March 31, 2020
Colorado 4251 Kipling St. Suite 390, Wheat Ridge, (303) | 84-1285791 |
YES ☒ | NO ☐ |
YES ☒ | NO ☐ |
Large accelerated filer ☐ | Accelerated filer | Non-accelerated filer reporting company)☐ | Smaller reporting company ☒ | Emerging Growth Company☐ |
YES ☐ | NO ☒ |
Page | ||||
Item 1Financial Statements | 3 | |||
Item 2Management's Discussion and Analysis of Financial | ||||
Condition and Results of Operations | 14 | |||
Item 3 Quantitative and Qualitative Disclosures About Market Risk | 18 | |||
Item 4 Controls and Procedures | 18 | |||
Item 1Legal Proceedings | 19 | |||
Item | 19 | |||
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds | 19 | |||
Item 3Defaults Upon Senior Securities | 19 | |||
Item | 19 | |||
Item 5 Other Information | 19 | |||
Item | 19 | |||
20 | ||||
PARTART I - FINANCIAL INFORMATION
Item
(in thousands of U.S. dollars, | September 30, | December 31, | ||||||
except share and per share amounts) | 2017 | 2016 | ||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 261 | $ | 119 | ||||
Short-term investments | 11,971 | 15,250 | ||||||
Investments in marketable equity securities, at fair value | 2,819 | 1,339 | ||||||
Prepaid expenses and other | 184 | 89 | ||||||
Total current assets | 15,235 | 16,797 | ||||||
Mineral properties | 15,774 | 46 | ||||||
Other assets | 130 | 771 | ||||||
Total assets | $ | 31,139 | $ | 17,614 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 135 | $ | 124 | ||||
Other | 6 | 2 | ||||||
Total current liabilities | 141 | 126 | ||||||
Long-term liabilities | ||||||||
Asset retirement obligation - Lik | 125 | — | ||||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Shareholders’ equity: | ||||||||
Preferred stock, $0.01 par value, authorized 10,000,000 shares (none issued and outstanding at September 30, 2017 and December 31, 2016) | — | — | ||||||
Common stock, $0.01 par value, authorized 100,000,000 shares (58,443,066 and 38,693,589 shares, respectively, issued and outstanding at September 30, 2017 and December 31, 2016) | 584 | 387 | ||||||
Additional paid-in capital | 69,406 | 55,790 | ||||||
Accumulated deficit | (39,854 | ) | (39,401 | ) | ||||
Accumulated other comprehensive income | 737 | 712 | ||||||
Total shareholders’ equity | 30,873 | 17,488 | ||||||
Total liabilities and shareholders’ equity | $ | 31,139 | $ | 17,614 |
(in thousands of U.S. dollars, | March 31, | December 31, |
except share and per share amounts) | 2020 | 2019 |
(unaudited) | ||
Assets | ||
Current assets: | ||
Cash and cash equivalents | $440 | $574 |
Short-term investments | 6,829 | 6,829 |
Investments in marketable equity securities, at fair value | 755 | 1,039 |
SilverStream note receivable | 253 | 268 |
Prepaid expenses and other | 42 | 46 |
Total current assets | 8,319 | 8,756 |
Mineral properties | 15,617 | 15,617 |
Other assets | 136 | 159 |
Total assets | $24,072 | $24,532 |
Liabilities and Shareholders’ Equity | ||
Current liabilities: | ||
Accounts payable | $294 | $228 |
Operating lease liability | 38 | 41 |
Kinross call option | 9 | - |
Total current liabilities | 341 | 269 |
Long-term liabilities | ||
Asset retirement obligation – Lik | 125 | 125 |
Operating lease liability | - | 7 |
Total long-term liabilities | 125 | 132 |
Commitments and contingencies | ||
Equity: | ||
Shareholders’ equity: | ||
Preferred stock, $0.01 par value, authorized 10,000,000 shares (none issued and outstanding at March 31, 2020 and December 31, 2019) | - | - |
Common stock, $0.01 par value, authorized 100,000,000 shares (58,116,366 and 58,133,066 shares, respectively, issued and outstanding at March 31, 2020 and December 31, 2019) | 581 | 581 |
Additional paid-in capital | 70,286 | 70,204 |
Accumulated deficit | (47,261) | (46,654) |
Total shareholders’ equity | 23,606 | 24,131 |
Total liabilities and shareholders’ equity | $24,072 | $24,532 |
(in thousands of U.S. dollars except share and per share amounts) | Three months ended September 30 | Nine months ended September 30 | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Costs, expenses and other: | ||||||||||||||||
Exploration expense | $ | 180 | $ | 132 | $ | 519 | $ | 474 | ||||||||
Depreciation and amortization | 6 | 1 | 8 | 4 | ||||||||||||
General and administrative | 40 | 1,213 | 900 | 1,911 | ||||||||||||
Property abandonment and impairment | — | — | — | 10 | ||||||||||||
Total costs, expenses and other | 226 | 1,346 | 1,427 | 2,399 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest income | 38 | 27 | 114 | 40 | ||||||||||||
Gain on sale of marketable equity securities | 357 | 10 | 578 | 40 | ||||||||||||
(Loss) gain on derivative instruments | (18 | ) | 163 | 267 | 295 | |||||||||||
Loss on sale of other assets | — | — | — | (14 | ) | |||||||||||
Gain on warrant liability | — | — | — | 4 | ||||||||||||
Total other income | 377 | 200 | 959 | 365 | ||||||||||||
Income (loss) before income tax | 151 | (1,146 | ) | (468 | ) | (2,034 | ) | |||||||||
Income tax (expense) benefit | (74 | ) | 27 | 15 | 264 | |||||||||||
Net income (loss) | 77 | (1,119 | ) | (453 | ) | (1,770 | ) | |||||||||
Income (loss) per common share attributable to Solitario shareholders: | ||||||||||||||||
Basic and diluted | $ | 0.00 | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.05 | ) | |||||
Weighted average shares outstanding (thousands): | ||||||||||||||||
Basic and diluted | 55,864 | 38,961 | 44,467 | 38,779 | ||||||||||||
(in thousands of U.S. dollars, except per share amounts) | Three months endedMarch 31 | |
2020 | 2019 | |
Revenue, net – mineral property sale | $- | $408 |
Costs, expenses and other: | ||
Exploration expense | $113 | $163 |
Depreciation | 6 | 7 |
General and administrative | 336 | 425 |
Total costs, expenses and other | 455 | 595 |
Other (loss) income | ||
Interest income (net) | 81 | 72 |
Loss on derivative instruments | (25) | - |
Gain on sale of marketable equity securities | 25 | - |
