UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

  (Mark One)

 

 

 

 

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

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

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

 

 

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

 

          

 There were 58,116,36658,429,116 shares of $0.01 par value common stock outstanding as of April 30, 2020.May 6, 2021.

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

1.       Business and Significant Accounting Policies

 

Business and company formation

 

Solitario Zinc Corp. (“Solitario,” or the “Company”) is an exploration stage company as defined in Industry Guide 7, asby rules 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 partner that has expertise in mining operations, or create a royalty with a third party that continues to advance the property. Solitario is primarily focused on the acquisition and exploration of zinc-related exploration mineral properties; however, Solitario will evaluate and acquire other base and precious metal mineral exploration properties. In addition to focusing on its mineral exploration properties and the evaluation of mineral properties for acquisition, Solitario also evaluates potential strategic transactions for the acquisition of new precious and base metal properties and assets with exploration potential or business combinations that Solitario determines to be favorable to Solitario.

 

Solitario has recorded revenue in the past from the sale of mineral property,properties, including (i) the sale of (i) certain mineral royalty properties to SilverStream SEZC, a private Cayman Island royalty and streaming company (“SilverStream”) for Cdn$600,000 in January 2019 (the “Royalty Sale”), and (ii) the sale in June 2018 of its interest in the royalty on its Yanacocha property. In addition, Solitario has received proceeds from (i) the sale in 2015 of its former interest in Mount Hamilton LLC (“MH-LLC”), the owner of its former Mt. Hamilton project; (ii) the sale of a royalty on its former Mt. Hamilton projectproperty and (iii) joint venture property payments. Revenues and / or proceeds from the sale or joint venture of properties or assets, although significant when they occur, have not been a consistent annual source of cash and would only occur in the future, if at all, on an infrequent basis.

 

 

 

The accompanying interim condensed consolidated financial statements of Solitario for the three months ended March 31, 20202021 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 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, 2020.2021.

 

These financial statements should be read in conjunction with the financial statements and notes thereto which are included in Solitario’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. 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.

 

Risks and Uncertainties

 

Solitario faces risks related to health epidemics and other outbreaks of communicable diseases, which could significantly disrupt its operations and may materially and adversely affect ourits business and financial conditions.

 

Solitario’s business could be adversely impacted by the effects of the coronavirus (COVID-19)(“COVID-19”) or other epidemics or pandemics. TheSolitario has recommended all of its employees and contractors follow government guidelines for health and safety policies for employees and contractors, including encouraging tele-commuting and working from home where possible. Solitario has evaluated the effects of COVID-19 on its operations and taken pro-active steps to address the impacts on its operations, including reducing costs, in response to the economic uncertainty associated with potential risks from COVID-19. Also, Solitairo has evaluated the potential impacts on its ability to access future traditional funding sources on the same or reasonably similar terms as in past periods. Solitario will continue to monitor the effects of COVID-19 on its operations, financial condition and liquidity. However, the extent to which the coronavirusCOVID-19 impacts Solitario’s business, including our exploration and other activities and the market for itsour securities, will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. Solitario has taken steps to conserve its financial resources including reducing costs, in response to the economic uncertainty associated with these risks. See Item 1A “Risk Factors” below.

 

Cash equivalents

 

Cash equivalents include investments in highly liquid money-market securities with original maturities of three months or less when purchased. As of March 31, 2020, $425,0002021, $1,389,000 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.

 

Short-term investments

 

As of March 31, 2020,2021, Solitario has $6,325,000$3,529,000 of its current assets in United States Treasury Securities (“USTS”) with maturities of 15 days to 159 months. In addition, at March 31, 2021, Solitario has twosix bank certificates of deposits (“CD’s”) each with a face values between $250,000 and $100,000 recorded at their total fair value of $250,000.$1,306,000. The CD’s have maturities of one month to one year. The USTS and CD’s are recorded at their fair value, based upon quoted market prices. The USTS 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.

