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2020
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| Colorado | 84-1285791 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No. | |
| 4251 Kipling St. Suite 390, Wheat Ridge, CO | 80033 | |
| (Address of principal executive offices) | (Zip Code) |
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| Common Stock, $0.01 par value | XPL | NYSE American |
| Large accelerated filer ☐ | Accelerated filer | Non-accelerated filer ☐ (do not check if a smaller reporting company) | Smaller reporting company ☒ | Emerging Growth Company☐ |
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CASH FLOWS basis. 2020. coronavirus outbreak. reclamation bond insurance policy in the event Solitario or its 50% partner, Teck, do not complete required reclamation. Equity Securities are classified within the hierarchy as of June 30, 2020: Taxes for the six months ended June 30, 2020: 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. 2019 2019. 2019. 2019. 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 evaluate 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 2019. 2020. 2019.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, except share and per share amounts) Current assets: Cash and cash equivalents Short-term investments Investments in marketable equity securities, at fair value SilverStream note receivable Prepaid expenses and other Total current assets Mineral properties Other assets Total assets Current liabilities: Accounts payable Paycheck Protection Loan Kinross call option Total current liabilities Long-term liabilities Asset retirement obligation – Lik Total long-term liabilities Commitments and contingencies Equity: Shareholders’ equity: Preferred stock, $0.01 par value, authorized 10,000,000 shares (none issued and outstanding at June 30, 2020 and December 31, 2019) Common stock, $0.01 par value, authorized 100,000,000 shares (58,111,966 and 58,133,066 shares, respectively, issued and outstanding at June 30, 2020 and December 31, 2019) Additional paid-in capital Accumulated deficit Total shareholders’ equity Total liabilities and shareholders’ equity 3(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 US dollars, except per share amounts) Revenue, net – mineral property sale Costs, expenses and other: Exploration expense Depreciation General and administrative Total costs, expenses and other Other (loss) income Interest income (net) Other income Gain (loss) on derivative instruments Gain on sale of marketable equity securities Unrealized gain (loss) on marketable equity securities Total other income (loss) Net income (loss) Income (loss) per common share: Basic Diluted Weighted average shares outstanding: Basic Diluted 4COMPREHENSIVE INCOME (LOSS)(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) Operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation Amortization of right of use lease asset Unrealized (gain) loss on marketable equity securities Employee stock option expense Gain on sale of marketable equity securities Other income- gain on conversion of SilverStream Note Loss on derivative instruments Changes in operating assets and liabilities: Prepaid expenses and other assets Note receivable, net of mineral property sold Accounts payable and other current liabilities Net cash used in operating activities Investing activities: Sale of short-term investments, net Cash from sale of marketable equity securities Purchase (sale) of derivative instruments – net Net cash provided by investing activities Financing activities: Paycheck Protection Loan Purchase of common stock for cancellation Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental Cash Flow information: Conversion of SilverStream note to Marketable equity securities 5SOLITARIO 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 Statements6Recent developmentsPurchase of ZazuOn July 12, 2017, Solitario”Solitario,” or the “Company”) completed the acquisition of Zazu Metals Corp. (“Zazu”) pursuant to a definitive arrangement agreement between Solitario and Zazu (the "Arrangement Agreement") whereby Solitario agreed to acquire all of the issued and outstanding common shares of Zazu (the "Zazu Shares") by way of a statutory plan of arrangement (the "Arrangement") under theCanada Business Corporations Act (the “Acquisition”). The Arrangement was approved by the Ontario (Canada) Superior Court of Justice on July 7, 2017. Per the Arrangement, Solitario issued 19,788,177 shares of its common stock on July 12, 2017 in exchange for all of the issued and outstanding Zazu Shares, which represented 0.3572 shares of Solitario common stock for each outstanding Zazu Share. Solitario granted stock options to acquire an aggregate of 1,782,428 shares of Solitario common stock to Zazu option holders the (“Replacement Options”) in connection with the Acquisition. The issuance of the shares of Solitario common stock as consideration for the Acquisition was approved at the 2017 annual meeting of Solitario shareholders held on June 29, 2017 (the “Annual Meeting”), with 98.27% of the Solitario shareholders who voted voting “for” the issuance of the shares pursuant to the Arrangement Agreement. The total purchase price of $16,227,000 recorded during the three and nine month periods ending September 30, 2017 is detailed below. Results of operations for Zazu are included in Solitario’s condensed consolidated financial statements from the date of the Acquisition.(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 7The 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 FinancingOn 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 formationSolitario 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.theits former Mt. Hamilton project, joint venture property payments andproject; (ii) the sale of a royalty on its former Mt. Hamilton property. Proceedsproject and (iii) joint venture property payments. Revenues and / or proceeds from the sale or joint venture of Solitario’s properties andor assets, although significant when they occur, have not historically been a consistent annual source of cash or revenue and would only occur in the future, if at all, on an infrequent basis in the future.