SOLITARIO RESOURCES CORP. 10-Q

Item 1. Financial Statements SOLITARIO ZINC CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) June 30, December 31, (in thousands of U.S. dollars, except share and per share amounts) 2021 2020 Assets Current assets: Cash and cash equivalents $ 405 $ 605 Short-term investments 5,248 5,798 Investments in marketable equity securities, at fair value 1,281 1,620 Prepaid expenses and other 21 26 Total current assets 6,955 8,049 Mineral properties 16,002 15,628 Other assets 192 124 Total assets $ 23,149 $ 23,801 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 438 $ 157 Paycheck protection loan - 10 Kinross call option 1 - Operating lease liability 35 7 Total current liabilities 474 174 Long-term liabilities: Asset retirement obligation – Lik 125 125 Operating lease liability 56 - Total long-term liabilities 181 125 Commitments and contingencies Equity: Shareholders’ equity: Preferred stock, $ 0.01 par value, authorized 10,000,000 shares (none issued and outstanding at June 30, 2021 and December 31, 2020) - - Common stock, $ 0.01 par value, authorized 100,000,000 shares ( 58,443,766 and 58,108,366 shares, respectively, issued and outstanding at June 30, 2021 and December 31, 2020) 584 581 Additional paid-in capital 70,699 70,514 Accumulated deficit ( 48,789 ) ( 47,593 ) Total shareholders’ equity 22,494 23,502 Total liabilities and shareholders’ equity $ 23,149 $ 23,801 See Notes to Unaudited Condensed Consolidated Financial Statements 3 Table of Contents SOLITARIO ZINC CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands of U.S, dollars, except per share amounts) Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 Costs, expenses and other: Exploration expense $ 237 $ 44 $ 384 $ 157 Depreciation 7 7 12 13 General and administrative 256 254 536 590 Total costs, expenses and other 500 305 932 760 Other (loss) income Interest income (net) 4 27 10 108 Other income - 44 10 44 (Loss) gain on derivative instruments ( 30 ) 5 ( 33 ) ( 20 ) Gain on sale of marketable equity securities 6 - 19 25 Unrealized (loss) gain on marketable equity securities ( 148 ) 484 ( 270 ) 251 Total other (loss) income ( 168 ) 560 ( 264 ) 408 Net (loss) income $ ( 668 ) $ 255 $ ( 1,196 ) $ ( 352 ) (Loss) income per common share: Basic $ ( 0.01 ) $ 0.00 $ ( 0.02 ) $ ( 0.01 ) Diluted $ ( 0.01 ) $ 0.00 $ ( 0.02 ) $ ( 0.01 ) Weighted average shares outstanding: Basic 58,431 58,116 58,342 58,123 Diluted 58,431 58,249 58,342 58,123 See Notes to Unaudited Condensed Consolidated Financial Statements 4 Table of Contents SOLITARIO ZINC CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of U.S. dollars) Six months ended June 30, 2021 2020 Operating activities: Net loss $ ( 1,196 ) $ ( 352 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 12 13 Amortization of right of use lease asset 20 20 Unrealized loss (gain) on marketable equity securities 270 (251 ) Employee stock option expense 72 215 Gain on sale of marketable equity securities (19 ) (25 ) Other income ( 10 ) ( 44 ) Loss on derivative instruments 33 20 Changes in operating assets and liabilities: Prepaid expenses and other assets 61 8 Accounts payable and other current liabilities 27 ( 125 ) Net cash used in operating activities ( 730 ) ( 521 ) Investing activities: Sale of short-term investments, net 493 162 Purchase of mineral property ( 201 ) - Purchase of other assets - net ( 39 ) - Cash from sale of marketable equity securities 88 76 Sale (purchase) of derivative instruments – net 8 14 Net cash provided by investing activities 349 252 Financing activities: Issuance of common stock – net of acquisition costs 98 - Stock options exercised for cash 83 - Paycheck Protection Loan - 70 Purchase of common stock for cancellation - ( 4 ) Net cash provided by financing activities 181 66 Net decrease in cash and cash equivalents ( 200 ) ( 203 ) Cash and cash equivalents, beginning of period 605 574 Cash and cash equivalents, end of period $ 405 $ 371 Supplemental Cash Flow information: Accrued mineral property acquisition costs included in accounts payable $ 173 $ - Accrued common stock acquisition costs included in accounts payable $ 65 $ - Acquisition of right to use asset $ 99 $ - Conversion of SilverStream note to marketable equity securities $ - $ 294 See Notes to Unaudited Condensed Consolidated Financial Statements 5 Table of Contents 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 by 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 precious metal, zinc and other base metal exploration mineral 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 properties, 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”), (ii) the sale of its interest in the royalty on its Yanacocha property in June of 2019 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, its interest in the Lik project in Alaska, and its recently acquired Golden Crest 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 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. Solitario is conducting mineral exploration on its Golden Crest project on its own. As of June 30, 2021, 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. Lik and Golden Crest 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 and six months ended June 30, 2021 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, 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, 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. 