 

 

The calculation of basic and diluted earnings (loss) per share is based on the weighted average number of shares of common stock outstanding during the three months ended March 31, 20202021 and 2019.2020. Potentially dilutive shares related to outstanding common stock options of 4,373,0005,437,650 and 4,373,000, respectively, for Solitario common shares for the three months ended March 31, 20202021 and 20192020 were excluded from the calculation of diluted loss per share because the effects were anti-dilutive.

 

 

 

 

 

 

 

On January 22, 2019, Solitario completedAs part of the Royalty Sale to SilverStream for Cdn$600,000. On closing of the Royalty Sale,in 2019, Solitario received Cdn$250,000 in cash and a convertible note from SilverStream in the principal amount of Cdn$350,000 (the “SilverStream Note”). The SilverStream Note, as amended, was originally due December 31, 2019,on June 30, 2020, accrued 5%8% per annum simple interest, payable on a quarterly basis, and iswas convertible into common shares of SilverStream, at the discretion of SilverStream, by providing Solitario a notice of conversion. In December of 2019, Solitario and SilverStream agreed to extend the due date of the SilverStream Note to June 30, 2020, and to increase the interest rate to 8% per annum simple interest. All other terms of the SilverStream Note remained the same. During the three months ended March 31, 2020 and 2019, Solitario recorded interest income from the SilverStream Note of $5,000$5,000.

On May 19, 2020, SilverStream completed an initial public offering, including changing its name to Vox Royalty Corp. (“Vox”), and, $2,000, respectively. Duringin accordance with the three months ended March 31, 2019, Solitario recorded mineral property revenue of $408,000 from the Royalty Sale, consisting of the fair value of the cash received on the date of the sale of $185,000 and the fair valueterms of the SilverStream Note, issued Solitario 137,255 shares of common stock of Vox in full satisfaction of obligations owed under the SilverStream Note. Solitario recorded its initial investment in the Vox 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 dateconversion of the sale of $263,000 less the carrying value of the royalties sold of $40,000.SilverStream Note during 2020.

 

 

 

 

 

In connection with the acquisition of its interest in the Lik project in 2017, Solitario recorded an asset retirement obligation of $125,000 for Solitario’s estimated reclamation cost of the existing disturbance at the Lik project. This disturbance consists of an exploration camp including certain drill sites and access roads at the camp. The estimate was based upon estimated cash costs for reclamation as determined by the permitting bond required by the State of Alaska, for which Solitario has purchased a reclamation bond insurance policy in the event Solitario or its 50% partner, Teck, 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.

 

 

Solitario's investments in marketable equity securities 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 the condensed consolidated statement of operations. During the three months ended March 31, 2021, Solitario recorded an unrealized loss on marketable equity securities of $122,000. During the three months ended March 31, 2020, Solitario recorded an unrealized loss on marketable equity securities of $233,000. During the three months ended

 

The following tables summarize Solitario’s marketable equity securities and adjustments to fair value:

 

 

The following table represents changes in marketable equity securities during the three months ended March 31, 20202021 and 2019:2020:

 

 

The following table represents the realized and unrealized gain (loss) on marketable equity securities:

 

During the three months ended March 31, 2021, Solitario sold 2,000,000(i) 1,010,000 shares of Vendetta Mining Corp. (“Vendetta”)Vendetta) common stock duringfor proceeds of $51,000 and recorded a loss on sale of $2,000; (ii) 287,000 shares of TNR Gold Corp. common stock for proceeds of $18,000 and recorded a gain on sale of $13,000 and (iii) 3,200 shares of Vox for proceeds of $9,000 and recorded a gain on sale of $2,000. During the three months ended March 31, 2020, Solitario sold 2,000,000 shares of Vendetta common stock for proceeds of $76,000 and recorded a gain on sale of $25,000 on the date of sale.