(acquired in the Acquisition)Alaska to be its core mineral property assets. Nexa Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, is expected to continue the developmentexploration and furtherance of the Florida Canyon project and Solitario will monitoris monitoring progress at Florida Canyon. Solitario is currently evaluatingworking with its 50% joint venture partner in the Lik deposit, Teck American Incorporated, a wholly-owned subsidiary of Teck Resources Limited (both companies are referred to as “Teck”), to further the exploration and evaluate potential development plans for the Lik project.SeptemberJune 30, 2017,2020, Solitario has significant balances of cash and short-term investments that Solitario anticipates using, in part, to fund costs and activities intended to further the developmentexploration of the Florida Canyon and Lik projectprojects and to potentially acquire additional mineral property assets. The fluctuations in precious metal and other commodity prices has contributedcontribute to a challenging environment for mineral exploration and development, which has created opportunities as well as challenges for the potential acquisition of early-stage and advanced mineral exploration projects or other related assets at potentially attractive terms.8ninesix months ended SeptemberJune 30, 20172020 are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”). They do not include all disclosures required by generally accepted accounting principles for annual financial statements, but in the opinion of management, include all adjustments consisting only of normal recurring items, necessary for a fair presentation. Interim results are not necessarily indicative of results which may be achieved in the future, or for the full year ending December 31, 2017.2016.2019. The accounting policies set forth in those annual financial statements are the same as the accounting policies utilized in the preparation of these financial statements, except as modified for appropriate interim financial statement presentation.Financial reportingThe condensed consolidatedstatementsconditions.accounts of Solitarioduration, severity and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles, and are expressed in U.S dollars.Revenue recognitionSolitario records delay rental payments as revenue in the period received. Any payments received for the sale of property interests are recorded as a reductionscope of the related property's capitalized cost. Proceeds which exceed the capitalized cost of the property without reserves are recognized as revenue. Payments received on the sale of properties with reserves are recognized as revenue to the extent the proceeds exceed the proportionate basis in the assets sold.Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsoutbreak and the reported amounts of revenues and expenses duringactions taken to contain or treat the reporting period. Actual results could differ from those estimates. Some of the more significant estimates included in the preparation of Solitario's financial statements pertain to: (i) Solitario’s carrying value of short-term investments; (ii) the recoverability of mineral properties related to its mineral exploration properties and their future exploration potential; (iii) the fair value of stock option grants to employees; (iv) the ability of Solitario to realize its deferred tax assets; and (v) Solitario's investment in marketable equity securities.In performing its activities, Solitario has incurred certain costs for mineral properties. The recovery of these costs is ultimately dependent upon the sale of mineral property interests or the development of economically recoverable ore reserves and the ability of Solitario to obtain the necessary permits and financing to successfully place the properties into production, and upon future profitable operations, none of which is assured.SeptemberJune 30, 2017, a portion2020, $359,000 of Solitario’s cash and cash equivalents are held in brokerage accounts and foreign banks, which are not covered under the Federal Deposit Insurance Corporation (“FDIC”) rules for the United States. At September 30, 2017, Solitario holds short-term investments in United States Treasury securities (“USTS”) of $10,723,000.9SeptemberJune 30, 2017,2020, Solitario has $10,723,000$5,118,000 of its current assets in USTSUnited States Treasury Securities (“USTS”) with maturities of 30 days to 1913 months. In addition, Solitario has $1,564,000 of its current assets in seven bank certificates of deposits (“CD’s”) with face values between $100,000 and $250,000 and maturities between eight and 23 months. The USTS are recorded at their fair value, based upon quoted market prices. As of September 30, 2017, Solitario has $1,248,000 in separate bank certificates of deposit (“CDs”) each with a maximum value of $250,000, 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 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.propertiesSolitario expenses all exploration costs incurredResources”, “Indicated Mineral Resources” and “Inferred Mineral Resources.” The Company is not required to provide disclosure on its mineral properties priorunder the SEC Modernization Rules until its fiscal year beginning January 1, 2021.establishmentSEC 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 requirements under the SEC Modernization Rules and has not determined what effect adoption will have on its consolidated financial statements and disclosures.(in thousands) Exploration Lik project (Alaska – US) La Promesa (Peru) Total exploration mineral property throughincluding any additional costs incurred for subsequent lease payments or exploration activities related to our projects, are expensed as incurred.completionRoyalty Sale to SilverStream for Cdn$600,000. On closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and a feasibility study. Initial acquisition costs of Solitario’s mineral properties are capitalized. Solitario capitalizes all of its development expenditures on its projects, subsequent toconvertible note from SilverStream in 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 carryingprincipal amount of an asset may not be recoverable, utilizing established guidelines based upon undiscounted future net cash flowsCdn$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 was 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. During the six months ended June 30, 2019, Solitario recorded mineral property revenue of $408,000 from the asset or upon the determination that certain exploration properties do not have sufficient potential for economic mineralization.Derivative instrumentsSolitario accounts for its derivative instruments in accordance with ASC 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 allRoyalty Sale, consisting 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. 