6 Table of Contents 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 its business and financial conditions. Solitario’s business could be adversely impacted by the effects of the coronavirus (“COVID-19”) or other epidemics or pandemics. Solitario 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 the COVID-19 pandemic on its operations and taken pro-active steps to address the impacts on its operations, including reducing certain costs, in response to the economic uncertainty associated with potential risks from the COVID-19 pandemic. Also, Solitario 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 the COVID-19 pandemic on its operations, financial condition and liquidity. However, the extent to which the COVID-19 pandemic ultimately impacts Solitario’s 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, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. Cash equivalents Cash equivalents include investments in highly liquid money-market securities with original maturities of three months or less when purchased. As of June 30, 2021, $ 365,000 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 June 30, 2021, Solitario has $ 4,145,000 of its current assets in United States Treasury Securities (“USTS”) with maturities of 15 days to 13 months . In addition, at June 30, 2021, Solitario has five bank certificates of deposits (“CDs”) with face values between $ 250,000 and $ 100,000 recorded at their total fair value of $ 1,103,000 . The CDs have maturities of one month to ten months. The USTS and CDs 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 CDs 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. Earnings per share The calculation of basic earnings (loss) per share is based on the weighted average number of shares of common stock outstanding during the three and six months ended June 30, 2021 and 2020. Potentially dilutive shares related to outstanding common stock options for 5,513,000 Solitario common shares were excluded from the calculation of diluted loss per share for the three and six months ended June 30, 2021 because their effects were anti-dilutive. Potentially dilutive shares related to outstanding common stock options for 5,698,000 Solitario common shares were excluded from the calculation of diluted loss per share for the six months ended June 30, 2020 because their effects were anti-dilutive. Potentially dilutive shares related to stock options for 1,475,000 Solitario common shares, with exercise prices of between $ 0.20 and $ 0.28 per share, were included in the calculation of diluted earnings per share for the three months ended June 30, 2020 to the extent they were exercisable. Recently adopted accounting pronouncements The SEC has adopted amendments to its disclosure rules to modernize the mineral property disclosure requirements (the “SEC Modernization Rules”) for issuers whose securities are registered with the SEC. The SEC Modernization Rules were adopted by Solitario on January 1, 2021. Under the SEC Modernization Rules, consistent with global standards as embodied by the Committee for Reserves International Reporting Standards (“CRIRSCO”), Solitario will be required to disclose specified information concerning mineral resources that have been identified on one or more of its mineral properties in its annual report for the year ended December 31, 2021. Consistent with CRIRSCO standards the SEC Modernization Rules have added definitions to recognize “Measured Mineral Resources”, “Indicated Mineral Resources” and “Inferred Mineral Resources.” The adoption of the SEC Modernization Rules is not applicable to 2021 interim financial statements and did not have a material impact on our financial statements or disclosures as of June 30, 2021 or for the three and six months ended June 30, 2021 and 2020. The Company is currently evaluating the effects adoption of the SEC Modernization Rules will have on its annual report for the year ended December 31, 2021. 