NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
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, 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 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, including the sale of certain mineral royalty properties in January 2019, discussed
below, the sale in June 2018 of its interest in the royalty on the Yanacocha property. In addition, Solitario has received proceeds
from the sale in 2015 of its former interest in Mount Hamilton LLC (“MH-LLC”) the owner of its former Mt. Hamilton
project, and joint venture property payments and the sale of a royalty on its former Mt. Hamilton project. 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.
Solitario currently considers its
carried interest in the Florida Canyon project and its interest in the Lik project to be its core mineral property assets. Nexa
Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, is expected to continue the exploration and furtherance
of the Florida Canyon project and Solitario is monitoring progress at Florida Canyon. Solitario is working with its 50% joint venture
partner, Teck American Incorporated, a wholly-owned subsidiary of Teck Resources Limited (both companies are referred to as “Teck”),
in the Lik deposit to further the exploration and evaluate potential development plans for the Lik project.
As
of March 31, 2019, Solitario has significant balances of cash and short-term investments that Solitario anticipates using, in part,
to further the exploration of the Florida Canyon and Lik projects and to 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 early-stage and advanced
mineral exploration projects or other related assets at potentially attractive terms.
The accompanying interim condensed
consolidated financial statements of Solitario for the three months ended March 31, 2019 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, 2019.
These financial statements should
be read in conjunction with the financial statements and notes thereto which are included in Solitario’s Annual Report on
Form 10-K for the year ended December 31, 2018. The accounting policies set forth in those annual financial statements are the
same as the accounting policies utilized in the preparation of these financial statements, except as modified for appropriate
interim financial statement presentation.
Recent Developments
Royalty sale
On January 22, 2019, Solitario completed
the sale of its interest in certain royalties to SilverStream SEZC (“SilverStream”), a private Cayman Island royalty
and streaming company for Cdn$600,000 (the “Royalty Sale”). The Royalty Sale covered (i) a royalty on the formerly
Solitario-owned 125,000-acre polymetallic Pedra Branca palladium, platinum, gold, nickel, cobalt and chrome project in Brazil,
(ii) a royalty covering 3,880-acres of non-producing exploration properties in Mexico, and (iii) a purchase option on 11 separate
non-producing properties covering over 16,500 acres in Montana. On closing of the Royalty Sale, Solitario received Cdn$250,000
in cash and a convertible note from SilverStream for Cdn$350,000 (the “SilverStream Note”). The SilverStream Note is
due December 31, 2019, pays 5% per annum simple interest quarterly, and is convertible into common shares of SilverStream, at the
discretion of SilverStream, by providing Solitario a notice of conversion. SilverStream may only provide a notice of conversion
if SilverStream has completed an initial public offering during the term of the SilverStream Note for minimum proceeds of Cdn$5,000,000.
Per the terms of the SilverStream Note, if converted, Solitario would receive common shares converted at 85% of the weighted average
quoted price of a share of SilverStream common stock for the most recent 10-day period prior to the notice of conversion. During
the three months ended March 31, 2019, Solitario recorded mineral property revenue of $408,000 for the Royalty Sale, consisting
of the fair value of the cash received on the date of the sale of $185,000 and the fair value of the SilverStream Note on the date
of the sale of $263,000 less the carrying value of the royalties sold of $40,000. As of March 31, 2019, the approximate fair value
of the SilverStream Note was $262,000, based upon the current US Dollar / Canadian Dollar exchange rate, and Solitario recorded
a charge to exchange gain and loss of $1,000, included in general and administrative expense during the three months ended March
31, 2019.
Financial reporting
The consolidated financial statements
include the accounts of Solitario and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. The consolidated financial statements are prepared in accordance with generally accepted accounting
principles and are expressed in U.S. dollars.
