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 (i) the sale of 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
project 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.
Solitario
currently considers its carried interest in the Florida Canyon
project in Peru and its interest in the Lik project in Alaska 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 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.
As
of March 31, 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 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, 2020 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.
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. 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 our business and
financial conditions.
Solitario’s
business could be adversely impacted by the effects of the
coronavirus (COVID-19) or other epidemics or pandemics. The extent
to which the coronavirus impacts Solitario’s business,
including our exploration and other activities and the market for
its 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.
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 in accordance with Accounting
Standards Codification (“ASC”) 606. Solitario expects
any property, royalty or asset sales in the future to be on an
infrequent basis. 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) the recoverability
of mineral properties related to its mineral exploration properties
and their future exploration potential; (ii) the fair value of
stock option grants to employees; (iii) the ability of Solitario to
realize its deferred tax assets; (iv) Solitario's investment in
marketable equity securities; and (v) the collectability of the
SilverStream Note (as defined below).
In
performing its activities, Solitario has incurred certain costs for
mineral properties. The recovery of these costs is ultimately
dependent upon the sale of mineral property interests or the
development of economically recoverable ore reserves and the
ability of Solitario or its joint venture partners to obtain the
necessary permits and financing to successfully place the
properties into production, and upon future profitable operations,
none of which is assured.
Cash equivalents
Cash
equivalents include investments in highly liquid money-market
securities with original maturities of three months or less when
purchased. As of March 31, 2020, $425,000 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, Solitario has $6,325,000 of its current assets in
United States Treasury Securities (“USTS”) with
maturities of 15 days to 15 months. In addition, Solitario has two
bank certificates of deposits (“CD’s”) each with
a face value of $250,000. 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.
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 with initial terms 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 with 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, and
as a change to operating activities in the statement of cash flows
for the non-cash portion of the gain or loss.
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 CD’s, its
marketable equity securities and any covered call options against
those marketable equity securities are carried at their estimated
fair value based on quoted market prices. 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 condensed consolidated 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 2019 and the first quarter
of 2020 were conducted primarily in Peru, a portion of the payments
under 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, 2020 and 2019.
Potentially dilutive shares related to outstanding common stock
options of 4,373,000 and 4,373,000, respectively, for Solitario
common shares for the three months ended March 31, 2020 and 2019
were excluded from the calculation of diluted 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.”
Recently adopted accounting pronouncements
The
Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) No. 2016-13,
Financial Instruments –
Credit Losses (Topic 326): Measurements of Credit Losses on
Financial Statements (“ASU No.
2016-13”). Among
other things, these amendments require the measurement of all
expected credit losses for financial assets held at the reporting
date based on historical experience, current conditions, and
reasonable and supportable forecasts. Financial institutions and
other organizations will now use forward-looking information to
better inform their credit loss estimates. ASU No. 2016-13 is
effective for Solitario for fiscal year, and interim periods within
those fiscal years, beginning after December 15, 2019. Solitario
adopted ASU No. 2016-13 effective January 1, 2020 which did not
have a material impact on its consolidated financial position or
results of operations as of or for the three months ended March 31,
2020.
The
FASB issued ASU No. 2018-13, Disclosure Framework – Fair Value (topic
820): Changes to Disclosure Requirements for Fair Value
Measurement (“ASU No. 2018-13”). Among other things, these amendments
change the required disclosures regarding (i) transfers between
Level 1 and Level 2 fair values; (ii) unrealized gains / losses
included in earnings and other comprehensive income for Level 3
instruments; and (iii) amount, reason and policies regarding
transfers between Levels. ASU No. 2018-13 is effective for
Solitario for fiscal year, and interim periods within those fiscal
years, beginning after December 15, 2019. Solitario adopted ASU No.
2016-13 January 1, 2020 which did not have a material impact on its
consolidated financial position or results of operations as of or
for the three months ended March 31, 2020.
Recently issued accounting pronouncements
The SEC
has adopted amendments to its disclosure rules to modernize the
mineral property disclosure requirements for issuers whose
securities are registered with the SEC. These amendments became
effective February 25, 2019 (the “SEC Modernization
Rules”) and, following a two-year transition period, the SEC
Modernization Rules will replace the historical property disclosure
requirements for mining registrants that are included in SEC
Industry Guide 7. Under the SEC
Modernization Rules, consistent with global standards as embodied
by the Committee for Reserves International Reporting Standards
(“CRIRSCO”), registrants will be required to
disclose specified information concerning mineral resources that
have been identified on one or more of its mineral properties.
Consistent with CRIRSCO standards the SEC Modernization Rules have
added definitions to recognize “Measured Mineral
Resources”, “Indicated Mineral Resources” and
“Inferred Mineral Resources.” The Company is not
required to provide disclosure on its mineral properties under the
SEC Modernization Rules until its fiscal year beginning January 1,
2021.