Solitario did not sell any marketable equity securities duringaccounts for its leases in accordance with ASC 842. Solitario leases one facility, its Wheat Ridge, Colorado office (the “WR Lease”), that has a term of more than one year. Solitario has no other material operating lease costs. During the three months ended March 31, 20192021, Solitario entered into a new lease for the same facility of the WR Lease (both the prior and new lease are referred to as the WR Lease) and recorded a net increase in the related asset and liability of $99,000. The WR Lease is classified as an operating lease and has a term of 31 months at March 31, 2021, with no renewal option. At March 31, 2021 and December 31, 2020, the right-of-use office lease asset for the WR Lease is classified as other assets and the changerelated liability as current and long-term operating lease liabilities in the fair valuecondensed consolidated balance sheet. The amortization of marketable equity securities wasright of use lease asset expense is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. During the three months ended March 31, 2021 and 2020, Solitario recognized $10,000 and $10,000, 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 months ended March 31, 2021 and 2020, cash lease payments of $7,000 and $10,000, respectively, were made on the WR Lease. These cash payments, less $1,000 of imputed interest for each period, reduced the related entirely toliability on the unrealized loss on marketable equity securitiesWR Lease. The discount rate within the WR Lease is not determinable and Solitario has applied a discount rate of 5% based upon Solitario’s estimate of its cost of capital.

 

 

On July 31, 2019, Solitario purchased 3,450,000 Vendetta units for a total of $233,000. Each Vendetta unit consisted of one share of Vendetta common stock and one Vendetta warrant (the “Vendetta Warrants”). Each Vendetta Warrant entitles the holder to purchase one additional share of Vendetta common stock for a purchase price of Cdn$0.13 per share for a period of three years. On the purchase date Solitario recorded marketable equity securities of $165,000 for the Vendetta shares acquired and $68,000 for the Vendetta Warrants based upon an allocation of the purchase price of the Vendetta units, based upon (i) the fair value of the Vendetta common shares received, based upon the quoted market price for Vendetta common shares and (ii) the fair value of Vendetta Warrants based upon a Black Scholes model. During the three months ended March 31, 2021 and 2020, Solitario charged loss on derivative instruments $3,000 and $7,000, respectively, for the change in the fair value of the Vendetta Warrants based on a Black Scholes model.

 

 

 

 

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 March 31, 2020:2021:

 

 

 

 

8.        Income Taxes

 

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

 

At both March 31, 20202021 and December 31, 2019,2020, a valuation allowance has been recorded, which fully offsets Solitario’s net deferred tax assets, because it is more likely than not that the Company will not realize some portion or all of its deferred tax assets.  The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that the deferred tax assets can be realized prior to their expiration.

 

During the three months ended March 31, 20202021 and 2019,2020, Solitario recorded no deferred tax expense.

 

 

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

 

Solitario leases office space under a non-cancelable operating lease for the Wheat Ridge, Colorado officeWR Lease which provides for total minimum rent payments of $39,000$107,000 through MarchOctober of 2021.

 

 

On June 18, 2013, Solitario’s shareholders approved the 2013 Solitario Exploration & Royalty Corp. Omnibus Stock and Incentive Plan (the “2013 Plan”). Under the terms of the 2013 Plan, a total of 1,750,000 shares of Solitario common stock were reserved for awards to directors, officers, employees and consultants. On June 29, 2017, Solitario shareholders approved an amendment to the 2013 Plan, which increased the number of shares of common stock available for issuance under the 2013 Plan from 1,750,000 to 5,750,000. Awards 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 or a committee appointed by the Board of Directors.