Revenue recognition
Solitario has recorded revenue from
the sale of exploration mineral properties and joint venture property payments. Solitario’s policy is to recognize revenue
from the sale of its exploration mineral properties (those without reserves) on a property by property basis, computed as the cash
received and / or collectable receivables less any capitalized cost. Payments received for the sale of exploration property interests
that are less than the properties cost are recorded as a reduction of the related property's capitalized cost. In addition, Solitario’s
policy is to recognize revenue on any receipts of joint venture property payments in excess of its capitalized costs on a property
that Solitario may lease to another mining company.
Solitario has recognized revenue
during the three months ended March 31, 2019 of $408,000 related to the Royalty Sale, discussed above in accordance with Accounting
Standards Codification (“ASC”) 606. In addition, Solitario recorded revenue during the second quarter of 2018 for the
first time in more than five years of $502,000 from the sale of its Yanacocha exploration mineral property. Solitario expects any
property sales in the future to also be on an infrequent basis. Prior to the sale of its Yanacocha exploration mineral property,
the last proceeds from joint venture property payments was in 2015 and Solitario does not expect to record joint venture property
payments on any of its currently held properties for the foreseeable future. Historically, Solitario’s revenues have been
infrequent and significant individual transactions and have only been from sales to well known or vetted mining companies. Solitario
has never had a return on any of its sales recorded as revenue in its history and does not anticipate it will recognize any estimated
returns on its current or future recorded revenues.
Use of estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Some of the more significant estimates included in the preparation of Solitario's financial statements pertain to: (i) Solitario’s
carrying value of short-term investments; (ii) the recoverability of mineral properties related to its mineral exploration properties
and their future exploration potential; (iii) the fair value of stock option grants to employees, to officers and directors and
to others; (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.
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, 2019,
$516,000 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, 2019, Solitario has
$9,277,000 of its current assets in United States Treasury Securities (“USTS”) with maturities of 15 days to 20 months.
The USTS are recorded at their fair value, based upon quoted market prices and are not covered under the FDIC insurance rules for
United States deposits. Solitario’s USTS are highly liquid and may be sold in their entirety at any time at their quoted
market price and are classified as a current asset.
Mineral properties
Solitario expenses all exploration
costs incurred on its mineral properties prior to the establishment of proven and probable reserves through the completion of a
feasibility study. Initial acquisition costs of its mineral properties are capitalized. Solitario regularly performs evaluations
of its investment in mineral properties to assess the recoverability and/or the residual value of its investments in these assets.
All long-lived assets are reviewed for impairment whenever events or circumstances change which indicate the carrying amount of
an asset may not be recoverable, utilizing established guidelines based upon undiscounted future net cash flows from the asset
or upon the determination that certain exploration properties do not have sufficient potential for economic mineralization.
Leases
Solitario accounts for its leases
in accordance with ASC 842,
Leases
(“ASC 842”) by recognizing right-of-use assets and lease liabilities on the
condensed consolidated balance sheet and disclosing key information about lease arrangements. Solitario has elected the practical
expedient option to use January 1, 2019, the effective date of adoption of ASC 842, as the initial date of transition and not to
restate comparative prior periods and to carry forward historical lease classification. In addition, Solitario has elected the
option not to apply the recognition of assets and liabilities provisions of ASC 842 to operating leases of less than one year.
See Note 4 “Operating Leases” for more information and disclosures regarding Solitario’s leases.
Derivative instruments
Solitario accounts
for its derivative instruments in accordance ASC 815. Solitario has entered into covered calls from time to time on its investment
in Kinross Gold Corporation (“Kinross”) marketable equity securities. Solitario has not designated its covered calls
as hedging instruments and any changes in the fair value of the covered calls are recognized in the statement of operations in
the period of the change as gain or loss on derivative instruments.
Fair value
ASC 820 established a framework for
measuring fair value of financial instruments and required disclosures about fair value measurements. 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.
See Note 6, “Fair Value,” below.
Marketable equity securities
Solitario's investments in marketable
equity securities are carried at fair value, which is based upon quoted prices of the securities owned. Solitario records investments
in marketable equity securities for investments in publicly traded marketable equity securities for which it does not exercise
significant control and where Solitario has no representation on the board of directors of those companies and exercises no control
over the management of those companies. The cost of marketable equity securities sold is determined by the specific identification
method. Changes in fair value are recorded as unrealized gain or loss in the statement of operations.