Unrealized loss on marketable equity securities | (233) | (326) |
Total other loss | (152) | (254) |
Net loss | $(607) | $(441) |
Loss per common share: | ||
Basic and diluted | $(0.01) | $(0.01) |
Weighted average shares outstanding: | ||
Basic and diluted | 58,130 | 58,158 |
CASH FLOWS
(in thousands of U.S. dollars) | Three months ended September 30 | Nine months ended September 30 | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) before other comprehensive loss | $ | 77 | $ | (1,119 | ) | $ | (453 | ) | $ | (1,770 | ) | |||||
Other comprehensive income (loss) | ||||||||||||||||
Unrealized (loss) gain on marketable equity securities, net of deferred taxes | (126 | ) | 46 | 25 | 449 | |||||||||||
Comprehensive loss (income) | (49 | ) | (1,073 | ) | (428 | ) | (1,321 | ) |
(in thousands of U.S. dollars) | Three months endedMarch 31, | |
2020 | 2019 | |
Operating activities: | ||
Net loss | $(607) | $(441) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 6 | 7 |
Amortization of right of use lease asset | 10 | 10 |
Unrealized loss of marketable equity securities | 233 | 326 |
Employee stock option expense | 85 | 88 |
Gain on sale of marketable equity securities | (25) | - |
Loss on derivative instruments | 25 | - |
Changes in operating assets and liabilities: | ||
Prepaid expenses and other assets | (21) | 64 |
Note receivable, net of mineral property sold | - | (223) |
Accounts payable and other current liabilities | 56 | (3) |
Net cash used in operating activities | (238) | (172) |
Investing activities: | ||
Sale of short-term investments, net | 40 | 602 |
Cash from sale of marketable equity securities | 76 | - |
Purchase (sale) of derivative instruments – net | (9) | - |
Net cash provided by investing activities | 107 | 602 |
Financing activities: | ||
Purchase of common stock for cancellation | (3) | (9) |
Net cash used in financing activities | (3) | (9) |
Net increase (decrease) in cash and cash equivalents | (134) | 421 |
Cash and cash equivalents, beginning of period | 574 | 117 |
Cash and cash equivalents, end of period | $440 | $538 |
SOLITARIO ZINC CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of U.S. dollars) | Nine months ended September 30, | |||||||
2017 | 2016 | |||||||
Operating activities: | ||||||||
Net loss | $ | (453 | ) | $ | (1,770 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Unrealized gain on derivative instruments | (267 | ) | (295 | ) | ||||
Depreciation and amortization | 8 | 4 | ||||||
Deferred income taxes | (15 | ) | (264 | ) | ||||
Gain on warrant liability | — | (4 | ) | |||||
Gain on equity security and asset sales, net | (577 | ) | (26 | ) | ||||
Property abandonment and impairment | — | 10 | ||||||
Employee stock option expense | 23 | 970 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | (37 | ) | 31 | |||||
Accounts payable and other current liabilities | 10 | (92 | ) | |||||
Net cash used in operating activities | (1,308 | ) | (1,436 | ) | ||||
Investing activities: | ||||||||
Sale (purchase) of short-term investments, net | 3,254 | (15,518 | ) | |||||
Loan to Zazu | (1,500 | ) | — | |||||
Purchase of Zazu – net of cash acquired | (417 | ) | — | |||||
Additions to mineral property | — | (40 | ) | |||||
Additions to other assets | (2 | ) | — | |||||
Purchase of marketable equity securities | (578 | ) | (304 | ) | ||||
Proceeds from sale of marketable equity securities | 666 | 56 | ||||||
Sale of derivative instruments | 55 | 45 | ||||||
Net cash provided by (used in) investing activities | 1,478 | (15,761 | ) | |||||
Financing activities: | ||||||||
Purchase of common stock for cancellation | (28 | ) | (214 | ) | ||||
Net cash used in financing activities | (28 | ) | (214 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 142 | (17,411 | ) | |||||
Cash and cash equivalents, beginning of period | 119 | 17,718 | ||||||
Cash and cash equivalents, end of period | $ | 261 | $ | 307 | ||||
Supplemental disclosure of non-cash activities: | ||||||||
Additions to mining equipment –Zazu | $ | (100 | ) | $ | — | |||
Additions to mineral property- Zazu | $ | (15,728 | ) | $ | — | |||
Additions to current assets, net – Zazu | $ | (42 | ) | $ | — | |||
Issuance of common stock – Zazu acquisition | $ | 13,654 | $ | — | ||||
Convertible debenture – due from Zazu cancelled | $ | 1,510 | $ | — | ||||
Asset retirement obligation - Lik | $ | 125 | $ | — | ||||
Issuance of replacement options – Zazu | $ | 164 | $ | — | ||||
Transfer of warrant value to marketable equity securities on exercise of Vendetta Warrants | $ | 949 | $ | — | ||||
See Notes to Unaudited Condensed Consolidated Financial Statements
Recent developments
Purchase of Zazu
On July 12, 2017,
(in thousands) | July 12, | |||
2017 | ||||
Issuance of 19,788,177 share of Solitario common stock | $ | 13,654 | ||
Replacement options | 164 | |||
Investment banking and transaction costs | 899 | |||
Convertible debenture due Solitario, cancelled | 1,510 | |||
Total purchase price | $ | 16,227 |
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:
(in thousands) | July 12, | |||
2017 | ||||
Investment banking fees | $ | 552 | ||
Legal and accounting costs | 196 | |||
Stock issuance costs | 117 | |||
Other costs and fees | 34 | |||
Total capitalized transaction costs | $ | 899 |
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:
(in thousands) | July 12, | |||
2017 | ||||
Cash | $ | 974 | ||
Other current assets | 42 | |||
Equipment | 100 | |||
Mineral property | 15,728 | |||
Accounts payable | (492 | ) | ||
Asset retirement obligation - Lik | (125 | ) | ||
Total purchase price | $ | 16,227 |
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 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 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 assetsmineral exploration properties and the evaluation of mineral 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.
basis.