Upon
adoption of the SEC Modernization Rules, among other requirements,
the Company will be required to report its mineral resources, if
any, as Measured, Indicated or Inferred Mineral Resources in
accordance with the SEC Modernization Rules. This will allow
investors to evaluate the Company’s resources on a comparable
basis with other mining and exploration issuers registered with the
SEC. In addition, the SEC Modernization Rules will require the
Company to disclose exploration results, mineral reserves, if any,
and mineral resources based upon information and supporting
documentation prepared by a mining expert (the “qualified
person”). The SEC Modernization Rules will require the
Company to obtain a dated and signed technical report summary from
the qualified person identifying and summarizing the information
reviewed and conclusions reached by the qualified person(s) about
the mineral resources or reserves for each mineral property. The
Company is currently evaluating the requirements under the SEC
Modernization Rules and has not determined what effect adoption
will have on its consolidated financial statements and
disclosures.
2. Mineral
Property
The
following table details Solitario’s investment in Mineral
Property:
|
(in
thousands)
|
|
|
|
|
|
|
|
Exploration
|
|
|
|
Lik
project (Alaska – US)
|
$15,611
|
$15,611
|
|
La
Promesa (Peru)
|
6
|
6
|
|
Total
exploration mineral property
|
$15,617
|
$15,617
|
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 to
SilverStream for Cdn$600,000. On closing of the Royalty Sale,
Solitario received Cdn$250,000 in cash and a convertible note from
SilverStream in the principal amount of Cdn$350,000 (the
“SilverStream Note”). The SilverStream Note was
originally due December 31, 2019, accrued 5% per annum simple
interest, payable on a quarterly basis, and is convertible into
common shares of SilverStream, at the discretion of SilverStream,
by providing Solitario a notice of conversion. In December of 2019,
Solitario and SilverStream agreed to extend the due date of the
SilverStream Note to June 30, 2020, and to increase the interest
rate to 8% per annum simple interest. All other terms of the
SilverStream Note remained the same. During the three months ended
March 31, 2020 and 2019, Solitario recorded interest income from
the SilverStream Note of $5,000 and $2,000, respectively. During
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 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,
|
|
|
|
|
|
Geologic and field
expenses
|
$90
|
$147
|
|
Administrative
|
23
|
16
|
|
Total exploration
costs
|
$113
|
$163
|
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, 2020, Solitario recorded an
unrealized loss on marketable equity securities of $233,000. During
the three months ended March 31, 2019, Solitario recorded an
unrealized loss on marketable equity securities of
$326,000.
The
following tables summarize Solitario’s marketable equity
securities and adjustments to fair value:
|
(in
thousands)
|
|
|
|
Marketable
equity securities at cost
|
$1,828
|
$1,879
|
|
Cumulative
unrealized loss on marketable equity securities
|
(1,073)
|
(840)
|
|
Marketable
equity securities at fair value
|
$755
|
$1,039
|
The
following table represents changes in marketable equity securities
during the three months ended March 31, 2020 and 2019:
|
(in
thousands)
|
Three months
ended
March 31,
|
|
|
|
|
|
Cost of marketable
equity securities sold
|
$51
|
$-
|
|
Realized gain on
marketable equity securities sold
|
25
|
-
|
|
Proceeds from the
sale of marketable equity securities sold
|
(76)
|
-
|
|
Net loss on
marketable equity securities
|
(208)
|
(326)
|
|
Change in
marketable equity securities at fair value
|
$(284)
|
$(326)
|
The
following table represents the realized and unrealized gain (loss)
on marketable equity securities:
|
(in
thousands)
|
Three months
ended
March 31,
|
|
|
|
|
|
Unrealized
loss on marketable securities
|
$(233)
|
$(326)
|
|
Realized
gain on marketable equity securities sold
|
25
|
-
|
|
Net
loss on marketable securities
|
$(208)
|
$(326)
|
Solitario sold
2,000,000 shares of Vendetta Mining Corp. (“Vendetta”)
common stock during the three months ended March 31, 2020 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 during the three months ended March 31, 2019 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 that period.
Vendetta Warrants
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, 2020, Solitario charged loss on derivative
instruments $7,000 for the change in the fair value of the Vendetta
Warrants based on a Black Scholes model.