7 Table of Contents 2. Mineral Property The following table details Solitario’s investment in Mineral Property: (in thousands) June 30, December 31, 2021 2020 Exploration Lik project (Alaska – US) $ 15,611 $ 15,611 Golden Crest (South Dakota – US) 374 - Gold Coin (Arizona – US) 17 17 Total exploration mineral property $ 16,002 $ 15,628 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. Golden Crest On May 27, 2021 Solitario entered into a lease agreement (the “Golden Crest Agreement”) whereby Solitario acquired exclusive exploration rights in certain claims (the “GC Claims”) in the Black Hills region of South Dakota. The GC claims are part of Solitario’s Golden Crest project. Terms of the Golden Crest Agreement include scheduled payments to the underlying owner of $ 65,000 paid upon signing and an obligation to pay the underlying owner $ 60,000 at the first anniversary date. Solitario recorded an initial acquisition cost of $ 125,000 during the three months ended June 30, 2021 related to these required payments. In addition, Solitario has agreed to pay, at its option, the underlying owner annual payments totaling $ 340,000 over a five-year period and annual payments of $ 150,000 thereafter, which will be expensed as paid. Solitario has agreed to pay the underlying owner an additional success fee of $ 1.00 per ounce in the event Solitario files a 43-101 qualified resource of up to 1.5 million ounces or a maximum of $ 1,500,000 . Solitario has agreed to escalating work commitments, at Solitario’s option, on the GC Claims totaling $ 3,000,000 during the first five years, with the first year totaling $ 200,000 . The term of the Golden Crest Agreement is for twenty years and is automatically extended as long as Solitario is performing any exploration, development or mining activities on the GC Claims. The underlying owner will retain a 2.0 % Net Smelter Return royalty. Solitario will have the option, but not the obligation, to reduce the Net Smelter Return royalty to 1.0 % by paying the owner $ 1,000,000 . In addition, during the three months ended June 30, 2021, Solitario staked additional mineral claims, including some claims included in the area of interest of the GC claims and claims not related to the GC claims (the “SRC Claims”), as part of the Golden Crest project. Solitario incurred costs for staking, filing fees, legal and other costs totaling $ 249,000 capitalized as initial acquisition costs related to the SRC Claims and the GC Claims. Lik Teck and Solitario have agreed to an exploration program for 2021 on our jointly-funded Lik project, which includes up to three exploration holes to test the continuity and potential expansion of the current Lik deposit. The total planned exploration is approximately $ 1.24 million of which Solitario will be responsible for 50% or approximately $ 622,000 . 8 Table of Contents Royalty sale As part of the Royalty Sale to SilverStream 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 due on June 30, 2020, accrued 8 % per annum simple interest, payable on a quarterly basis, and was convertible into common shares of SilverStream, at the discretion of SilverStream, by providing Solitario a notice of conversion. During the three and six months ended June 30, 2020 Solitario recorded interest income of $ 2,000 and $ 7,000 , respectively, from the SilverStream Note. On May 19, 2020, SilverStream completed an initial public offering, including changing its name to Vox Royalty Corp. (“Vox”), and, in accordance with the terms 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 conversion of the SilverStream Note during the three and six months ended June 30, 2020. Exploration expense The following items comprised exploration expense: (in thousands) Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Geologic and field expenses $ 213 $ 23 $ 338 $ 113 Administrative 24 21 46 44 Total exploration costs $ 237 $ 44 $ 384 $ 157 Asset Retirement Obligation 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. 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 and six months ended June 30, 2021, Solitario recorded an unrealized loss on marketable equity securities of $ 148,000 and $ 270,000 , respectively. During the three and six months ended June 30, 2020, Solitario recorded an unrealized gain on marketable equity securities of $ 484,000 and $ 251,000 , respectively. At June 30, 2021 and December 31, 2020 Solitario owns the following marketable equity securities: June 30, 2021 December 31, 2020 shares Fair value (000’s) shares Fair value (000’s) Kinross Gold Corp 100,000 $ 635 100,000 $ 734 Vendetta Mining Corp. 10,540,000 383 11,550,000 544 Vox Royalty Corp. 134,055 263 137,255 323 TNR Gold Corp. - - 430,000 19 Total $ 1,281 $ 1,620 9 Table of Contents The following tables summarize Solitario’s marketable equity securities and adjustments to fair value: (in thousands) June 30, 2021 December 31, 2020 Marketable equity securities at cost $ 2,031 $ 2,099 Cumulative unrealized loss on marketable equity securities ( 750 ) ( 479 ) Marketable equity securities at fair value $ 1,281 $ 1,620 The following table represents changes in marketable equity securities: (in thousands) Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Cost of marketable equity securities sold $ 4 $ - $ 69 $ 51 Realized gain on marketable equity securities sold 6 - 19 25 Proceeds from the sale of marketable equity securities sold ( 10 ) - ( 88 ) ( 76 ) Net (loss) gain on marketable equity securities ( 142 ) 484 ( 251 ) 276 Additions to marketable equity securities - 294 - 294 Change in marketable equity