2020.
its history and does not anticipate it will recognize any estimated returns on its current or future recorded revenues.
securities; and (v) the collectability of the SilverStream Note (as defined below).
instruments, and as a change to operating activities in the statement of cash flows for the non-cash portion of the gain or loss. See Note 6, “Fair Value,” below. statements and disclosures. During the three months ended March 31, 2020, Solitario recorded an unrealized loss on marketable equity securities of $233,000. During the three months ended March 31, 2019, Solitario recorded an unrealized loss on marketable equity securities of $326,000. securities during the three months ended March 31, 2020 and 2019: March 31, 2020: 2019: 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. March 31, 2019 2019, however these expenditures may be impacted by the effects of the COVID-19 pandemic, as discussed above. 2019. the Vendetta shares, we hold 12,450,000 shares of Vendetta common stock. See Note 3 “Marketable Equity Securities” to the condensed consolidated financial statements for a discussion of the sale of Vendetta common stock. 2020. our marketable equity securities during the remainder of 2020 depending on cash needs and market conditions. 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, cash flow during the remainder of 2020. investments as needed to fund our operations and or potential mineral property acquisitions during the remainder of 2020. Any potential mineral property acquisition or strategic corporate investment during the remainder of 2020, 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 potential transaction. Royalty Sale, discussed above. We March 31, 2020. 2019.September 30, 2017,March 31, 2020, Solitario has $10,723,000$6,325,000 of its current assets in USTSUnited States Treasury Securities (“USTS”) with maturities of 3015 days to 1915 months. The USTS are recorded at their fair value, based upon quoted market prices. As of September 30, 2017,In addition, Solitario has $1,248,000 in separatetwo bank certificates of depositdeposits (“CDs”CD’s”) each with a maximum value of $250,000, and each of which are covered by FDIC insurance to the full face value of the CDs. At September 30, 2017, the CDs have maturities of between 30 days$250,000. The USTS and 18 months. Solitario’s short-term investmentsCD’s are recorded at their fair value, based upon quoted market prices. The short-term investmentsUSTS are not covered under the FDIC insurance rules for United States deposits. Solitario’s USTS and CD’s 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.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.815, "Accounting for Derivative Instruments and Hedging Activities" (“ASC 815”). Solitario acquired its investment in Vendetta units, including the Vendetta Warrants during 2016. During the three and nine months ended September 30, 2017 Solitario exercised all of its Vendetta Warrants (as defined below in Note 4) and no longer owns any Vendetta Warrants. See Note 4 below. Solitario classified the Vendetta Warrants as derivative instruments under ASC 815 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.815. 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.Financial Accounting Standards Board (“FASB”) “Fair Value Measurements and Disclosures” (“ASC 820”) establishesestablished 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,CD’s, 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. 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 condensed consolidated statementsstatement of operations.1020172019 and 2016 have beenthe first quarter of 2020 were 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. These provisions of ASC 740 had no effect on Solitario's financial position or results of operations.and nine months ended September 30, 2017March 31, 2020 and 2016.2019. Potentially dilutive shares totaling 1,928,428 related to outstanding common stock options of 4,373,000 and 4,373,000, respectively, for Solitario common shares for the three and nine months ended September 30, 2017March 31, 2020 and 2019 were excluded from the calculation of diluted earnings (loss)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.RecentOn January 5, 2017, the2017-01.No. 2016-13”). Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. 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 2017-01No. 2016-13 is effective for Solitario for fiscal year, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted.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.11In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09,Revenue from Contracts with Customers (Topic 606, (“ASU No. 2014-09”),2016-13 effective January 1, 2020 which amended the existing accounting standards for revenue recognition. ASU No. 2014-09 establishes principles for recognizing revenue upon the transfer 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 retrospectively 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 doesdid 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. For a lessor, the accounting applied is also largely unchanged from previous guidance. The new rules will be effective for Solitario in the first quarter 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 to materially change its current accounting methods and therefore it does not expect the adoption to have a material impact on its consolidated financial position or results of operations.In January 2016,operations as of or for the three months ended March 31, 2020.No 2016-01, Financial InstrumentsNo. 2018-13, Disclosure Framework – Recognition andFair Value (topic 820): Changes to Disclosure Requirements for Fair Value Measurement of Financial Assets and Financial Liabilities (Topic 825) (“ASU No. 2016-01”2018-13”). Among other things, these amendments change the required disclosures regarding (i) transfers between Level 1 and Level 2 fair values; (ii) unrealized gains / losses included in earnings and other comprehensive income for Level 3 instruments; and (iii) amount, reason and policies regarding transfers between Levels. 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. 2016-012018-13 is effective for Solitario for fiscal year, and interim and annual periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted.2019. Solitario will adoptadopted ASU No. 2016-01 in the first quarter2016-13 January 1, 2020 which did not have a material impact on its consolidated financial position or results of 2018. Adoption of ASU No. 2016-01 may result in a cumulative effect adjustment to the consolidated statement of equity retained earningsoperations as of or for the three months ended March 31, 2020.year of adoption. SolitarioSEC Modernization Rules, among other requirements, the Company will be required to report its mineral resources, if any, as Measured, Indicated or Inferred Mineral Resources in accordance with the SEC Modernization Rules. This will allow investors to evaluate the Company’s resources on a comparable basis with other mining and exploration issuers registered with the SEC. In addition, the SEC Modernization Rules will require the Company to disclose exploration results, mineral reserves, if any, and mineral resources based upon information and supporting documentation prepared by a mining expert (the “qualified person”). The SEC Modernization Rules will require the Company to obtain a dated and signed technical report summary from the qualified person identifying and summarizing the information reviewed and conclusions reached by the qualified person(s) about the mineral resources or reserves for each mineral property. The Company is currently evaluating the new guidancerequirements under the SEC Modernization Rules and has not determined the impact of ASU No. 2016-01what effect adoption will have on its consolidated financial statements.(in thousands) September 30, December 31, 2017 2016 Exploration Lik project (Alaska- US) $ 15,728 $ — La Promesa (Peru) 6 6 Montana Royalty property (US) 40 40 Total exploration mineral property $ 15,774 $ 46 Initial acquisition costs on our mineral property are capitalized. (in thousands) Exploration Lik project (Alaska – US) La Promesa (Peru) Total exploration mineral property or property payments and ongoingor exploration activities related to our projects are expensed as incurred.acquiredcompleted the Lik project duringRoyalty Sale to SilverStream for Cdn$600,000. 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 was originally due December 31, 2019, accrued 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. In December of 2019, Solitario and SilverStream agreed to extend the due date of the SilverStream Note to June 30, 2020, and to increase the interest rate to 8% per annum simple interest. All other terms of the SilverStream Note remained the same. During the three and nine months ended September 30, 2017 inMarch 31, 2020 and 2019, Solitario recorded interest income from the Acquisition, seeSilverStream Note 1 “Recent developments” above.Discontinued projectsSolitario dropped its royalty interests inof $5,000 and $2,000, respectively. During the Aconchi and Norcan exploration properties in Mexico during the ninethree months ended September 30, 2017: however, there were no capitalizedMarch 31, 2019, 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.
