparison of the three months ended SeptemberJune 30, 2017 compared to2019, which increases the value of existing USTS, and (ii) the average interest rates on our existing short term investments was still higher during the three months ended SeptemberJune 30, 2016, above with2019 than the major increase in the nine month period of 2017 related to the Florida Canyon PEA and an increase in reconnaissance exploration.

General and administrative costs, excluding stock option compensation costs discussed below, were $877,000average interest rates on our short term investments during the ninethree months ended SeptemberJune 30, 2017 compared to $941,000 in the same period of 2016. The major components of the costs were (i) salaries and benefit expense during the nine months ended September 30, 2017 of $477,000 compared to salaries and benefit expense of $631,000 in the same period of 2016, which included a bonus of $152,000 during 2016 with no similar item during the nine months ended September 30, 2017; (ii) legal and accounting expenditures of $109,000 in the nine months ended September 30, 2017 compared to $90,000 in the same period of 2016; (iii) other costs of $75,000 during the nine months ended September 30, 2017 compared to $66,000 in the same period of 2016; and (iv) travel and shareholder relation costs of $175,000 during the nine months ended September 30, 2017 compared to $154,000 in the same period of 2015.

During the nine months ended September 30, 2016, we recorded $970,000 of non-cash stock option expense with a credit to additional paid-in capital for the amortization of unvested grant date fair value, including $721,000 of non-cash stock option expense of unamortized grant date fair value upon the cancellation of options, compared to $23,000 of non-cash stock option expense during the nine months ended September 30, 2017. See Note 9, “Employee Stock Compensation Plans,” above for a further discussion of our stock option activity during the nine months ended September 30, 2016.

During the nine months ended September 30, 2017 we sold marketable equity securities for proceeds of $666,000 and recorded a gain on the sales of $578,000, compared to sales of marketable equity security sales for proceeds of $56,000 and a recorded gain on the sales of $40,000 for the nine months ended September 30, 2016. During the nine months ended September 30, 2017 we sold 3,480,000 Vendetta common shares, and used the bulk of the proceeds of $666,000 to exercise 7,240,000 Vendetta Warrants for $578,000. See Note 3, “Marketable Equity Securities,” above. The sale of marketable equity securities during 2016 consisted of the sale of 3,000 shares of Kinross common stock and the sale of 100,000 shares of International Lithium Corp stock. During the nine months ended September 30, 2016, the proceeds from these sales were $56,000 and we recorded a gain on sale of $40,000 on the sale of these securities.2018.

We regularly perform evaluations of our mineral property assets to assess the recoverability of our investments in these assets. All long-lived assets are reviewed for impairment whenever events or circumstances change which indicate the carrying amount of an asset may not be recoverable utilizing guidelines based upon future net cash flows from the asset as well as our estimates of the geological potential of an early stage mineral property and its related value for future sale, joint venture or development by us or others. During the ninethree and six months ended SeptemberJune 30, 20162019 and 2018, we recorded no property impairments.

At June 30, 2019 and 2018, our net operating loss carryforwards exceeded our taxable gains resulting in a loss on other assets of $14,000net tax asset position for which we provide a valuation allowance for all net deferred tax assets. We recorded no income tax expense or benefit during the three and property abandonment expense of $10,000 related to the closuresix months ended June 30, 2019 or 2018. As a result of our exploration officeactivities, we anticipate we will not have currently payable income taxes during 2019. In addition to the valuation allowance discussed above, we provide a valuation allowance for our foreign net operating losses, which are primarily related to our exploration activities in Mexico.Peru. We recorded noanticipate we will continue to provide a valuation allowance for these net operating losses until we are in a net tax liability position with regards to those countries where we operate or until it is more likely than not that we will be able to realize those net operating losses in the future.