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 incash received on the statement of operations in the perioddate of the change as gain or loss on derivative instruments.Fair valueFinancial Accounting Standards Board (“FASB”) ASC 820, “Fair Value Measurementssale of $185,000 and Disclosures” (“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. For certain of Solitario's financial instruments, including cash and cash equivalents and accounts payable, the carrying amounts approximate fair value due to their short-term maturities. Solitario's short-term investments in USTS and CDs, its marketable equity securities and any covered call options against those marketable equity securities are carried at their estimated fair value based on quoted market prices. The fair value of Solitario’sthe SilverStream Note on the date of the sale of $263,000 less the carrying value of the royalties sold of $40,000.Vendetta WarrantsVox common shares at the initial public offering price, or a total of Cdn$412,000 or $294,000. Solitario recorded other income of $44,000 for the gain on the conversion of the SilverStream Note during the three and six months ended June 30, 2020.(in thousands) Geologic and field expenses Administrative Total exploration costs Black-Scholes model.equity securities are classified as available-for-sale and are carried at fair value, which is based upon quoted prices of the securities owned. Solitario records investments in marketable equity securities as available-for-sale for investments in publicly traded marketable equity securities for which it does not exercise significant control and where Solitario has no representation on the board of directors of those companies and exercises no control over the management of those companies. The cost of marketable equity securities sold is determined by the specific identification method. Changes in fairmarket value are recorded in accumulated other comprehensive income within shareholders'the condensed consolidated statement of operations. During the three and six months ended June 30, 2020, Solitario recorded an unrealized gain on marketable equity unlesssecurities of $484,000 and $251,000, respectively. During the three and six months ended June 30, 2019, Solitario recorded an unrealized loss on marketable equity securities of $63,000 and $389,000, respectively.(in thousands) Marketable equity securities at cost Cumulative unrealized loss on marketable equity securities Marketable equity securities at fair value (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 gain (loss) on marketable equity securities Additions to marketable equity securities Change in marketable equity securities at fair value (in thousands) Unrealized gain (loss) on marketable securities Realized gain on marketable equity securities sold Net gain (loss) on marketable securities declinegain on sale of $25,000 on the date of sale. Solitario did not sell any marketable equity securities during the three months ended June 30, 2020 or June 30, 2019 nor during the six months ended June 30, 2019. The change in the fair value of marketable equity securities during the three and six months ended June 30, 2019 was related entirely to the unrealized loss on marketable equity securities related to their fair values based upon quoted market prices for the marketable equity securities held by Solitario during that period.consideredclassified as an operating lease and has a term of 8 months remaining at June 30, 2020, with no renewal option. At June 30, 2020, the right-of-use office lease asset for the WR Lease is classified as other than temporary,assets and the related liability as current office lease liabilities in which case the declinecondensed consolidated balance sheet. The amortization of right of use lease asset expense is recognized ason a lossstraight-line basis over the lease term, with variable lease payments recognized in the consolidated statementsperiod those payments are incurred. During the three and six months ended June 30, 2020 Solitario recognized $10,000 and $20,000, respectively, of operations.
non-cash amortization of right of use lease asset expense for the WR Lease included in general and administrative expense. During the three and six months ended June 30, 2019 Solitario recognized $10,000 and $20,000, respectively, of non-cash amortization of right of use lease asset expense for the WR Lease included in general and administrative expense. During the three and six months ended June 30, 2020 cash lease payments of $11,000 and $21,000, respectively, were made on the WR Lease. During the three and six months ended June 30, 2019 cash lease payments of $10,000 and $17,000, respectively, were made on the WR Lease. These cash payments, less imputed interest for each period, reduced the related liability on the WR Lease. The discount rate within the WR Lease was not determinable at the inception of the WR Lease, and Solitario has applied a discount rate of 5% based upon Solitario’s estimate of its cost of capital.10ContentsSolitario’s lease liability for its WR Lease are as follows at June 30, 2020:Foreign exchangeFuture lease payments (in thousands) 2020 2021 Total lease payments Less amount of payments representing interest Present value of lease payments (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 United States dollarfollowing items comprised other assets:(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 the functional currency for all of Solitario's foreign subsidiaries. Although Solitario's South American exploration activities during 2017 and 2016 have been conducted primarily in Peru,to provide additional income on a limited portion of the payments under the land, leasehold and exploration agreementsshares of Kinross that Solitario are denominated in United States dollars. Realized foreign currency gains and losses are includedmay sell in the resultsnear term, which is generally defined as less than one year and any changes in the fair value of its covered calls are recognized in the statement of operations in the period of the change. During the three and six months ended June 30, 2020, Solitario sold covered calls against its holdings of Kinross for cash proceeds of $43,000 and $78,000, respectively, and repurchased certain of its covered calls prior to expiration for $64,000 during the three months ended June 30, 2020. As of June 30, 2020, Solitario has a remaining liability related to outstanding Kinross call options which expire in whichAugust 2020 of $47,000. During the three months ended June 30, 2020 Solitario recorded a gain on derivative instruments related to its Kinross calls of $5,000 and during the six months ended June 30, 2020 Solitario recorded a loss on derivative instruments related to its Kinross calls of $20,000. During the three and six months ended June 30, 2019, Solitario had no covered call options outstanding.occur.(in thousands) Assets Short-term investments Marketable equity securities Vendetta Warrants Liabilities Kinross call options (in thousands) Assets Short-term investments Marketable equity securities Vendetta Warrants taxes“AccountingAccounting for Income Taxes” (“ASC 740”)Taxes. Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized.Accounting for uncertainty in income taxesASC 740 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 provides that a company's tax position will be considered settled if the taxing authority has completed its examination, the company does not plan to appeal, and it is remote that the taxing authority would reexamine the tax position in the future. These provisions of ASC 740 had no effect on Solitario's financial position or results of operations.Earnings per shareThe calculation of basic and diluted earnings (loss) per share is based on the weighted average number of shares of common stock outstanding during the three and nine months ended September2017 and 2016. Potentially dilutive shares totaling 1,928,428 related to outstanding common stock options for the three and nine months ended September 30, 2017 were excluded from the calculation of diluted earnings (loss) per share because the effects were anti-dilutive. There were no similar potentially dilutive securities outstanding during the three and nine months ended September 30, 2016.Employee stock compensation and incentive plansSolitario classifies all of its stock options as equity options in accordance with the provisions of ASC 718, “Compensation – Stock Compensation.”Recent accounting pronouncementsOn January 5, 2017, the Financial Accounting Standards Board issued ASU 2017-01. ASU 2017-01 clarified the definition of the acquisition of a business or an asset under Accounting Codification Standard 805 (“ASC 804”). ASU 2017-10 utilizes a series of tests or screens to determine if a business combination is the acquisition of a single identifiable asset or of a business. Under the definition of ASU 2017-01, the Acquisition would fall under the classification of the acquisition of an asset. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. 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”), 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 does not expect the impact on its consolidated financial statements to be material.In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU No. 2016-02”), which will require lessees to recognize a right-of-use asset and a lease liability for all leases that are not short-term in nature. 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, the FASB issued ASU No 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825) (“ASU No. 2016-01”). ASU No. 2016-01 revises the classification and measurement of investment in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be recognized in net income. ASU No. 2016-01 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. Solitario will adopt ASU No. 2016-01 in the first quarter of 2018. Adoption of ASU No. 2016-01 may result in a cumulative effect adjustment to the consolidated statement of equity retained earnings as of the beginning of the year of adoption. Solitario is evaluating the new guidance and has not determined the impact of ASU No. 2016-01 on its consolidated financial statements.2. Mineral PropertyThe following table details Solitario’s investment in Mineral Property:(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. All exploration costs on our exploration properties, none of which have proven and probable reserves, including any additional costs incurred for subsequent lease or property payments and ongoing exploration activities related to our projects are expensed as incurred. Solitario acquired the Lik project during the three and nine months ended September 30, 2017 in the Acquisition, see Note 1 “Recent developments” above.Discontinued projectsSolitario dropped its royalty interests in the Aconchi and Norcan exploration properties in Mexico during the nine months ended September 30, 2017: however, there were no capitalized mineral property costs related to these 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-down 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, 2016.12Exploration expenseThe following items comprised exploration expense:(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 Asset Retirement ObligationIn connection with the Acquisition, 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.Solitario has not applied a discount rate to the recorded asset retirement obligation as the estimated time frame for reclamation is not currently known, as reclamation is not expected to occur until the end of the Lik project life, which would follow future development and operations, the start of which cannot be estimated or assured at this time. Additionally no depreciation will be recorded on the related asset for the asset retirement obligation until the Lik project goes into operation, which cannot be assured.3. Marketable Equity SecuritiesSolitario's investments in marketable equity securities are classified as available-for-sale and are carried at fair value, which is based upon quoted prices of the securities owned. The cost of marketable equity securities sold is determined by the specific identification method. Changes in market value are recorded in accumulated other comprehensive income or loss within shareholders' equity, unless a decline in market value is considered other than temporary, in which case the decline is recognized as a loss in the consolidated statement of operations.The following tables summarize Solitario’s marketable equity securities and accumulated other comprehensive income related 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 13The following table represents changes in marketable equity 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 During the three and nine months ended September 30, 2017, Solitario sold 2,000,000 and 3,480,000, respectively, Vendetta common shares, 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 below 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 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, as discussed below in Note 4, “Other Assets.”4. Other AssetsThe following items comprised other assets:(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, 20172020 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 6. Fair ValueFor certain of Solitario’s financial instruments, including cash and cash equivalents, short-term investments and payables, the carrying amounts approximate fair value due to their short term maturities. Solitario’s marketable equity securities are carried at their estimated fair value based on quoted market prices. The Vendetta Warrants are carried at their estimated fair value at December 31, 2016 of $735,000; based upon2019, 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, 2017 there were no reclassifications in financial assets or liabilities between Level 1, 2 or 3 categories.The following is a listing of Solitario’s financial assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the hierarchy as of 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 The following is a listing of Solitario’s financial assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the hierarchy as of December 31, 2016:(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 7. Income TaxesSolitario accounts for income taxes in accordance with ASC 740. Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized.At September 30, 2017 and December 31, 2016, Solitario 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.16ninesix months ended SeptemberJune 30, 2017,2020 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 SeptemberWheat Ridge, Colorado office which provides for future total minimum rent payments as of June 30, 2016, Solitario recorded deferred tax benefits2020 of $27,000 and $264,000, respectively, in the statement$28,000 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 Plan On June 29, 2017, Solitario shareholders approved an amendment to the 2013 Plan, which increased the number of shares available of common stock for issuance under the 2013 Plan from 1,750,000 to 5,750,000. Under the terms of the 2013 Plan, the Boarda total of Directors may grant5,750,000 shares of Solitario common stock were reserved for awards to directors, officers, employees and consultants. Such awardsAwards granted under the 2013 Plan 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 of the Company (the “Board of Directors”) or a committee appointed by the Board of Directors.In connectionthe Acquisition, on July 12, 2017, Solitario granted 1,782,428 Replacement Options. The Replacement Options were pricedexercise prices between $2.24$0.20 and $0.77 per share and $0.70 per share with terms between 10 months and 18 months. In accordance with the termsshare. All 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 grantterm and vest 25% on each of the next three anniversary dates of the date of grant, and have an exercise price of $0.77 per share, and a grant date fair value of $84,000, based upon a Black-Scholes model with a an expected volatility of 64%, and a risk free interest rate of 1.70%. During the three and nine months ended September 30, 2017, Solitario recorded 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 officers and members of the Board of Directors. These options have a five-year life, and exercise price of $0.77 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 unlessdates. 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 unamortizedamortizes grant date fair value ason a straight-line basis over the vesting period. During the six months ended June 30, 2020, Solitario granted 1,325,000 options with an exercise price of $0.20 per share, a five year term and a grant date fair value of $145,000 based upon a Black-Scholes model, with a 66% volatility and a 0.4% risk-free interest rate. During the six months ended June 30, 2019, Solitario granted options exercisable to acquire 150,000 shares of common stock, with an exercise price of $0.28 per share, a five-year term, and a grant date fair value of $23,000 based upon a Black-Scholes model, with a 64% volatility and a 2.4% risk-free interest rate. In addition, during the cancellation under the 2013 Plan.six months ended June 30, 2019, options exercisable for 1,000,160 shares of common stock, with exercise prices between $1.68 and $0.70 per share, expired unexercised. There were no exercises of options or awards under the 2013 Plan during either of the three and ninesix month periods ended June 30, 2020 and 2019. During the three and six months ended SeptemberJune 30, 2017 or 2016.
2020, Solitario recorded stock option compensation expense of $130,000 and $215,000, respectively. During the three and six months ended June 30, 2019, Solitario recorded stock option compensation expense of $85,000 and $173,000, respectively. At June 30, 2020, the total unrecognized stock option compensation cost related to non-vested options was $247,000 and is expected to be recognized over a weighted average period of 20 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, 2019 Stock option expense Purchase of shares for cancellation Net loss Balance at June 30, 2020 (in thousands, except Share amounts) Balance at December 31, 2018 Stock option expense Purchase of shares for cancellation Net loss Balance at June 30, 2019 Solitario’sthe Board of Directors approved a share repurchase program that initially authorized Solitario to purchase up to two million shares of its outstanding common stock. On November 7, 2017, Solitario’sDuring 2019, the 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 ninesix months ended SeptemberJune 30, 2016,2020, Solitario purchased 18,0004,400 and 424,00021,100 shares of Solitario common stock, respectively, for an aggregate purchase price of $13,000$1,000 and $214,000,$4,000, respectively. During the three and six months ended June 30, 2019, Solitario purchased 5,300 and 33,200 shares of Solitario common stock, respectively, for an aggregate purchase price of $2,000 and $11,000, respectively. As of SeptemberJune 30, 2017,2020, Solitario has purchased a total of 659,300990,400 shares for an aggregate purchase price of $343,000$466,000 under the share repurchase program since its inception.18Itemtem 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.SeptemberJune 30, 2017,2020, 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.19ContentsCOVID-19quarterthree months ended SeptemberJune 30, 20172020 to the quarterthree months ended SeptemberJune 30, 2016$77,000$255,000 or approximately $0.00 per basic and diluted share for the three months ended SeptemberJune 30, 2017,2020 compared to a net loss of $1,119,000$1,002,000 or approximately $0.03$0.02 per basic and diluted share for the three months ended SeptemberJune 30, 2016.2019. As explained in more detail below, the primary reasonreasons for the change toour net income forin the three months ended SeptemberJune 30, 2017 from a2020 compared to the net loss forduring the three months ended SeptemberJune 30, 2016 was2019 were (i) recording a creditreduction in exploration expense to $44,000 in the three months ended June 30, 2020 compared to exploration expense of $702,000 during the 2017 periodthree months ended June 30, 2019; (ii) a reduction in general and administrative expense to $254,000 in the three months ended June 30, 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$321,000 during the three months ended SeptemberJune 30, 2017 compared to $939,000, which included expenses related to the cancellation2019; (iii) other income of options of $721,000$44,000 during the three months ended SeptemberJune 30, 2016; (iii) an increase in interest income to $38,0002020 resulting from the conversion of the SilverStream Note, with no similar item during the three months ended SeptemberJune 30, 20172019; and (iv) an unrealized gain on marketable equity securities of $484,000 during the three months ended June 30, 2020 compared to an unrealized