$40,000.12(in thousands) Three months ended
September 30, Nine months ended
September 30, 2017 2016 2017 2016 Geologic and field expenses $ 74 $ 72 $ 195 $ 320 Administrative 106 60 324 154 Total exploration costs $ 180 $ 132 $ 519 $ 474 (in thousands) Geologic and field expenses Administrative Total exploration costs Acquisition,acquisition of the Lik project in 2017, Solitario recorded an asset retirement obligation of $125,000 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 was based upon estimated cash costs for reclamation as determined by the permitting bond required by the State of Alaska, for which Solitario has purchased a reclamation bond insurance policy in the event Solitario or its 50% partner, Teck, Resources Limited (“Teck”) do not complete required reclamation. 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.accumulated other comprehensive income relatedadjustments to its marketable equity securities:(in thousands) September 30, 2017 December 31, 2016 Marketable equity securities at fair value $ 2,819 $ 1,339 Cost 1,714 274 Accumulated other comprehensive income for
unrealized holding gains 1,105 1,065 Deferred taxes on accumulated other comprehensive
income for unrealized holding gains (368 ) (353 ) Accumulated other comprehensive income $ 737 $ 712
fair value:13(in thousands) Marketable equity securities at cost Cumulative unrealized loss on marketable equity securities Marketable equity securities at fair value securities.(in thousands) Three months ended
September 30, Nine months ended
September 30, 2017 2016 2017 2016 Gross cash proceeds $ 407 $ 16 $ 666 $ 56 Cost 50 6 88 16 Gross gain on sale included in earnings during the period 357 10 578 40 Deferred taxes on gross gain on sale included in earnings (132 ) (4 ) (214 ) (15 ) Reclassification adjustment to unrealized gain in other
comprehensive income for net gains included in earnings (225 ) (6 ) (364 ) (25 ) Gross unrealized holding (loss) gain arising during the period
included in other comprehensive loss 157 83 618 753 Deferred taxes on unrealized holding (loss) gain included in
other comprehensive loss (58 ) (31 ) (229 ) (279 ) Net unrealized holding (loss) gain 99 52 389 474 Other comprehensive income (loss) from marketable equity securities $ (126 ) $ 46 $ 25 $ 449 (in thousands) Cost of marketable equity securities sold Realized gain on marketable equity securities sold Proceeds from the sale of marketable equity securities sold Net loss on marketable equity securities Change in marketable equity securities at fair value (in thousands) Unrealized loss on marketable securities Realized gain on marketable equity securities sold Net loss on marketable securities and nine months ended September 30, 2017,March 31, 2020, Solitario sold 2,000,000 and 3,480,000, respectively, Vendetta common shares,charged loss on derivative instruments $7,000 for cash proceeds of $407,000 and $666,000. In addition, during the three and nine months ended September 30, 2017, Solitario exercised Vendetta Warrants, discussed belowchange in Note 4, “Other assets” and received 5,000,000 and 7,240,000, respectively, common shares of Vendetta. Solitario transferred the fair value of the Vendetta Warrants based on a Black Scholes model.dateWR Lease. These cash payments, less $1,000 of exerciseimputed interest for each period, reduced the related liability on the WR Lease. The discount rate within the WR Lease is not determinable and Solitario has applied a discount rate of $642,000 and $949,000, respectively, along with the cash paid to exercise the Vendetta Warrants5% based upon Solitario’s estimate of $411,000 and $578,000, respectively, to marketable equity securities as theits cost of capital.Future lease payments (in thousands) 2020 2021 Total lease payments Less amount of payments representing interest Present value of lease payments 5,000,000three months ended March 31, 2020 and 7,240,000 common shares of Vendetta acquired, as discussed below in Note 4, “Other Assets.”4.2019:(in thousands) Cash paid for amounts included in the measurement of lease liabilities Operating cash outflows from WR Lease payments Non-cash amounts related to the WR lease Leased assets recorded in exchange for new operating lease liabilities (in thousands) September 30, December 31, 2017 2016 Furniture and Fixtures, net of accumulated depreciation $ 31 $ 32 Lik project equipment 95 Vendetta Mining Corp warrants — 735 Exploration bonds and other assets 4 4 Total other assets $ 130 $ 771 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.145. Derivative InstrumentsVendetta WarrantsDuring 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 WarrantsThe 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 OptionsFrom 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:(in thousands) Three months ended
September 30, Nine months ended
September 30, 2017 2016 2017 2016 (Loss) gain on Kinross calls $ 13 $ 72 $ 52 $ (11 ) Gain on Vendetta Warrants (31 ) 91 215 306 Total $ (18 ) $ 163 $ 267 $ 295 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: Derivatives September 30, December 31, (in thousands) Balance Sheet Location 2017 2016 Vendetta warrants Other assets $ — $ 735 Kinross calls Other current liabilities $ 6 $ 2 (in thousands) Furniture and fixtures, net of accumulated depreciation Lik project equipment, net of accumulated depreciation Office lease asset Vendetta warrants Exploration bonds and other assets Total other short-term investments and payables, the carrying amounts approximate fair value due to their short termshort-term maturities. Solitario’s short-term investments in USTS, CD’s, and marketable equity securities are carried at their estimated fair value primarily 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 measuring fair value and requires enhanced 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. 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, based on significant levels of inputs as follows:15·Level 1: quoted prices in active markets for identical assets or liabilities;·Level 2: quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or·Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.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. During the three and nine months ended September 30, 2017March 31, 2020 there were no reclassifications in financial assets or liabilities between Level 1, 2 or 3 categories.September 30, 2017:(in thousands) Level 1 Level 2 Level 3 Total Assets Marketable equity securities $ 2,819 $ — $ — $ 2,819 United States Treasury securities 10,723 — — 10,723 Bank Certificates of Deposit 1,248 — — 1,248 Liabilities Kinross covered calls 6 — — 6 (in thousands) Assets Short-term investments Marketable equity securities 2019 Vendetta Warrants Liabilities Kinross call options 2016:(in thousands) Level 1 Level 2 Level 3 Total Assets Marketable equity securities $ 1,339 $ — $ — $ 1,339 United States Treasury securities 7,751 — — 7,751 Bank Certificates of Deposit 7,499 — — 7,499 Vendetta Warrants 735 735 Liabilities Kinross calls 2 — — 2 (in thousands) Assets Short-term investments Marketable equity securities 2019 Vendetta Warrants September 30, 2017both March 31, 2020 and December 31, 2016, Solitario2019, 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.16and nine months ended September 30, 2017,March 31, 2020 and 2019, Solitario recorded no deferred tax expenseexpense.