Comparison of the six months ended June 30, 2019 to the six months ended June 30, 2018

We had a net loss of $1,443,000 or $0.02 per basic and diluted share for the six months ended June 30, 2019 compared to a net loss of $1,617,000 or $0.03 per basic and diluted share for the six months ended June 30, 2018. As explained in more detail below, the primary reasons for the decrease in our net loss were (i) a decrease in general and administrative costs to $746,000 during the six months ended June 30, 2019, compared to general and administrative expenses of $1,165,000 including $442,000 of non-cash stock option compensation expense, discussed above, during the six months ended June 30, 2018; (ii) a reduction in the unrealized loss on marketable equity securities to $389,000 during the six months ended June 30, 2019 compared to an unrealized loss on marketable equity securities of $663,000 during the six months ended June 30, 2018; and (iii) an increase in interest income to $162,000 during the six months ended June 30, 2019 compared to interest income of $63,000 during the six months ended June 30, 2018. These causes of the decrease in our net loss during the period were partially offset by (i) an increase in exploration expense to $865,000 during the six months ended June 30, 2019 compared to exploration expense of $342,000 during the six months ended June 30, 2018; and (ii) the reduction in mineral property write-downssale revenue to $408,000 from the Royalty Sale compared to the mineral property sale revenue of $502,000 from the Yanacocha Royalty sold during the ninesix months ended SeptemberJune 30, 2017.

2018; The significant changes for these items are discussed in more detail below.

During the six months ended June 30, 2019, we completed the Royalty Sale and recorded net revenues of $408,000. During the six months ended June 30, 2018 we sold our interest in our Yanacocha royalty property to Newmont Mining Corporation for $502,000 in cash, discussed in “Recent Developments” in our Form 10-K for the year ended December 31, 2018. We do not anticipate additional significant property sales during the remainder of 2019.

Our net exploration expense increased to $865,000 during the six months ended June 30, 2019 compared to $342,000 during the six months ended June 30, 2018. The primary reason for the increase was the recording of $527,000 of exploration expense for the completion of drilling by Nexa in excess of the 3,400 meter threshold at the Florida Canyon project during the first six months of 2019, discussed above. The remaining changes in exploration expense for the six-month periods of 2019 and 2018 are shown above, by property and reconnaissance exploration, and are not significantly different between the six months ended June 30, 2019 and June 30, 2018.

General and administrative costs, excluding stock option compensation costs discussed below, were $573,000 during the six months ended June 30, 2019 compared to $723,000 during the six months ended June 30, 2018. The major components of the costs were (i) salaries and benefit expense during the six months ended June 30, 2019 of $215,000 compared to salaries and benefit expense of $319,000 during the six months ended June 30, 2018 as a result of personnel and salary reductions; (ii) legal and accounting expenditures of $106,000 during the six months ended June 30, 2019, compared to $127,000 during the six months ended June 30, 2018; (iii) office and other costs of $70,000 during the six months ended June 30, 2019 compared to $76,000 during the six months ended June 30, 2018; and (iv) travel and shareholder relation costs of $181,000 during the six months ended June 30, 2019 compared to $201,000 during the six months ended June 30, 2018.

During the six months ended June 30, 2019 and 2018, Solitario recorded $173,000 and $442,000, respectively, of stock option expense for the amortization of unvested grant date fair value with a credit to additional paid-in capital. The large decrease was related to the stock option expense for the Conditional Options recorded during the six months ended June 30, 2018, as discussed above.

We recorded an unrealized loss on marketable equity securities of $389,000 during the six months ended June 30, 2019 compared to an unrealized loss on marketable equity securities of $663,000 during the six months ended June 30, 2018. The non-cash unrealized loss during the six months ended June 30, 2019 and 2018 was primarily related to a decrease in the value of our holdings of 11,000,000 shares of Vendetta common stock which decreased from a fair value of $1,249,000 and 2,191,000, respectively, at December 31, 2018 and 2017 to a fair value of $800,000 and $1,589,000, respectively, at June 30, 2019 and 2018 based on quoted market prices. We may look to reduce our holdings of marketable equity securities as a source of cash flow over the next year, which may reduce the volatility of the changes in unrealized gains and losses in marketable equity securities during the remainder of 2019.

During the six months ended June 30, 2019 our interest income on short-term investments increased to $162,000 compared to interest income of $63,000 for the six months ended June 30, 2018 primarily as a result of the effects of lower interest rates on the quoted market price of our USTS holdings as well as a slightly increased average interest rate received on USTS invested during 2019 compared to 2018. We anticipate as we utilize our short-term investments to provide funds for exploration and general and administrative expenses, our interest income will be reduced during the remainder of 2019.