securities at fair value $ ( 152 ) $ 778 $ ( 339 ) $ 494 The following table represents the realized and unrealized (loss) gain on marketable equity securities: (in thousands) Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Unrealized (loss) gain on marketable securities $ ( 148 ) $ 484 $ ( 270 ) $ 251 Realized gain on marketable equity securities sold 6 - 19 25 Net (loss) gain on marketable securities $ ( 142 ) $ 484 $ ( 251 ) $ 276 During the three months ended June 30, 2021, Solitario sold 143,000 shares of TNR Gold Corp. common stock for proceeds of $ 10,000 and recorded a gain on sale of $ 6,000 . During the six months ended June 30, 2021, Solitario sold (i) 1,010,000 shares of Vendetta Mining Corp. (“Vendetta) common stock for proceeds of $ 51,000 and recorded a loss on sale of $ 2,000 ; (ii) 430,000 shares of TNR Gold Corp. common stock for proceeds of $ 28,000 and recorded a gain on sale of $ 19,000 and (iii) 3,200 shares of Vox for proceeds of $ 9,000 and recorded a gain on sale of $ 2,000 . Solitario sold 2,000,000 shares of Vendetta common stock during the six months ended June 30, 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 June 30, 2020. On May 19, 2020, Solitario received 137,255 shares of Vox upon conversion of the SilverStream Note, discussed above, valued at $ 294,000 . 10 Table of Contents 4. Leases Solitario accounts for its leases in accordance with ASC 842. Solitario leases one facility, its Wheat Ridge, Colorado office, that has a term of more than one year. Solitario has no other material operating lease costs. During the six months ended June 30, 2021, Solitario entered into a new lease for the same facility (both the prior lease 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 28 months at June 30, 2021, with no renewal option. At June 30, 2021 and December 31, 2020, the right-of-use office lease asset for the WR Lease is classified as other long-term assets and the related liability as current and long-term operating 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 and six months ended June 30, 2021, Solitario recognized $ 10,000 and $ 20,000 , respectively, of non-cash amortization of right of use lease asset expense for the WR Lease included in general and administrative expense. During the three and six months ended June 30, 2020, Solitario recognized $ 10,000 and $ 20,000 , respectively, of non-cash amortization of right of use lease asset expense for the WR Lease included in general and administrative expense. During the three and six months ended June 30, 2021, cash lease payments of $ 10,000 and $ 17,000 , respectively, were made on the WR Lease. During the three and six months ended June 30, 2020, cash lease payments of $ 11,000 and $ 21,000 , respectively, were made on the WR Lease. These cash payments, less 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 June 30, 2021: Future lease payments (in thousands) 2021 21 2022 39 2023 36 Total lease payments 96 Less amount of payments representing interest ( 5 ) Present value of lease payments $ 91 Supplemental cash flow information related to our operating lease was as follows for the three and six months ended June 30, 2021 and 2020: (in thousands) Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash outflows from the WR Lease payments $ 10 $ 11 $ 17 $ 21 Non-cash amounts related to the WR lease Leased assets recorded in exchange for new operating lease liabilities $ - $ - $ 99 $ - 5. Other Assets The following items comprised other assets: (in thousands) June 30, December 31, 2021 2020 Furniture and fixtures, net of accumulated depreciation $ 71 $ 34 Lik project equipment, net of accumulated depreciation 20 30 Office lease asset 88 7 Vendetta warrants 9 49 Exploration bonds and other assets 4 4 Total other $ 192 $ 124 11 Table of Contents 6. Derivative Instruments 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, determined by (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 and six months ended June 30, 2021, Solitario charged loss on derivative instruments of $ 37,000 and $ 40,000 , respectively, for the change in the fair value of the Vendetta Warrants based on a Black Scholes model. During the three and six months ended June 30, 2020, Solitario recorded a gain on derivative instruments of $ 20,000 and $ 13,000 , respectively, for the change in the fair value of the Vendetta Warrants based on a Black Scholes model. Covered call options From time-to-time Solitario has sold covered call options against its holdings of shares of common stock of Kinross Gold Corporation (“Kinross”) included in marketable equity securities. The business purpose of selling covered calls is to provide additional income on a limited portion of shares of Kinross that Solitario may sell in the near term, which is generally defined as less than one year and any changes in the fair value of its covered calls are recognized in the statement of operations in the period of the change. During the three months ended June 30, 