$74,000 and a deferred income tax benefit of $15,000, respectively, in the statement of operations and recorded a deferred tax benefit of $74,000, and a deferred tax expense of $15,000 to other comprehensive income$125,000 related to realized and unrealized gains and losses on marketable equity securitiesits Lik project in other comprehensive income. DuringAlaska. See Note 2, “Mineral Properties,” above.three and nine months ended September 30, 2016, Solitario recorded deferred tax benefitsWheat Ridge, Colorado office which provides for total minimum rent payments of $27,000 and $264,000, respectively, in the statement$39,000 through March of operations and recorded a deferred tax expense of the same amount to other comprehensive income related to realized and unrealized gains on marketable equity securities in other comprehensive income.8. 2021.The 2006 PlanOn 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 Planavailable 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 connectionAcquisition, on July 12, 2017,three months ended March 31, 2020, Solitario did not grant any options. During the three months ended March 31, 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 rate of 1.70%. Duringrate. In addition, during the three and nine months ended September 30, 2017, Solitario recordedMarch 31, 2019, options exercisable into 1,000,160 shares of common stock, option compensation related to these options of $23,000.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 officerswith exercise prices between $1.68 and members of the Board of Directors. These options have a five-year life, and exercise price of $0.77$0.70 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 Solitario shareholders approve the grants, and the option grants will be void if Solitario shareholders do not approve the grants. Solitario will not record any stock option expense related to these options until the shareholder approval is received.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.expired unexercised. There were no exercises of options or awards under the 2013 Plan during either of the three and nine months ended September 30, 2017 or 2016.
March 31, 2020 and 2019. During the three months ended March 31, 2020 and 2019, Solitario recorded stock option compensation expense of $85,000 and $88,000, respectively. At March 31, 2020, the total unrecognized stock option compensation cost related to non-vested options is $232,000 and is expected to be recognized over a weighted average period of 13 months.179. and Accumulated Other Comprehensive Income(in thousands, except Accumulated Share amounts) Common Common Additional Other Total Stock Stock Paid-in Accumulated Comprehensive Shareholders’ Shares Amount Capital Deficit Income Equity December 31, 2016 38,693,589 $ 387 $ 55,790 $ (39,401 ) $ 712 $ 17,488 Purchase of shares for cancellation (8,400 ) — (6 ) — — (6 ) Net loss — — — (13 ) — (13 ) Net unrealized loss on
marketable equity securities — — — — (93 ) (93 ) March 31, 2017 38,685,189 $ 387 $ 55,784 $ (39,414 ) $ 619 $ 17,376 Purchase of shares for cancellation (30,300 ) (1 ) (21 ) — — (22 ) Net loss — — — (517 ) — (517 ) Net unrealized gain on
marketable equity securities — — — — 244 244 June 30, 2017 38,654,889 $ 386 $ 55,763 $ (39,931 ) $ 863 $ 17,081 Issuance of shares – Acquisition 19,788,177 198 13,456 13,654 Replacement options 164 164 Stock option compensation 23 23 Net income 77 77 Net unrealized gain on
marketable equity securities (126 ) (126 ) September 30, 2017 58,443,066 $ 584 $ 69,406 $ (39,854 ) $ 737 $ 30,873 (in thousands, except Share amounts) Balance at December 31, 2018 Stock option expense Purchase of shares for cancellation Net loss Balance at March 31, 2019 (in thousands, except Share amounts) Balance at December 31, 2019 Stock option expense Purchase of shares for cancellation Net loss Balance at March 31, 2020 initially authorized Solitario to purchase up to two million shares of its outstanding common stock. On November 7, 2017,During 2019, 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 $28,000.2020. During the three and nine months ended September 30, 2016,March 31, 2020 and 2019, Solitario purchased 18,00016,700 and 424,00027,900 shares of Solitario common stock, respectively, for an aggregate purchase price of $13,000$3,000 and $214,000,$9,000, respectively. As of September 30, 2017,March 31, 2020, Solitario has purchased a total of 659,300986,000 shares for an aggregate purchase price of $343,000$465,000 under the share repurchase program since its inception.18Contents$70,000 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to help fund Company payroll, rent and utilities obligations. The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity, under certain conditions, with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. Solitario intends to use the proceeds from the PPP Loan for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. However, Solitario cannot completely assure at this time that such forgiveness of the PPP Loan will occur.Itemtem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations20162019 and 2015,2018, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Solitario’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2016.2019. 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. Recent DevelopmentsAs 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 Summaryofon 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 shiftedCurrently 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 we hold a portfolio of mineral exploration properties and assets for future sale, joint venture or on which 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.sale of MH-LLC during 2015, joint venture property paymentsRoyalty Sale in January 2019 and the sale in June 2018 of aour interest in the royalty on our former Mt. Hamiltonthe Yanacocha property. ProceedsRevenues and / or proceeds from the sale or joint venture of our properties or assets, although generally significant when they have occurred in the past, 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.September 30, 2017,March 31, 2020, we have significant balances of cash and short-term investments that we anticipate using, in part, to (i) fund costs and activities intended to further the developmentexploration of the Lik project, (ii) fund costs and activities intended to further the exploration at the Florida Canyon project, (iii) conduct reconnaissance exploration and (iv) 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.19ContentsMarch 31, 2020, the effects of the COVID-19 virus have not had a material effect on Solitario’s activities related to the exploration of its Lik and Florida Canyon projects. However, going forward for the remainder of 2020, we will continue to monitor planned activities for the full year 2020 at both Florida Canyon and Lik. The extent to which the coronavirus impacts our business, including our exploration and other activities and the market for our securities, will depend on future developments, which are highly uncertain and cannot be predicted at this time. Please see Item 1A, “Risk Factors,” below.