(d)

(c) Liquidity and Capital Resources

Cash and Short-term Investments

As of SeptemberJune 30, 2017,2019, we have $12,232,000$9,278,000 in cash and short-term investments. As of SeptemberJune 30, 2017,2019, we have invested $10,723,000$8,714,000 of our current assets in USTS with maturities of 15 days to 1918 months. The USTS are recorded at their fair value, based upon quoted market prices. As of September 30, 2017, we have invested $1,248,000 in separate CDs with maximum values of $250,000, each of which is covered by FDIC insurance to the full face value of the CDs. At September 30, 2017, the CDs have maturities of between 30 days and 18 months. The CDs are recorded at their fair value, based upon quoted market prices. We anticipate we will roll over that portion of our USTS and CDs not used for exploration expenditures, operating costs or mineral property acquisitions as they become due during the remainder of 2017.2019.

We intend to utilize a portion of our cash and short-term investments in our exploration activities and the potential acquisition of mineral assets over the next several years. We also expect to use a portion of our cash to repurchase shares of our common stock pursuant to the terms of a stock buy-back program announced on October 28, 2015, and discussed above in Note 9,10, “Shareholders’ Equity, and Accumulated Other Comprehensive Income”” to the unaudited condensed consolidated financial statements. The stock buy-back program may be terminated at any time and does not require Solitario to purchase a minimum number of shares.

Loan to Zazu

On April 26, 2017, concurrent with the signing of the Arrangement Agreement, we provided Zazu interim debt financing in the principal amount of US$1,500,000 through the issuance of the "Debenture. The Debenture was secured by way of a general security and pledge agreement on Zazu assets and bore interest at a rate of 5% per annum. The Debenture was convertible, at our option into Zazu Shares at a price of US$0.22 per Zazu Share. Upon completion of the Acquisition, the Debenture was cancelled. See Note 1, to the unaudited consolidated financial statements, “Recent developments,” above.

Investment in Marketable Equity Securities

Our marketable equity securities are classified as available-for-sale and are carried at fair value, which is based upon market quotes of the underlying securities. We ownedAt June 30, 2019 we own 11,000,000 shares of Vendetta common stock and 100,000 shares of Kinross common stockstock. The Vendetta shares are recorded at September 30, 2017. Thetheir fair market value of $800,000 and the Kinross shares are recorded at their fair value of $437,000$388,000 at SeptemberJune 30, 2017. On May 2, 2016 we purchased 7,240,000 units of Vendetta for an aggregate purchase price of $289,000. Each unit consists of one common share of Vendetta and one Vendetta Warrant for the purchase of one common share of Vendetta at Cdn$0.10 per share for a period of two years. During the nine months ended September 30, 2017, we sold 3,480,000 common shares of Vendetta for proceeds of $666,000, and recorded a gain on the sale of marketable equity securities of $577,000. During the nine months ended September 30, 2017 we exercised 7,240,000 of our Vendetta Warrants and received 7,240,000 Vendetta common shares, by paying $574,000 cash to Vendetta. The cost of the shares received from the exercise of the Vendetta Warrants was recorded based upon the total of the (i) exercise price of the Vendetta Warrants exercised, $578,000, and (ii) the fair value of the Vendetta Warrants on the date of exercise, which equaled their intrinsic value, $950,000, for a total value of $1,528,000. As of September 30, 2017, we own 11,000,000 common shares of Vendetta, which are carried at their fair value of $2,382,000 based upon quoted market prices, with any unrealized gain or loss included in other comprehensive income.2019. In addition, we own other marketable equity securities with a fair market value of $13,000 as$8,000 at June 30, 2019. We did not sell any of Septemberour marketable equity securities during the three and six months ended June 30, 2017.2019 or 2018.

Working Capital

We had working capital of $15,094,000$10,184,000 at SeptemberJune 30, 20172019 compared to working capital of $16,671,000$11,448,000 as of December 31, 2016.2018. Our working capital at SeptemberJune 30, 20172019 consists primarily of our cash and cash equivalents, our investment in USTS and CDs, discussed above, our investment in marketable equity securities of $2,819,000,$1,196,000, other current assets of $416,000, which include the SilverStream Note of $267,000 at June 30, 2019, less our current liabilities of $706,000, which consist of accounts payable and the current portion of $141,000.our operating lease liability. As of SeptemberJune 30, 2017,2019, our cash balances along with our short-term investments and marketable equity securities are adequate to fund our expected expenditures over the next year.

The nature of the mineral exploration business requires significant sources of capital to fund exploration,

development and operation of mining projects. We will need additional capital if we decide to develop or operate any of our current exploration projects or any projects or assets we may acquire. We anticipate we would finance any such development through the use of our cash reserves, short-term investments, joint ventures, issuance of debt or equity, securities, or the sale of other exploration projects or assets.