 

As of both March 31, 2020,2021, and December 31, 20192020 there were options outstanding that are exercisable to acquire 4,373,0005,347,650 and 5,558,000, respectively, shares of Solitario common stock, with exercise prices between $0.28 and $0.77 per share. During the three months ended March 31, 2021 and 2020, Solitario did not grant any options. During the three months ended March 31, 2019, Solitario granted2021, options exercisable to acquire 150,000for 120,350 shares of common stock,were exercised with an average exercise price of $0.28$0.56 per share a five-year term, and a grant date fair valuefor proceeds 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 three months ended March 31, 2019, options exercisable into 1,000,160 shares of common stock, with exercise prices between $1.68 and $0.70 per share, expired unexercised.$67,000. There were no exercises of options under the 2013 Plan during either of the three months ended March 31, 2020 and 2019.2020. During the three months ended March 31, 20202021 and 2019,2020, Solitario recorded stock option compensation expense of $85,000$28,000 and $88,000,$85,000, respectively. At March 31, 2020,2021, the total unrecognized stock option compensation cost related to non-vested options is $232,000$118,000 and is expected to be recognized over a weighted average period of 1318 months.

 

11.        Shareholders’ Equity

 

 

 

 

 

 

 

(a) Business Overview and Summary

 

 

 

 

As of March 31, 2020,2021, we have balances of cash and short-term investments that we anticipate using, in part, to (i) fund costs and activities intended to further the exploration of theour Lik project, (ii) fund costs and activities intended to further the exploration at theour Florida Canyon project, (iii) fund costs and activities to further our Gold Coin project; (iv) conduct reconnaissance exploration and (iv)(v) potentially acquire additional mineral property assets. The fluctuations in precious metal and other commodity prices contribute 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.

 

As of March 31, 2020,2021, we do not expect the effects of the COVID-19 virusto have not had a material effect on Solitario’s planned activities related to the exploration of its Lik and Florida Canyon projects. However, going forward for the remainder of 2020,2021, we will continue to monitor planned activities for the full year 20202021 at both Florida Canyon, Lik and Lik.our Gold Coin project. The extent to which the coronavirusCOVID-19 impacts our business, including our exploration and other activities and the market for our securities, will depend on future developments, which are highly uncertain and cannot be predicted at this time. Please see Item 1A, “Risk Factors,” below.

 

 (b) Results of Operations

 

 

 

 

 

 

 

 

During the three months ended March 31, 2021, we sold various shares of our holdings of marketable equity securities for proceeds of $78,000 and recorded a gain on sale of marketable equity securities of $13,000. During the three months ended March 31, 2020, we sold 2,000,000 shares of our holdings of Vendetta common stock for proceeds of $76,000 and recorded a gain on sale of marketable equity securities of $25,000. After the completion of the sale of the Vendetta shares, we hold 12,450,000 shares of Vendetta common stock. See Note 3 “Marketable Equity Securities” to the condensed consolidated financial statements for a discussion of the sale of Vendetta common stock.

 

We recorded an unrealized loss on marketable equity securities of $122,000 during the three months ended March 31, 2021 compared to an unrealized loss on marketable equity securities of $233,000 during the three months ended March 31, 2020 compared to an unrealized loss on marketable equity securities of $326,0002020. The losses during the three months ended March 31, 2019. The loss during the three months ended March 31,2021 and 2020 and 2019 waswere primarily related to a decrease in the value of our holdings, after the sales of 12,450,000marketable equity securities discussed above in Note 3 “Marketable Equity Securities” to the condensed consolidated financial statements, of (i) 100,000 shares of VendettaKinross common stock which decreased from a fair value of $479,000$734,000 at December 31, 20192020 to a fair value of $350,000$667,000 at March 31, 2020 based on quoted market prices. In addition we hold 100,0002021 and (ii) 134,055 shares of Kinross,Vox common stock which decreased from a fair value of $474,000$316,000 at December 31, 20192020 to a fair value of $398,000$256,000 at March 31, 2020,2021 based on quoted market prices, the combination of which accounted for the bulk of the unrealized loss on marketable equity securities during the quarter ended March 31, 2021.

 

 

 

(c) Liquidity and Capital Resources

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (d) Cash Flows

 

 

 

 

(e) Off-balance sheet arrangements

 

 

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

 

 

(g) Discontinued Projects

 

 

(h) Critical Accounting Estimates

 

 

 

 

(j) Recent Accounting Pronouncements

 

 

(k) Forward Looking Statements