loss on marketable equity securities of $63,000 during the three months ended June 30, 2019. Partially offsetting the above items was a reduction in our interest income ofto $27,000 during the three months ended SeptemberJune 30, 2016; and (iv) an increase in gain on sale2020 compared to interest income of marketable equity securities to $357,000$90,000 during the three months ended SeptemberJune 30, 2017 compared2019. Each of the major components of these items is discussed in more detail below.gain on sale of marketable equity securities of $10,000$44,000 during the three months ended SeptemberJune 30, 2016. These were partially offset by an (i) increase in2020 compared to exploration expense to $180,000of $702,000 during the three months ended SeptemberJune 30, 2017 compared to exploration expense2019 as a result of $132,000(i) our joint venture partner Nexa meeting the second required total drilling target of 3,400 meters of drilling at the Florida Canyon project during the three months ended SeptemberJune 30, 2016; (ii) a reduction2019 with Solitario responsible for $527,000 of the total drilling costs incurred by Nexa resulting in the gain on derivative instruments to a lossrecording of $18,000$527,000 of exploration expense during the three months ended SeptemberJune 30, 2017 compared to a gain of $163,0002019 with no similar drilling at Florida Canyon during the three months ended SeptemberJune 30, 2016;2020; (ii) 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 for which we incurred $83,000 during the three months ended SeptemberJune 30, 20172020 compared to and income tax benefit of $27,000$104,000 during the three months ended SeptemberJune 30, 2016. The significant changes for these items are discussed in more detail below. Our net exploration expense increased2019; and (iii) a one-time non-cash credit to $180,000our accrued expenses at our Lik project of $52,000 during the three months ended SeptemberJune 30, 2017 compared to2020, resulting from the billing of 2019 exploration expenseexpenditures from our joint venture partner Teck reflecting that Teck did not spent the entirety of $132,000the budgeted expenditures at the Lik project during 2019, which we had accrued. During the three months ended SeptemberJune 30, 2016. We increased2020 we had one contract geologist in Peru, and our Denver personnel spent a majority of their time on reconnaissance exploration activities duringdescribed above and related matters. We now have budgeted approximately $493,000 for our full-year exploration expenditure for 2020, which as discussed above in “Effects of COVID-19,” is reduced, from our original full-year exploration budget of $976,000. As discussed above, our joint venture partners, with our concurrence, have reduced planned exploration expenditures, the three months ended September 30, 2017 primarily related to the completionbulk of which were planned for our Lik project which previously included approximately $528,000 for Solitario’s share of a preliminary economic assessment onjoint drilling program with Teck at the Lik project. The revised plan at the Lik project calls for a full-year 2020 budget of approximately $90,000, with the bulk of those expenses planned for the third and fourth quarters of 2020. Given the significant drilling that was performed in 2019, primarily for drilling at our Florida Canyon project, (the Florida Canyon PEA”). The Florida Canyon PEA was completed by SRK Consulting (U.S.), Inc., an independent and internationally recognized mining engineering firm, and reported during the third quarter of 2017. 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 and as a result we expect our full-year exploration expenditures for 2017 will exceed2020 to be below the full-year exploration expenditures for full-year 2016.for the three and nine months ended September 30, 2016 and 2015 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$124,000 during the three months ended SeptemberJune 30, 20162020 compared to $274,000$236,000 during the three months ended SeptemberJune 30, 2016.2019. The major components of thesethis reduction in costs were related to (i) salaries and benefit expense of $61,000 during the three months ended SeptemberJune 30, 2017 of $162,0002020 compared to salariessalary and benefits expensebenefit costs of $150,000 in$108,000 during the same period of 2016;six months ended June 30, 2019, as we have reduced staff and 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$12,000 in the three months ended SeptemberJune 30, 2017, see Note 1 to the condensed consolidated statements “Recent developments,” above,2020 compared to $67,000$54,000 in the three months ended SeptemberJune 30, 2016;2019; (iii) office rent and expenses of $24,000$13,000 during the three months ended SeptemberJune 30, 20172020, compared to $23,000$27,000 during the three months ended SeptemberJune 30, 2016;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$38,000 during the three months ended SeptemberJune 30, 20172020 compared to $32,000$47,000 during the three months ended SeptemberJune 30, 2016.2019. 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 SeptemberJune 30, 20172020 compared to $218,000$85,000 of stock option compensation expense during the three months ended SeptemberJune 30, 2016. During2019. These non-cash charges related to the expense for vesting on stock options outstanding during the three months ended SeptemberJune 30, 2016, the holders of options to acquire our common stock voluntarily surrendered for cancellation all options previously granted to such persons2020 and we cancelled the options upon surrender. Upon cancellation, we recorded an additional $721,000 of non-cash stock option compensation expense2019. The primary reason for the unamortizedincrease in 2020 was the grant of 1,325,000 options on April 2, 2020 with an exercise price of $0.20 per share, a five-year term and a 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,$145,000 based upon a Black-Scholes model. DuringThe options vest 25% on the three months ended September 30, 2017date of grant and we recorded a lossrecognized $36,000 of grant date fair value for these options on derivative instrumentsthe date of $31,000 related to the Vendetta Warrants, compared to a gain on derivative instruments of $91,000grant during the three months ended SeptemberJune 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, 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 20162020 with no similar item during the ninethree months ended SeptemberJune 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 during the nine months ended September 30, 2016.During the nine months ended September 30, 2017 we soldexpense.for proceeds of $666,000 and recorded a gain on$484,000 during the sales of $578,000,three months ended