Foreign exchange
The United States dollar is the functional
currency for all of Solitario's foreign subsidiaries. Although Solitario's South American exploration activities during 2018 and
the first quarter of 2019 have been conducted primarily in Peru, a portion of the payments under the land, leasehold and exploration
agreements of Solitario are denominated in United States dollars. Realized foreign currency gains and losses are included in the
results of operations in the period in which they occur.
Income taxes
Solitario accounts for income taxes
in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”). Under ASC 740, income taxes are
provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred
taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred
tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits
that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more
likely than not that some portion or all of the deferred tax assets will not be realized.
Accounting for uncertainty in income taxes
ASC 740 clarifies the accounting
for uncertainty in income taxes recognized in a company's financial statements. ASC 740 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. ASC 740 provides that a company's tax position will be considered settled if the taxing authority has
completed its examination, the company does not plan to appeal, and it is remote that the taxing authority would reexamine the
tax position in the future.
Earnings per share
The calculation of basic and diluted
earnings (loss) per share is based on the weighted average number of shares of common stock outstanding during the three months
ended March 31, 2019 and 2018. Potentially dilutive shares related to outstanding common stock options of 4,373,000 and 2,082,428,
respectively, for Solitario common shares for the three months ended March 31, 2019 and 2018 were excluded from the calculation
of diluted earnings (loss) per share because the effects were anti-dilutive.
Employee stock compensation and incentive plans
Solitario classifies all of its stock
options as equity options in accordance with the provisions of ASC 718, “Compensation – Stock Compensation.”
Recent accounting pronouncements
On January 1, 2019, Solitario
adopted Accounting Standards Update No. 2016-02
Leases
(“ASU 2016-02”) which requires the application of ASC
842 and the recognition of right-of-use assets and related liabilities associated with all leases that are not short-term in nature.
As a result of the adoption of ASU 2016-02 on January 1, 2019, Solitario recorded both an operating lease asset for our Wheat Ridge
Colorado office of $82,000 and an operating lease liability of $82,000 related to the same lease. The adoption of ASU 2016-02 did
not require the recording of any other assets or liabilities on our condensed consolidated balance sheets and had an immaterial
effect on Solitario’s condensed consolidated statement of operations and its condensed consolidated statement of cash flows
for the three months ended March 31, 2019. Solitario has elected the practical expedient option to use January 1, 2019, the effective
date of adoption, as the initial date of transition and not to restate comparative prior periods and to carry forward historical
lease classification. See Note 4 “Operating Leases” for more information and disclosures regarding Solitario’s
leases.
2. Mineral
Property
The following table details Solitario’s investment
in Mineral Property:
(in thousands)
|
|
March 31,
|
|
|
2019
|
|
2018
|
Exploration
|
|
|
|
|
Lik project (Alaska – US)
|
|
$
|
15,611
|
|
|
$
|
15,611
|
|
La Promesa (Peru)
|
|
|
6
|
|
|
|
6
|
|
Montana Royalty property (US)
|
|
|
—
|
|
|
|
40
|
|
Total exploration mineral property
|
|
$
|
15,617
|
|
|
$
|
15,657
|
|
All exploration costs on our exploration
properties, none of which have proven and probable reserves, including any additional costs incurred for subsequent lease payments
or exploration activities related to our projects are expensed as incurred.
Royalty sale
On January 22, 2019, Solitario completed
the Royalty Sale, discussed above under “Recent Developments” to SilverStream for Cdn$600,000. On closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and the SilverStream Note for Cdn$350,000, with a maturity date
of December 31, 2019.
During the three months ended March 31, 2019, Solitario recorded mineral property revenue of $408,000 for the Royalty Sale, consisting
of the fair value of the cash received on the date of the sale of $185,000 and the fair value of the SilverStream Note on the date
of the sale of $263,000 less the carrying value of the royalties sold of $40,000.