(c)September 30, 2017March 31, 2020 to the quarter ended September 30, 2016incomeloss of $77,000$607,000 or approximately $0.00$0.01 per basic and diluted share for the three months ended September 30, 2017,March 31, 2020 compared to a net loss of $1,119,000$441,000 or approximately $0.03$0.01 per basic and diluted share for the three months ended September 30, 2016.March 31, 2019. As explained in more detail below, the primary reasonreasons for the change toincrease in the net income forloss in the three months ended September 30, 2017 from aMarch 31, 2020 compared to the loss in the first three months of 2019 were (i) the Royalty Sale revenue, net, loss forof $408,000 during the three months ended September 30, 2016 was (i) recording a creditMarch 31, 2019 with no similar mineral property revenue during the 2017 periodthree months ended March 31, 2020 and (ii) a loss on derivative instruments of $25,000 during the three months ended March 31, 2020, with no similar loss in the three months ended March 31, 2019. Partially offsetting the above items were (i) a reduction in exploration expense to $113,000 during the three months ended March 31, 2020 compared to exploration expense of $163,000 during the three months ended March 31, 2019; (ii) a reduction in general and administrative expense to $336,000 during the three months ended March 31, 2020 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$425,000 during the three months ended September 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;March 31, 2019; (iii) an increase in interest income to $38,000$81,000 during the three months ended September 30, 2017March 31, 2020 compared to interest income of $27,000$72,000 during the three months ended September 30, 2016; andMarch 31, 2019; (iv) an increasea reduction in gainthe non-cash loss on sale ofunrealized loss on marketable equity securities to $357,000$233,000 during the three months ended September 30, 2017March 31, 2020 compared to a non-cash unrealized loss on marketable equity securities of $326,000 during the three months ended March 31, 2019 and (v) a gain on sale of marketable equity securities of $10,000$25,000 during the three months ended September 30, 2016. These were partially offset by an (i) increase in exploration expense to $180,000March 31, 2020 with no similar gain during the three months ended September 30, 2017 compared to exploration expenseMarch 31, 2019. Each of $132,000the major components of these items is discussed in more detail below.September 30, 2016; (ii) a reduction in the gain on derivative instrumentsMarch 31, 2020.a loss of $18,000$113,000 during the three months ended September 30, 2017March 31, 2020 compared to a gainexploration expense of $163,000 during the three months ended September 30, 2016;March 31, 2019 as a result of (i) a decrease in our reconnaissance exploration activities primarily related to the evaluation of mineral properties and (iii) income tax expense of $74,000/ or entities for potential acquisition or other strategic transactions and (ii) a decrease in our activities at our La Promesa project in Peru and Lik project in Alaska during the three months ended September 30, 2017March 31, 2020 compared to and income tax benefit of $27,000 during the three months ended September 30, 2016. The significant changes for these items are discussed in more detail below. Our netMarch 31, 2019, when we were carrying out community work at La Promesa and working with our joint venture partner, Teck, on reviews of exploration expense increased to $180,000 duringdata at Lik. During the three months ended September 30, 2017 compared to exploration expenseMarch 31, 2019 we had three contract geologists in Peru, and our Denver personnel spent a majority of $132,000 during the three months ended September 30, 2016. We increased ourtheir time on reconnaissance exploration activities duringdescribed above and related matters. We have budgeted approximately $976,000 for the three months ended September 30, 2017 primarily related to the completionfull-year exploration expenditure for 2020, which includes approximately $528,000 for Solitario’s share of a preliminary economic assessment on 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 duringjoint drilling program with Teck at the third quarter of 2017. In addition, we continued to evaluate exploration properties and /or companies for potential acquisitions or other strategic transactions. We anticipate we will continue with our current exploration activities, including evaluation of our newly-acquired Lik project in Alaska, which the bulk of those expenses are planned for the third and as a result wefourth quarter of 2020. We expect our full-year exploration expenditures for 2017 will exceed2020 to be below the exploration expenditures for full-year 2016.and nine months ended September 30, 2016March 31, 2020 and 20152019 consisted of the following: Three months ended
September 30, Nine months ended
September 30,Project Name 2017 2016 2017 2016 Florida Canyon (Peru) $ 33 $ 1 $ 121 $ 2 Lik project (US) 25 — 25 — La Promesa (Peru) 3 19 19 46 Reconnaissance 119 112 354 426 Total exploration expense $ 180 $ 132 $ 519 $ 474 20 Project Name Florida Canyon Lik La Promesa Reconnaissance Total exploration expense $17,000$251,000 during the three months ended September 30, 2016March 31, 2020 compared to $274,000$337,000 during the three months ended September 30, 2016.March 31, 2019. The major components of these costs were related to (i) salaries and benefit expense of $83,000 during the first three months of 2020 compared to salary and benefit costs of $108,000 during the three months ended September 30, 2017 of $162,000 compared to salariesMarch 31, 2019, as we reduced staff and benefits expense of $150,000 in the same period of 2016;taken salary reductions during 2020; (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$11,000 in the first three months ended September 30, 2017, see Note 1 to the condensed consolidated statements “Recent developments,” above,of 2020 compared to $67,000$53,000 in the first three months ended September 30, 2016;of 2019; (iii) office rent and expenses of $24,000$43,000 during the three months ended September 30, 2017March 31, 2020, compared to $23,000$42,000 during the three months ended September 30, 2016;March 31, 2019; and (iv)Directors and officer liability insurance charged to operations of $14,000 during the three months ended September 30, 2017, with no similar item during the same period of 2016 and (v) travel and shareholder relation costs of $39,000$112,000 during the first three months of 2020 compared to $133,000 during the three months ended September 30, 2017 compared to $32,000 during the three months ended September 30, 2016.March 31, 2019. We anticipate the non-stock option compensation and non-Acquisitionfull-year general and administrative costs will be incurred at a comparable ratelower for 2020 compared to the rate in the three months ended September 30, 2017 for the remainder of 2017.of $23,000 during the three months ended September 30, 2017March 31, 2020 compared to $218,000$88,000 of stock option compensation expense during the three months ended September 30, 2016. During the three 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 and we cancelled the options upon surrender. Upon cancellation, we recorded an additional $721,000 ofMarch 31, 2019. These non-cash stock option compensation expense for the unamortized grant date fair value as of the date of cancellation. See Note 9, “Employee Stock Compensation Plans,” to the condensed consolidated financial statements, above.During the three months ended September 30, 2017 we sold marketable equity securities for proceeds of $407,000 and recorded a gain on 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 some of our holdings of marketable equity securities during the remainder of 2017 related to our overall cash management strategy.We adjust the fair 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 $31,000charges related to the Vendetta Warrants, compared to a gainexpense for vesting on derivative instruments of $91,000stock options outstanding during the three months ended September 30, 2016. During the three months ended September 30, 2017 we recorded a gain on derivative instruments related to our Kinross calls of $13,000 compared to a gain on derivative instruments during the three months ended September 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,March 31, 2020 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.21Comparison of the nine months ended