Stock-Based Compensation Plans

In connectionAs of June 30, 2019, and December 31, 2018 there were options outstanding that are exercisable to acquire 4,373,000 and 2,028,428 shares of Solitario common stock, respectively, with the Acquisition, on July 12, 2017, we granted 1,782,428 Replacement Options. The Replacement Options were pricedexercise prices between $2.24 per share and $0.70 per share with terms between 10 months and 18 months. In accordance with the terms of the Acquisition, the Replacement Options were fully vested upon grant. The Replacement Options had a grant date fair value of $164,000, based upon Black-Scholes models with an expected volatility of 67% and a risk-free interest rate of 1.00%. The grant date fair value was capitalized as part of the purchase price of the Zazu assets acquired in the Acquisition.

On September 1, 2017, we granted 200,000 stock options under the 2013 Plan. The options have a five-year life, vested 25% on the date of grant and vest 25% on each of the next three anniversary dates of the date of grant, and have an exercise price of $0.77 per share and a grant date fair value of $84,000, based upon a Black-Scholes model with a an expected volatility of 64%, and a risk free interest rate of 1.70%. During the three and nine months ended September 30, 2017, we recorded stock option compensation related to these options of $23,000.

On September 1, 2017, we granted, subject to shareholder approval at the next meeting of our shareholders, an additional 2,300,000 stock options under the 2013 Plan to officers and members of the Board of Directors. These options have a five-year life, and exercise price of $0.77$0.28 per share, and a grant date fair value of $970,0000, based upon a Black-Scholes model with a volatility of 64%, and a risk free interest rate of 1.70%. Although the options will vest on the schedule of 25% on date of grant and 25% on each of the next three anniversary dates of the date of grant, the options will not become exercisable in whole or in part unless our shareholders approve the grants, and the option grants will be void if our shareholders do not approve the grants. We will not record any stock option expense related to these options until the shareholder approval is received.

During the nine months ended September 30, 2016 the holders of options to acquire our common stock voluntarily surrendered for cancellation all options previously granted to such persons pursuant to the 2013 Plan and the 2006 Plan. Solitario cancelled the options upon surrender. As a result, there are no outstanding options under the 2006 Plan. See Note 8, “Employee Stock Compensation Plans,” above for a discussion of the activity in our 2013 Plan and our 2006 Plan during 2017.share. We do not anticipate the exercise of options during the remainder of 2017 willto be a significant source of cash.cash flow during the remainder of 2019.

Share Repurchase Program

On October 28, 2015, our Board of Directors approved a share repurchase program that authorized us to purchase up to two million shares of our outstanding common stock. On November 7, 2017,During 2018, our Board of Directors extended the term of the share repurchase program until December 31, 2018.2019. All shares purchased to date have been cancelled and reduced the number of shares of outstanding common stock. The amount and timing of any shares purchased has been and will be determined by our management and the purchases will be effected in the open market or in privately negotiated transactions based upon market conditions and other factors, including price, regulatory requirements and capital availability and in compliance with applicable state and federal securities laws. Purchases may also be made in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “1934 Act”). The repurchase program does not require the purchase of any minimum number of shares of common stock by the Company, and may be suspended, modified or discontinued at any time without prior notice. No purchases will be made outside of the United States, including on the Toronto Stock Exchange.TSX. Payments for shares of common stock repurchased under the program have been funded using the Company’s working capital. As of SeptemberJune 30, 2017, since the inception of the share repurchase program, we have2019, Solitario has purchased a total of 659,300964,100 shares for an aggregate purchase price of $343,000$460,000 under the share repurchase program since its inception and these shares are no longer included in our issued and outstanding shares. We anticipate we will continue to purchase a limited number of shares under the share repurchase plan during the remainder 2017of 2019 as determined by management.