Exploration expense
The following items comprised exploration expense:
(in thousands)
|
|
Three months ended
March 31,
|
|
|
2019
|
|
2018
|
Geologic and field expenses
|
|
$
|
147
|
|
|
$
|
24
|
|
Administrative
|
|
|
16
|
|
|
|
156
|
|
Total exploration costs
|
|
$
|
163
|
|
|
$
|
180
|
|
Asset Retirement Obligation
In connection with the acquisition
of the Lik project in 2017, Solitario recorded an asset retirement obligation of $125,000 for Solitario’s estimated reclamation
cost of the existing disturbance at the Lik project. This disturbance consists of an exploration camp including certain drill sites
and access roads at the camp. The estimate was based upon estimated cash costs for reclamation as determined by the permitting
bond required by the State of Alaska, for which Solitario has purchased a reclamation bond insurance policy in the event Solitario
or its 50% partner, Teck, 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 Securities
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, 2019, Solitario recorded an unrealized loss on marketable
equity securities of $326,000. During the three months ended March 31, 2018, Solitario recorded an unrealized loss on marketable
equity securities of $441,000.
The following tables summarize Solitario’s
marketable equity securities and adjustments to fair value:
(in thousands)
|
|
March 31,
2019
|
|
December 31,
2018
|
Marketable equity securities at cost
|
|
$
|
1,714
|
|
|
$
|
1,714
|
|
Cumulative unrealized loss on marketable equity securities
|
|
|
(455
|
)
|
|
|
(129
|
)
|
Marketable equity securities at fair value
|
|
$
|
1,259
|
|
|
$
|
1,585
|
|
The following table represents changes, including sales,
in marketable equity securities during the three months ended March 31, 2019 and 2018:
(in thousands)
|
|
Three months ended
March 31,
|
|
|
2019
|
|
2018
|
Gross (loss) recorded in the statement of operations
|
|
$
|
(326
|
)
|
|
$
|
(441
|
)
|
Change in marketable equity securities at fair value
|
|
$
|
(326
|
)
|
|
$
|
(441
|
)
|
Solitario did not sell any marketable
equity securities during the three months ended March 31, 2019 or 2018 and the change in the fair value of marketable equity securities
was related entirely to the unrealized loss on marketable equity securities related to their fair values based upon quoted market
prices for the marketable equity securities held by Solitario during the periods.
4. Leases
Solitario adopted ASU 2016-02 effective
January 1, 2019 and accounts for its leases in accordance with ASC 842. Solitario leases one facility, its Wheat Ridge, Colorado
office (the “WR Lease”), that has a term of more than one year. Solitario has no other material operating lease costs.
The WR Lease is classified as an operating lease and has a term of 23 months at March 31, 2019, with no renewal option. At March
31, 2019, the right-of-use office lease asset for the WR Lease is classified as other assets and the related liability separated
between current and non-current office lease liabilities in the condensed consolidated balance sheet. Lease expense is recognized
on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.
During the three months ended March 31, 2019, Solitario recognized $10,000 of non-cash lease expense for the WR Lease included
in general and administrative expense. Cash lease payments of $7,000 were made on the WR Lease during the three months ended March
31, 2019 and this amount, less $1,000 of imputed interest, reduced the related liability on the WR Lease. The discount rate within
the WR Lease is not determinable and Solitario has applied a discount rate of 5% based upon Solitario’s estimate of its
cost of capital.