September 30, 2017 to the nine months ended September 30, 2016We 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, 2017 compared to interest income of $40,000 as a result of increased interest rate on our outstanding short-term investments 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 September 30, 2017 compared to the three months ended September 30, 2016, above with 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 $877,000 during the nine months ended September 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, 2017.2019. See Note 9, “Employee Stock Compensation Plans,” above, for a further discussion ofadditional information on our stock option activity duringexpense.ninethree months ended September 30, 2016.During the nine months ended September 30, 2017March 31, 2020, we sold marketable equity securities2,000,000 shares of our holdings of Vendetta common stock for proceeds of $666,000$76,000 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 onmarketable equity securities of $25,000. After the completion of the sale of these securities.ninethree months ended September 30, 2016March 31, 2020 and 2019, we recorded no property impairments.loss on other assets of $14,000 and property abandonmentnet tax asset position for which we provide a valuation allowance for all net deferred tax assets. We recorded no income tax expense of $10,000 related toor benefit during the closurethree months ended March 31, 2020 or 2019. As a result of our exploration officeactivities, we anticipate we will not have currently payable income taxes during 2020. 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 no mineral property write-downs duringanticipate 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 nine months ended September 30, 2017.
future.22(d)September 30, 2017,March 31, 2020, we have $12,232,000$7,269,000 in cash and short-term investments. As of September 30, 2017,March 31, 2020, we have invested $10,723,000$6,325,000 of our current assets in USTS with maturities of 15 days to 1915 months. The USTS are recorded at their fair value, based upon quoted market prices. As of September 30, 2017,In addition, we have invested $1,248,000 in separate CDstwo CD’s each with maximum values of $250,000, each of which is covered by FDIC insurance to the fulla face value of the CDs. At September 30, 2017, the CDs have maturities of between 30 days$250,000. The USTS and 18 months. The CDsCD’s are recorded at their fair value, based upon quoted market prices. We anticipate we will roll over that portion of our USTS and CDsshort-term investments not used for exploration expenditures, operating costs or mineral property acquisitions as they become due during the remainder of 2017.stock buy-backshare repurchase 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-backshare repurchase program may be terminated at any time and does not require Solitario to purchase a minimum number of shares.Loan to ZazuOn 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. are classified as available-for-sale and are carried at fair value, which is based upon market quotes of the underlying securities. We ownedAt March 31, 2020 we own 12,450,000 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 $350,000 and the Kinross shares are recorded at their fair value of $437,000$398,000 at September 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.March 31, 2020. In addition, we own other marketable equity securities with a fair value of $13,000$8,000 at March 31, 2020. During the three months ended March 31, 2020 we sold 2,000,000 shares of Vendetta common stock, as discussed above. We anticipate we may sell some of September 30, 2017.$15,094,000$7,978,000 at September 30, 2017March 31, 2020 compared to working capital of $16,671,000$8,487,000 as of December 31, 2016.2019. Our working capital at September 30, 2017March 31, 2020 consists primarily of our cash and cash equivalents, our investment in USTS and CDs,CD’s, discussed above, our investment in marketable equity securities of $2,819,000,$755,000, and other current assets of $295,000, which include the SilverStream Note of $253,000 at March 31, 2020, less our accounts payable of $141,000.$294,000 and other current liabilities of $47,000. As of September 30, 2017,March 31, 2020, our cash balances along with our short-term investments and marketable equity securities are adequate to fund our expected expenditures over the next year.23securities, or the sale of other exploration projects or assets.In connection with the Acquisition, on July 12, 2017, we granted 1,782,428 Replacement Options.Replacement Options were priced 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. Theoutstanding 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 ofprices between $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.On November 7, 2017,During 2019, our Board of Directors extended the term of the share repurchase program until December 31, 2018.2020. 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 bewere 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 behave been 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 September 30, 2017, since the inception of the share repurchase program, we haveMarch 31, 2020, Solitario has purchased a total of 659,300986,000 shares for an aggregate purchase price of $343,000$465,000 under the share repurchase program since its inception and these shares are no longer included in our issued and outstanding shares. WeSubject to any legal restrictions and our available financial resources, we anticipate we will continue to purchase a limited number of shares under the share repurchase plan during the remainder 20172020 as determined by management.24(e)ninethree months ended September 30, 2017 decreasedMarch 31, 2020 increased to $1,308,000$238,000 compared to $1,436,000$172,000 of net cash used in operations for the ninethree months ended September 30, 2016March 31, 2019 primarily as a result of the mineral property revenue, net, cash received during the three months ended March 31, 2019 of $185,000 from the Royalty Sale, discussed above, with no similar item during the three months ended March 31, 2020. This was partially offset by (i) a decrease in non-stock option general and administrative expense to $251,000 during the three months ended March 31, 2020 compared to $337,000 during the three months ended March 31, 2019, discussed above and (iii) a decrease in exploration expenses to $113,000 during the three months ended March 31, 2020 compared to $163,000 during the three months ended March 31, 2019, as a result of a decrease in generalexploration activities at our La Promesa and administrative expenses notLik projects and a reduction in reconnaissance exploration during 2020 compared to 2019, discussed above. Based upon projected expenditures in our 2020 budget, we anticipate continued use of funds from operations through the remainder of 2020, primarily for exploration related to the Acquisition. Legalour Lik 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 time 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 nine months ended September 30, 2017 primarily from the sale of $3,254,000 of short-term investments of USTS and CDs. The sale of these short-term investments was anticipated pursuantcompared 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 $1,500,000$602,000 of cash to extend the loan evidenced by the Debenture, discussed above, and we used net cash for the Acquisition 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 cashprovided from investing activities during the ninethree months ended September 30, 2016 forMarch 31, 2019. The primary sources of the cash provided related to the net