(e)

(d) Cash Flows

Net cash used in operations during the ninesix months ended SeptemberJune 30, 2017 decreased2019 increased to $1,308,000$995,000 compared to $1,436,000 for$440,000 during the ninesix months ended SeptemberJune 30, 20162018 primarily as a result of (i) the cash outflows of $527,000 for the Nexa drilling exploration expense incurred during 2018, and paid during the second quarter of 2019, with no comparable exploration cash use during the six months ended June 30, 2018; and (ii) the receipt of $185,000 in cash on the mineral property revenue related to the Royalty Sale, compared to the receipt of $502,000 in cash from the Yanacocha royalty property sale, discussed above, during 2018. Partially offsetting these increases in usages of operating cash were (i) a decrease in non-stock option general and administrative expenses notexpense to $573,000 during the six months ended June 30, 2019 compared to $723,000 during the six months ended June 30, 2018, discussed above; and (ii) an increase in cash interest income during the six months ended June 30, 2018 compared to the six months ended June 30, 2018. Based upon projected expenditures in our 2019 budget, we anticipate continued use of funds from operations through the remainder of 2019, primarily for exploration related to the Acquisition. Legalour Florida Canyon project and accounting costs directly associated with the Acquisition were capitalized in accordance with ASU 2017 – 01, as discussed above in Note 1 “Recent developments.” In addition, as we focused on the Acquisition, we spent less timeour Lik project and expense on other general and administrative matters, including shareholder and investor relations. These reductions were partially offset by a slight increase in exploration expense. We anticipate our cash used from operations will generally continue to be in line with the uses through the nine months ended September 30, 2017.reconnaissance exploration. See “Results of Operations” discussed above for further explanation of some of these variances.

We received $1,478,000During the six months ended June 30, 2019, $1,453,000 in cash was provided from investing activities compared to the provision of $501,000 of cash from investing activities during the ninesix months ended September 30, 2017 primarily from the sale of $3,254,000 of short-term investments of USTS and CDs.June 31, 2018. The sale of these short-term investments was anticipated pursuant to our corporate budgets and plans for 2017, after consideration of the expenditures for the Acquisition, and we anticipate we will continue to use short-term investments to fund our operations for the remainder of 2017. As part of the Acquisition, we used $1,500,000primary sources of cash related to extend the loan evidenced by the Debenture, discussed above,net proceeds from short-term investment sales and we used net cash for the Acquisitionpurchases of $417,000, consisting of $899,000 of transaction costs, $491,000 of acquired accounts payable less $974,000 of cash acquired. See Note 1, under “Recent developments,” above. We used $15,518,000 in cash from investing activities$1,453,000 and $509,000, respectively, during the ninesix months ended SeptemberJune 30, 2016 for2019 and 2018. During the net purchasesix months ended June 30, 2018 we purchased $8,000 of $7,018,000 of CDs and $8,500,000 of USTS, discussed above under “Short-term Investments” in “Liquidity and Capital Resources.” In addition, during 2016, we used $289,000 for the purchase of units of Vendetta, discussed above under “Liquidity and Capital Resources,” and we used $40,000 for the purchase of royalties on certain non-producing mineral leases in the state of Montana, previously owned by Atna Resources Ltd.office equipment. We received $666,000 from the saledo not anticipate significant sales of marketable equity securities during the nine months ended September 30, 2017, from the saleremainder of Vendetta common shares, discussed above, compared2019. However, we will continue to $40,000 from the saleliquidate a portion of marketable equity securitiesour investments in USTS as needed to fund our operations and potential mineral property acquisitions during the nine months ended September 30, 2016. We anticipate the use of additional cash for potential exploration and evaluation activities related to our recently acquired interest in the Lik project as well as other on-going exploration activities for the remainder of 2017. We may incur additional costs related to the Acquisition or another2019. Any potential mineral property acquisition or purchasestrategic corporate investment during the remainder of 2019, discussed above under “Business Overview and Summary,” could involve a significant change in our cash provided or used for investing activities, depending on the structure of any additional exploration projects which we anticipate would be funded by the use of funds from the sale of our short-term investments.potential transaction.

We used $28,000$11,000 and $65,000, respectively, in financing activities for the purchase of our common stock during the ninesix months ended SeptemberJune 30, 2017 compared to the use of $214,000 during the nine months ended September 30, 2016,2019 and 2018, as discussed above discussed above under “Share Repurchase Program” in “Liquidity and Capital Resources.” We anticipate the use of funds for additional purchases of our common stock during the remainder of 2017. However,2019, however, this will be limited to the maximum number of shares, pursuant topermissible under the share repurchase program.

(f)(e) Off-balance sheet arrangements

As of SeptemberJune 30, 20172019, and December 31, 20162018 we have no off-balance sheet obligations.