June 30, 2020 compared to sales of marketable equity security sales for proceeds of $56,000 and a recorded gainan unrealized loss 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 of $63,000 during 2016 consistedthe three months ended June 30, 2019. The gain during the three months ended June 30, 2020 was primarily related to (i) an increase in the value of the saleour holdings of 3,000100,000 shares of Kinross common stock, which increased to a fair value of $722,000 at June 30, 2020 from a fair value of $398,000 at March 31, 2020 or an increase of $324,000 based on quoted market prices; and (ii) an increase in the salevalue of 100,000our 12,450,000 shares of International Lithium Corp stock. DuringVendetta common stock of $107,000, based on quoted market prices, which increased from a fair value of $350,000 at March 31, 2020 to a fair value of $457,000 at June 30, 2020.ninethree months ended SeptemberJune 30, 2016,2020 compared to interest income of $90,000 during the proceeds from these salesthree months ended June 30, 2019. This reduction was primarily due to (i) a decrease in the interest earned on our short-term investments in USTS as a result of a decrease in the total amount of outstanding short-term investments during the three months ended June 30, 2020 compared to the three months ended June 30, 2019; and (ii) the average interest rates on our existing short term investments was decreasing during the three months ended June 30, 2019, which increased the value of existing USTS we held based upon quoted market prices during the three months ended June 30, 2019, while interest rates were $56,000relatively stable during the three months ended June 30, 2020, and we recordeddid not record a gain on salecomparable increase in value of $40,000 onour existing USTS during the salethree months ended June 30, 2020 compared to the same period of these securities.ninethree months ended SeptemberJune 30, 20162020 and 2019, we recorded no property impairments.other assetsderivative instruments of $14,000$20,000 during the six months ended June 30, 2020 with no similar item during the six months ended June 30, 2019. The significant changes for these items are discussed in more detail below.abandonmentsales during the remainder of 2020.$10,000$215,000 during the six months ended June 30, 2019, with these decreases as a result of personnel and salary reductions; (ii) legal and accounting expenditures of $23,000 during the six months ended June 30, 2020, compared to $106,000 during the six months ended June 30, 2019; (iii) office and other costs of $60,000 during the six months ended June 30, 2020 compared to $70,000 during the six months ended June 30, 2019; and (iv) travel and shareholder relation costs of $148,000 during the six months ended June 30, 2020 compared to $181,000 during the six months ended June 30, 2019.closurestock option expense for the options granted on April 2, 2020, discussed above.exploration officeholdings of 100,000 shares of Kinross common stock which increased to a fair value of $722,000 at June 30, 2020 compared to a fair value of $474,000 at December 31, 2019 based on quoted market prices, or an increase of $248,000 for the six months ended June 30, 2020. This increase was partially offset by a decrease in Mexico. We recorded no mineral property write-downsthe value of our holdings of 12,450,000 shares of Vendetta common stock, which decreased from a fair value of $479,000 at December 31, 2019 to a fair value of $457,000 at June 30, 2020, based on quoted market prices, or a decrease of $22,000 for the six months ended June 30, 2020. The non-cash unrealized loss during the ninesix months ended SeptemberJune 30, 2017.
2019 was primarily related to a decrease in the value of our then holdings of 14,450,000 shares of Vendetta common stock which decreased in value $448,000, based on quoted market prices during the six months ended June 30, 2019. We may reduce our holdings of marketable equity securities depending on cash needs and market conditions, which may reduce the volatility of the changes in unrealized gains and losses in marketable equity securities during the remainder of 2020.22Contents$162,000 during the six months ended June 30, 2019 primarily as a result of (i) the effects of interest rates reducing during the six months ended June 30, 2019, which increased the quoted market price of our USTS holdings during the three months ended June 30, 2019, as discussed above; and (ii) a decreased value of our holdings of short-term investments reduced the interest earned during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. We anticipate as we utilize our short-term investments to provide funds for exploration and general and administrative expenses, our interest income will be reduced during the remainder of 2020 compared to 2019.SeptemberJune 30, 2017,2020, we have $12,232,000$7,053,000 in cash and short-term investments. As of SeptemberJune 30, 2017,2020, we have invested $10,723,000$5,118,000 of our current assets in USTS with maturities of 1530 days to 1913 months. In addition, Solitario has $1,564,000 of its current assets in seven CD’s with face values between $100,000 and $250,000 and maturities between eight and 23 months. The USTS are recorded at their fair value, based upon quoted market prices. As of September 30, 2017, we have invested $1,248,000 in separate CDs with maximum values of $250,000, each of which is covered by FDIC insurance to the full face value of the CDs. At September 30, 2017, the CDs have maturities of between 30 days and 18 months. The 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 9,12, “Shareholders’ Equity, and Accumulated Other Comprehensive Income”” to the unaudited condensed consolidated financial statements.statements, although we may reduce the number of shares repurchased during the remainder of 2020, if any, in light of the potential effects of COVID-19, discussed above. The stock buy-backshare repurchase program may be terminated at any time and does not require Solitarious 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 June 30, 2020 we own 12,450,000 shares of Vendetta common stock, 100,000 shares of Kinross common stock and 137,255 shares of Vox common stock. At June 30, 2020, the Vendetta shares are recorded at September 30, 2017. Thetheir fair market value of $457,000, the Kinross shares are recorded at their fair value of $437,000 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$722,000; 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 commonVox shares of Vendetta for proceeds of $666,000, andare 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.