purchaseproceeds from short-term investment sales and purchases of $7,018,000 of CDs$40,000 and $8,500,000 of USTS, discussed above under “Short-term Investments” in “Liquidity$602,000, respectively, during the three months ended March 31, 2020 and Capital Resources.”2019. In addition, during 2016,the three months ended March 31, 2020 we used $289,000 for the purchase of unitssold 2,000,000 shares of Vendetta common stock for proceeds of $76,000, with no similar item last year. We may sell additional marketable equity securities during the remainder of 2020, as discussed above under “Liquidity and Capital Resources,” andabove. However, 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. We received $666,000 fromdo not anticipate the sale of marketable equity securities during the nine months ended September 30, 2017, from the salewill be a significant source of Vendetta common shares, discussed above, compared to $40,000 from the sale of marketable equity securitiescash 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 2017.2020. We may incur additional costs relatedwill continue to the Acquisition or another potential acquisition or purchase of any additional exploration projects which we anticipate would be funded by the use of funds from the saleliquidate a portion of our short-term investments.$28,000$3,000 and $9,000, respectively, for the purchase of our common stock during the ninethree months ended September 30, 2017 compared to the use of $214,000 during the nine months ended September 30, 2016,March 31, 2020 and 2019, 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,2020, however, this will be limited to the maximum number of shares, pursuant topermissible under the share repurchase program.(f)September 30, 2017March 31, 2020, and December 31, 20162019 we have no off-balance sheet obligations.(g)As of September 30, 2017 wetheany potential development of any of our projectsactivities as of September 30, 2017.March 31, 2020. As of September 30, 2017,March 31, 2020, 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 for2019.addition of our interestthree months ended March 31, 2019 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 $125,000.25(h) Discontinued Projects dropped our royalty interests 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 we did not record any mineral property write-downs during the ninethree months ended September 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 NorcanMarch 31, 2020 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.(i)2019.2016,2019, 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)September 30, 2017,March 31, 2020, and for the three and nine months ended September 30, 2017,March 31, 2020, we have no related party transactions or balances.(k)(l)Actas amended (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 herein and 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, 2016.2019. These forward-looking statements appear in a number of places in this report and include statements with respect to, among other things:·Our estimates of the value and recovery of our short-term investments;·Our estimates of future exploration, development, general and administrative and other costs;·Our ability to realize the investment in the Lik project acquired in the Acquisition.·Our ability to successfully identify, and execute on transactions to acquire new mineral exploration properties and other related assets;·Our estimates of fair value of our investment in shares of Vendetta and Kinross;·Our expectations regarding development and exploration of our properties, including those subject to joint venture and shareholder agreements;·Our estimates of environmental and reclamation liabilities;·The impact of political and regulatory developments;·Our future financial condition or results of operations and our future revenues and expenses; and·Our business strategy and other plans and objectives for future operations.26Contentsthe value and recovery of our short-term investments;ItemItemSeptember 30, 2017,March 31, 2020, 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 September 30, 2017.September 30, 2017,March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.PARTItem 1.Legal ProceedingsItem 1A.Risk Factorsforas detailed below with regard to risks attendant withrelated to the closing of the Acquisition, including those identified in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017,coronavirus pandemic and other potential pandemics, there arewere 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.Item 2.Unregistered Sales of Equity Securities and Use of Proceedswerecan be no purchasesassurance that our personnel will not be impacted by the coronavirus or other pandemic diseases and that we could ultimately see our workforce productivity reduced or incur increased medical costs or insurance premiums as a result of these health risks. In addition, a significant outbreak of coronavirus could result in a widespread global health crisis that could adversely affect global economies and financial markets resulting in an economic downturn that could have an adverse effect on the demand for precious and base metals and our future prospects.September 30, 2017.Item 3.Defaults upon Senior SecuritiesNone
March 31, 2020.27Item 4.Mine Safety DisclosuresNoneItem 5.Other InformationOn 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.Period January 1, 2020- January 31, 2020 February 1, 2020 – February 28, 2020 March 1, 2020 – March 31, 2020 November 7, 2017, Solitario has repurchased 659,300March 31, 2020, we have purchased a total of 986,000 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$465,000 under the plan through December 31, 2018. Allshare repurchase program and these shares repurchased will be cancelledare no longer included in our issued 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.
outstanding shares.28SIGNATURESSOLITARIO ZINC CORP.November 8, 2017DateBy:SOLITARIO ZINC CORP./s/ James R. MaronickJames R. MaronickChief Financial Officer EXHIBIT INDEX2.1By: Arrangement Agreement and Plan of Arrangement dated April 26, 2017, among Solitario Exploration & Royalty Corp. and Zazu Metals Corporation /s/ James R. Maronick(incorporated by reference to Exhibit 2.1 to Solitario’s Current Report on Form 8-K filed on July 14, 2017) James R. Maronick 3.1Chief Financial Officer Amended and Restated Articles of Incorporation of Solitario Exploration & Royalty Corp., as Amended (incorporated by reference to Exhibit 3.1 to Solitario’s Quarterly Report on Form 10-Q filed on August 10, 2010) Articles of Amendment to Restated Articles of Incorporation of Solitario Zinc Corp. (incorporated by reference to Exhibit 3.1 to Solitario’s Current Report on Form 8-K filed on July 14, 2017) Amended and Restated By-laws of Solitario Zinc Corp. (Solitario Exploration & Royalty Corp.) (incorporated by reference to Exhibit 99.1 to Solitario’s Annual Report on Form 10-K filed on March 22, 2013) 4.1*Form of Common Stock Certificate of Solitario Zinc Corp. (incorporated by reference to Exhibit 4.1 to Solitario’s Form 10-Q filed on November 8, 2017) 31.1*Certification of Chief Executive Officer pursuant to SEC Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2*Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1*Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101* September 30, 2017March 31, 2020 and December 31, 2016,2019, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2020 and 2016, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 20162019, (iii) Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2020 and 2016;2019; and (iv) Notes to the Condensed Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text. * Filed herewith