The maturities of Solitario’s lease liability for
its WR Lease are as follows at March 31, 2019:
(in thousands)
|
|
|
|
2019
|
$ 31
|
2020
|
42
|
2021
|
7
|
Total lease payments
|
80
|
Less amount of payments representing interest
|
(4)
|
Present value of lease payments
|
$ 76
|
Supplemental cash flow information related to our operating
lease was as follows for the period ended March 31, 2019:
(in thousands)
|
|
Three months ended March 31,
|
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash outflows from WR Lease payments
|
|
$
|
7
|
|
Non-cash amounts related to the WR lease
|
|
|
|
|
Leased assets recorded in exchange for new operating lease liabilities
|
|
$
|
82
|
|
5 Other
Assets
The following items comprised other assets:
(in thousands)
|
|
March 31,
|
|
December 31
|
|
|
2019
|
|
2018
|
Furniture and fixtures, net of accumulated depreciation
|
|
$
|
34
|
|
|
$
|
36
|
|
Lik project equipment, net of accumulated depreciation
|
|
|
65
|
|
|
|
70
|
|
Exploration bonds and other assets
|
|
|
4
|
|
|
|
4
|
|
Office lease asset
|
|
|
73
|
|
|
|
—
|
|
Total other assets
|
|
$
|
176
|
|
|
$
|
110
|
|
6. Fair
Value
Solitario
accounts for its financial instruments under ASC 820. For certain of Solitario’s financial instruments, including cash and
cash equivalents and payables, the carrying amounts approximate fair value due to their short-term maturities. Solitario’s
short-term investments in USTS, and marketable equity securities are carried at their estimated fair value primarily based on quoted
market prices. During the three months ended March 31, 2019 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 March 31, 2019:
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
9,595
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,595
|
|
Marketable equity securities
|
|
|
1,259
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,259
|
|
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, 2018:
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
10,223
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,223
|
|
Marketable equity securities
|
|
$
|
1,585
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,585
|
|
7. Income
Taxes
Solitario accounts for income taxes
in accordance with ASC 740. Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different
periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred
taxes are also recognized for operating losses and tax credits that are available to offset future taxable income and income taxes,
respectively. A valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
At March 31, 2019 and December 31,
2018, 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, 2019 and 2018, Solitario recorded no deferred tax expense.
8. Commitments
and contingencies
Solitario has recorded an asset retirement
obligation of $125,000 related to its Lik project in Alaska. See Note 2, “Mineral Properties,” above.
In August of 2018, Solitario agreed
to fund a portion of a 2018 – 2019 drilling program at the Florida Canyon project. Per the agreement, Solitario will fund
up to $1,580,000 of a planned 41-hole 17,000-meter drilling program to be conducted through December 31, 2019 (the “Drilling
Program”). Upon Nexa completing the first 1,700 meters of the Drilling Program, Solitario will pay Nexa $527,000, upon completion
of the next 1,700 meters (3,400 meters total) of the Drilling Program, Solitario will pay Nexa $527,000, and upon completion of
the next 1,700 meters (5,100 meters total) of the Drilling Program, Solitario will pay Nexa the balance remaining on its $1,580,000
funding commitment, or $526,000. Solitario has no obligation to pay Nexa prior to the attainment of the separate 1,700-meter thresholds.
The funding commitments are in the form of an advance on Solitario’s commitment to fund 30% of any future development of
Florida Canyon under the existing joint venture agreement with Nexa. Accordingly, in the event Florida Canyon is developed, which
cannot be assured at this time, any funds paid to Nexa under this agreement, will reduce the amount of Solitario’s obligation
to fund 30% of future development costs, and / or repay loans from Nexa for future development costs at the Florida Canyon project.
During 2018, Nexa completed four holes and a total of 2,203 meters under the Drilling Program and Solitario recorded a charge to
exploration expense of $527,000. As of March 31, 2019, Solitario has recorded an account payable to Nexa of $527,000, which was
paid in April 2019. Should Nexa complete the remaining 2,897 meters (5,100 meters less the completed 2,203 meters) during the remainder
of 2019, Solitario will be obligated to pay Nexa $1,053,000 during 2019.