$343,000. In addition, we own other marketable equity securities with a fair value of $13,000$11,000 at June 30, 2020. During the six months ended June 30, 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$8,359,000 at SeptemberJune 30, 20172020 compared to working capital of $16,671,000$8,487,000 as of December 31, 2016.2019. Our working capital at SeptemberJune 30, 20172020 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,$1,533,000, and other current assets of $41,000, less our accounts payable of $141,000.$123,000, the PPP Loan of $70,000 and other current liabilities of $75,000. As of SeptemberJune 30, 2017,2020, 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 our interests in 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$0.20 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 SeptemberJune 30, 2017, since the inception of the share repurchase program, we have2020, Solitario has purchased a total of 659,300990,400 shares for an aggregate purchase price of $343,000$466,000 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.24ninesix months ended SeptemberJune 30, 20172020 decreased to $1,308,000$521,000 compared to $1,436,000$995,000 of net cash used in operations for the ninesix months ended SeptemberJune 30, 20162019 primarily as a result of (i) the exploration expense related to the $527,000 payment to Nexa during the six months ended June 20, 2019, discussed above, with no similar item during the six months ended June 30, 2020; and (ii) the decrease in cash general and administrative costs, excluding the non-cash costs for stock options during the six months ended June 30, 2020, discussed above, compared to the cash general and administrative costs during 2019. These decreases in uses of cash in operations were partially offset by (i) cash of $185,000 received from the Royalty Sale during the six months ended June 30, 2019, with no similar item during the six months ended June 30 2020 and (ii) the reduced cash for interest income received during the six months ended June 30, 2020 from our short-term investments compared to the cash received for interest income during the six months ended June 30, 2019, discussed above, as a result of a decrease in the balances of our short-term investments from 2019 to 2020. Based upon projected expenditures in our 2020 budget, we anticipate continued use of funds from operations through the remainder of 2020, primarily for the reduced exploration activities at our Lik and Florida Canyon projects, reconnaissance exploration and general and administrative expenses not related to the Acquisition. Legal 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.uses. 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$1,453,000 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 ninesix months ended SeptemberJune 30, 2016 for2019. 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$162,000 and $8,500,000 of USTS, discussed above under “Short-term Investments” in “Liquidity$1,453,000, respectively, during the six months ended June 30, 2020 and Capital Resources.”2019. In addition, during 2016,the six months ended June 30, 2020 we used $289,000 for the purchase of unitssold 2,000,000 shares of Vendetta discussed above under “Liquidity and Capital Resources,”common stock for proceeds of $76,000, with no similar item during the six months ended June 30, 2019 and we used $40,000 forreceived net cash of $14,000 from the purchasesale of royalties on certain non-producing mineral leases inKinross calls as derivative instruments, with no similar item during the statesix, months ended June 30, 2019. We may sell additional marketable equity securities during the remainder of Montana, previously owned by Atna Resources Ltd. We received $666,000 from2020, as discussed above. However, we do 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.$28,000other cash on hand of $4,000 and $11,000, respectively, for the purchase of our common stock during the ninesix months ended SeptemberJune 30 2017 compared to the use of $214,000 during the nine months ended September 30, 2016,, 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, this2020, although we may reduce the number of shares repurchased during the remainder of 2020, if any, in light of the potential effects of COVID-19, discussed above, and any additional purchases will be limited to the maximum number of shares, pursuant topermissible under the share repurchase program.SeptemberJune 30, 20172020, and December 31, 20162019 we have no off-balance sheet obligations.As of September 30, 2017 wetheany potential development of any of our projectsactivities as of SeptemberJune 30, 2017.2020. As of SeptemberJune 30, 2017,2020, there have been no changes to our contractual obligations for 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 interestsix months ended June 30, 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 and six months ended SeptemberJune 30, 2017. During the nine months ended September 30, 2016, we closed our exploration office in Mexico. We recorded a mineral property write-down of $10,000 related to the Norcan2020 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, 2016.2016,2019, 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.SeptemberJune 30, 2017,2020, and for the three and ninesix months ended SeptemberJune 30, 2017,2020, we have no related party transactions or balances.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;ItemItemSeptemberJune 30, 2017,2020, 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 SeptemberJune 30, 2017.SeptemberJune 30, 2017,2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Item 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, the outbreak of coronavirus has resulted in a widespread global health crisis that 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.SeptemberJune 30, 2017.Item 3.Defaults upon Senior SecuritiesNone
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 April 1, 2020- April 30, 2020 May 1, 2020 – May 31, 2020 June 1, 2020 – June 30, 2020 November 7, 2017, Solitario has repurchased 659,300June 30, 2020, we have purchased a total of 990,400 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$466,000 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.28Table of ContentsItem 3. Defaults upon Senior SecuritiesItem 6.ExhibitsSIGNATURESSOLITARIO ZINC CORP.November 8, 2017DateBy:/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 Amended and 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-K8-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* The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172020 and December 31, 2016,2019, (ii) Condensed Consolidated Statements of Operations for the three and ninesix months ended SeptemberJune 30, 20172020 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 and six months ended SeptemberJune 30, 20172020 and 2016;2019; and (iv) Notes to the Condensed Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.*Filed herewith