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 11 months at March 31, 2020, with no
renewal option. At March 31, 2020, the right-of-use office lease
asset for the WR Lease is classified as other assets and the
related liability as current office lease liabilities in the
condensed consolidated balance sheet. The amortization of right 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, 2020 and 2019, 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, 2020 and 2019,
cash lease payments of $10,000 and $7,000, respectively, were made
on the WR Lease. These cash payments, less $1,000 of imputed
interest for each period, reduced the related liability on the WR
Lease. The discount rate within the WR Lease is not determinable
and Solitario has applied a discount rate of 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, 2020:
|
Future lease
payments (in thousands)
|
|
|
|
|
|
2020
|
32
|
|
2021
|
7
|
|
Total lease
payments
|
39
|
|
Less
amount of payments representing interest
|
(1)
|
|
Present value of
lease payments
|
$38
|
Supplemental cash
flow information related to our operating lease was as follows for
the three months ended March 31, 2020 and 2019:
|
(in
thousands)
|
Three months
ended
March 31,
|
|
|
|
|
|
Cash paid for
amounts included in the measurement of lease
liabilities
|
|
|
|
Operating
cash outflows from WR Lease payments
|
$10
|
$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)
|
|
|
|
|
|
|
|
Furniture and
fixtures, net of accumulated depreciation
|
$38
|
$39
|
|
Lik project
equipment, net of accumulated depreciation
|
45
|
50
|
|
Office lease
asset
|
36
|
45
|
|
Vendetta
warrants
|
13
|
21
|
|
Exploration bonds
and other assets
|
4
|
4
|
|
Total
other
|
$136
|
$159
|
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, CD’s, and marketable equity
securities are carried at their estimated fair value primarily
based on quoted market prices. During
the three months ended March 31, 2020 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, 2020:
|
(in
thousands)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Short-term
investments
|
$6,829
|
$-
|
$-
|
$6,829
|
|
Marketable
equity securities
|
$755
|
$-
|
$-
|
$755
|
|
2019
Vendetta Warrants
|
$-
|
$13
|
$-
|
$13
|
|
Liabilities
|
|
|
|
|
|
Kinross
call options
|
$9
|
$-
|
$-
|
$9
|
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, 2019:
|
(in
thousands)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Short-term
investments
|
$6,829
|
$-
|
$-
|
$6,829
|
|
Marketable
equity securities
|
$1,039
|
$-
|
$-
|
$1,039
|
|
2019
Vendetta Warrants
|
$-
|
$21
|
$-
|
$21
|
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 both
March 31, 2020 and December 31, 2019, 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, 2020 and 2019, 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.
Solitario leases
office space under a non-cancelable operating lease for the Wheat
Ridge, Colorado office which provides for total minimum rent
payments of $39,000 through March of 2021.
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
both March 31, 2020, and December 31, 2019 there were options
outstanding that are exercisable to acquire 4,373,000 shares of
Solitario common stock, with exercise prices between $0.28 and
$0.77 per share. During the three months ended March 31, 2020,
Solitario did not grant any options. During the three months ended
March 31, 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 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. There were no exercises of options under the
2013 Plan during either of the three months ended March 31, 2020
and 2019. During the three months ended March 31, 2020 and 2019,
Solitario recorded stock option compensation expense of $85,000 and
$88,000, respectively. At March 31, 2020, the total unrecognized
stock option compensation cost related to non-vested options is
$232,000 and is expected to be recognized over a weighted average
period of 13 months.
10. Shareholders’
Equity
Shareholders’ Equity for the three months ended March 31,
2019:
|
(in thousands,
except
|
|
|
|
|
|
|
Share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
Shareholders’ Equity for the three months ended March 31,
2020:
|
(in thousands,
except
|
|
|
|
|
|
|
Share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2019
|
58,133,066
|
581
|
$70,204
|
$(46,654)
|
$24,131
|
|
Stock option
expense
|
-
|
-
|
85
|
-
|
85
|
|
Purchase of shares
for cancellation
|
(16,700)
|
-
|
(3)
|
-
|
(3)
|
|
Net
loss
|
-
|
-
|
-
|
(607)
|
(607)
|
|
Balance
at March 31, 2020
|
58,116,366
|
$581
|
$70,286
|
$(47,261)
|
$23,606
|
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 2019,
Solitario’s Board of Directors extended the expiration date
of the share repurchase program through December 31, 2020. During
the three months ended March 31, 2020 and 2019, Solitario purchased
16,700 and 27,900 shares of Solitario common stock, respectively,
for an aggregate purchase price of $3,000 and $9,000, respectively.
As of
March 31, 2020, Solitario has purchased a total of 986,000 shares
for an aggregate purchase price of $465,000 under the share
repurchase program since its inception.
11. Subsequent
Event
In
April 2020, in response to significant market volatility and
uncertainty and the resulting need for Solitario to conserve its
financial resources, Solitario applied for and received a loan in
the amount of $70,000 (the “PPP Loan”) pursuant to the
Paycheck Protection Program under the Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”) to help fund
Company payroll, rent and utilities obligations. The PPP Loan has a two-year term and bears
interest at a rate of 1.0% per annum. Monthly principal and
interest payments are deferred for six months after the date of
disbursement. The PPP Loan may be prepaid at any time prior to
maturity, under certain conditions, with no prepayment penalties.
The Promissory Note contains events of default and other provisions
customary for a loan of this type. The Paycheck Protection Program
provides that the PPP Loan may be partially or wholly forgiven if
the funds are used for certain qualifying expenses as described in
the CARES Act. Solitario intends to use the proceeds from the PPP
Loan for qualifying expenses and to apply for forgiveness of the
PPP Loan in accordance with the terms of the CARES Act. However,
Solitario cannot completely assure at this time that such
forgiveness of the PPP Loan will occur.