9. Employee
Stock Compensation Plans
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 March 31, 2019, and December
31, 2018 there were options outstanding that are exercisable to acquire 4,373,000 and 5,223,160 shares, respectively, of Solitario
common stock, with option prices between $0.28 and $0.77 per share. During the three months ended March 31, 2019, Solitario granted
options exercisable into 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 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. During the three months ended March 31, 2018, Solitario granted options exercisable
into 100,000 shares to a consultant, with an exercise price of $0.62 per share, a seven-month term and a grant date fair value
of $12,000 based upon a Black-Scholes model with a 66% volatility and a 1% risk-free interest rate. There were no exercises of
options under the 2013 Plan during the three months ended March 31, 2019 and 2018. During the three months ended March 31, 2019
and 2018, Solitario recorded stock option compensation expense of $88,000 and $10,000. At March 31, 2019, the total unrecognized
stock option compensation cost related to non-vested options is $572,000 and is expected to be recognized over a weighted average
period of 22 months.
10. Shareholders’
Equity
Shareholders’ Equity for the three months ended
March 31, 2018:
(in thousands, except
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Share amounts)
|
|
Common
|
|
Common
|
|
Additional
|
|
|
|
Other
|
|
Total
|
|
|
Stock
|
|
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Comprehensive
|
|
Shareholders’
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Income
|
|
Equity
|
Balance at December 31, 2017
|
|
|
58,434,566
|
|
|
|
584
|
|
|
$
|
69,312
|
|
|
$
|
(40,343
|
)
|
|
$
|
576
|
|
|
$
|
30,129
|
|
Cumulative-effect adjustment
change in accounting principle
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
576
|
|
|
|
(576
|
)
|
|
|
—
|
|
Adjusted balance January 1, 2018
|
|
|
58,434,566
|
|
|
|
584
|
|
|
|
69,312
|
|
|
|
(39,767
|
)
|
|
|
—
|
|
|
|
30,129
|
|
Stock option expense
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
Purchase of shares for cancellation
|
|
|
(52,614
|
)
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(26
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,004
|
)
|
|
|
—
|
|
|
|
(1,004
|
)
|
Balance at March 31, 2018
|
|
|
58,381,952
|
|
|
$
|
584
|
|
|
$
|
69,296
|
|
|
$
|
(40,771
|
)
|
|
$
|
—
|
|
|
$
|
29,109
|
|
Solitario adopted ASU No. 2016-01 in the first quarter
of 2018. ASU No. 2016-01 revised 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. Solitario recorded a cumulative-effect adjustment for the
change in accounting principle to retained earnings of $576,000 related to the adoption of ASU 2016-01.
Shareholders’ Equity for the three months ended
March 31, 2019:
(in thousands, except
|
|
|
|
|
|
|
|
|
|
|
Share amounts)
|
|
Common
|
|
Common
|
|
Additional
|
|
|
|
Total
|
|
|
Stock
|
|
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Shareholders’
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
Balance at December 31, 2018
|
|
|
58,171,466
|
|
|
|
582
|
|
|
$
|
69,873
|
|
|
$
|
(43,365
|
)
|
|
$
|
27,090
|
|
Stock option expense
|
|
|
—
|
|
|
|
—
|
|
|
|
88
|
|
|
|
—
|
|
|
|
88
|
|
Purchase of shares for cancellation
|
|
|
(27,900
|
)
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
(9
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(441
|
)
|
|
|
(441
|
)
|
Balance at March 31, 2019
|
|
|
58,143,566
|
|
|
$
|
582
|
|
|
$
|
69,952
|
|
|
$
|
(43,806
|
)
|
|
$
|
26,728
|
|
Share Repurchase Program
On October 28, 2015, Solitario’s
Board of Directors approved a share repurchase program that authorized Solitario to purchase up to two million shares of its outstanding
common stock. During 2018, Solitario’s Board of Directors extended the expiration date of the share repurchase program through
December 31, 2019. During the three months ended March 31, 2019 and 2018, Solitario purchased 27,900 and 52,614 shares of Solitario
common stock, respectively, for an aggregate purchase price of $9,000 and $26,000, respectively. As of March 31, 2019, Solitario
has purchased a total of 958,800 shares for an aggregate purchase price of $458,000 under the share repurchase program since its
inception.