(g)(f) Development Activities, Exploration Activities, Environmental Compliance and Contractual Obligations

As of September 30, 2017 weWe are not involved in any development activities, nor do we have any contractual obligations related to theany potential development of any of our projectsactivities as of SeptemberJune 30, 2017.2019. As of SeptemberJune 30, 2017,2019, there have been no changes to our exploration activities, environmental compliance or other contractual obligations from those disclosed in our Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the year ended December 31, 2016, except for the addition of our interest in the Lik project by virtue of the Acquisition, where we have estimated the asset retirement obligation at Lik for the reclamation of the existing exploration disturbance to be $125,000.

2018.

(h)

(g) Discontinued Projects

We droppedsold our Brazil, Mexico and Montana royalty interestsproperties during the six months ended June 30, 2019 in the Aconchi and Norcan exploration properties in Mexico during the nine months ended September 30, 2017. There was no capitalized mineral property interest in either royalty of the interests and weRoyalty Sale. We did not record any mineral property write-downs during the ninethree and six months ended SeptemberJune 30, 2017. During the nine months ended September 30, 2016, we closed our exploration office in Mexico. We recorded a mineral property write-down of $10,000 related to the Norcan2019 and Aconchi properties during the nine months ended September 30, 2016. In addition, we recorded a loss on other assets in Mexico of $14,000 related to the exit from our exploration activities in Mexico during the nine months ended September 30, 2016.2018.

(i)(h) Critical Accounting Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management’s estimates. During the three and nine months ended September 30, 2017, we have not adopted any additional accounting policies, with the exception of the adoption of ASU 2017 – 01, discussed above.

(j)(i) Related Party Transactions

As of SeptemberJune 30, 2017,2019, and for the three and ninesix months ended SeptemberJune 30, 2017,2019, we have no related party transactions or balances.

(k)(j) Recent Accounting Pronouncements

See Note 1, “Business and Summary of Significant Accounting Policies,” to the unaudited condensed consolidated financial statements under “Recent Accounting Pronouncements” above for a discussion of our significantrecent accounting policies.pronouncements.

(l)(k) Forward Looking Statements

This Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the 1934 Act with respect to our financial condition, results of operations, business prospects, plans, objectives, goals, strategies, future events, capital expenditures, and exploration and development efforts. Words such as “anticipates,” “expects,” “intends,” “forecasts,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” and similar expressions identify forward-looking statements. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading "Risk Factors" included in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016.2018. These forward-looking statements appear in a number of places in this report and include statements with respect to, among other things:

Although we have attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that these statements will prove to be accurate as actual results and future events could differ materially from those anticipated in the statements. Except as required by law, we assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Smaller Reporting Companies are not required to provide the information required by this item.

Item 4.   Controls and Procedures

Disclosure Controls and Procedures

As required by Rule 13a-15 under the 1934 Act, as of SeptemberJune 30, 2017,2019, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer). Based upon and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2017.2019.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the 1934 Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the 1934 Act) during the quarter ended SeptemberJune 30, 2017,2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

None

Except for risks attendant with the closing of the Acquisition, including those identified in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, thereThere are no material changes to the Risk Factors associated with our business disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.2018.

There were no purchasesThe following table provides information about our purchase of our common shares under the share repurchase program during the three months ended SeptemberJune 30, 2017.2019.

None

None

On November 7, 2017, Solitario Board of Directors approved an extension of its existing share repurchase program through December 31, 2018. The share repurchase program, as initially approved in October 2015, authorized Solitario to repurchase up to 2.0 million shares of its outstanding common stock and was set to expire on December 31, 2017.None

As of November 7, 2017, Solitario has repurchased 659,300 shares for an aggregate purchase price of $343,000. Under the program, as now extended, Solitario will have the ability to repurchase up to the remaining 1,340,700 available shares under the plan through December 31, 2018. All shares repurchased will be cancelled and will reduce Solitario’s current 58.4 million shares outstanding.

The timing and amount of any stock repurchased will be determined by Solitario’s Company’s management in the open market or in privately negotiated transactions based on market conditions and other factors, including price, regulatory requirements and capital availability, and in compliance with applicable state and federal securities laws. Repurchases may also be made under Rule 10(b)-18. The program does not require the repurchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice. No repurchases will be made outside of the United States, including shares trading on the Toronto Stock Exchange. Payment for shares repurchased under the program will be funded using Solitario’s working capital.

The Exhibits to this report are listed in the Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOLITARIO ZINC CORP.

EXHIBIT INDEX