2021, Solitario sold covered calls against its holdings of Kinross for cash proceeds of $ 8,000 and recorded a gain on derivative instruments related to those covered calls of $ 7,000 . During the three and six months ended June 30, 2020, Solitario sold covered calls against its holdings of Kinross for cash proceeds of $ 43,000 and $ 78,000 , respectively, and repurchased certain of its covered calls prior to expiration for $ 64,000 during the three months ended June 30, 2020. As of June 30, 2021, Solitario has a remaining liability related to outstanding Kinross call options which expire in August 2021 of $ 1,000 . During the three months ended June 30, 2020 Solitario recorded a loss on derivative instruments related to its Kinross calls of $ 15,000 and $ 33,000 , respectively. 7. PPP Loan On April 20, 2020, Solitario 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 had a two-year term and bore interest at a rate of 1.0 % per annum. The Paycheck Protection Program provided 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. The Small Business Administration retains the right to review the eligibility requirements of Solitario for PPP Loans. During the six months ended June 30, 2021, the remaining balance of the PPP Loan of $ 10,000 was forgiven and Solitario recorded $ 10,000 of other income related to the forgiveness of the PPP Loan during the six months ended June 30, 2021. Solitario has no remaining balance due for the PPP Loan as of June 30, 2021. 8. Fair Value Solitario accounts for its financial instruments under ASC 820 Fair Value Measurement . During the three months ended June 30, 2021, 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 June 30, 2021: (in thousands) Level 1 Level 2 Level 3 Total Assets Short-term investments $ 5,248 $ - $ - $ 5,248 Marketable equity securities $ 1,281 $ - $ - $ 1,281 Vendetta Warrants $ - $ 9 $ - $ 9 Liabilities Kinross call options $ 1 $ - $ - $ 1 12 Table of Contents 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, 2020: (in thousands) Level 1 Level 2 Level 3 Total Assets Short-term investments $ 5,798 $ - $ - $ 5,798 Marketable equity securities $ 1,620 $ - $ - $ 1,620 Vendetta Warrants $ - $ 49 $ - $ 49 9. Income Taxes Solitario accounts for income taxes in accordance with ASC 740 Accounting for Income Taxes . Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized. At both June 30, 2021 and December 31, 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 and six months ended June 30, 2021 and 2020, Solitario recorded no deferred tax expense. 10. 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 future total minimum rent payments as of June 30, 2021 of $ 96,000 through October of 2023. 11. Employee Stock Compensation Plans On June 18, 2013, Solitario’s shareholders approved the 2013 Solitario Exploration & Royalty Corp. Omnibus Stock and Incentive Plan, as amended (the “2013 Plan”). Under the terms of the 2013 Plan, a total of 5,750,000 shares of Solitario common stock are reserved for awards to directors, officers, employees and consultants. 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 of the Company (the “Board of Directors”) or a committee appointed by the Board of Directors. As of June 30, 2021, and December 31, 2020, there were options outstanding that are exercisable to acquire 5,513,000 and 5,558,000 shares, respectively, of Solitario common stock, with exercise prices between $ 0.20 and $0.77 per share. All of the options have a five-year term and vest 25 % on the date of grant and 25% on each of the next three anniversary dates. Solitario amortizes grant date fair value on a straight-line basis over the vesting period. During the three and six months ended June 30, 2021, Solitario granted 140,000 options with an average exercise price of $ 0.68 per share, a five-year term and a grant date fair value of $ 58,000 based upon a Black-Scholes model, with a 76 % volatility and a 0.9 % risk-free interest rate. During the six months ended June 30, 2020, Solitario granted 1,325,000 options with an exercise price of $ 0.20 per share, a five-year term and a grant date fair value of $ 145,000 based upon a Black-Scholes model, with a 66 % volatility and a 0.4 % risk-free interest rate. During the three and six months ended June 30, 2021, options for 64,750 and 185,000 shares, respectively, were exercised with an average exercise price of $ 0.25 and $ 0.45 per share, respectively, for proceeds of $ 16,000 and $ 83,000 , respectively. There were no exercises of options under the 2013 Plan during the three and six months ended June 30, 2020. During the three and six months ended June 30, 2021, Solitario recorded stock option compensation expense of $ 44,000 and $ 72,000 , respectively. During the three and six months ended June 30, 2020, Solitario recorded stock option compensation expense of $ 130,000 and $ 215,000 , respectively. At June 30, 2021, the total unrecognized stock option compensation cost related to non-vested options was $ 132,000 and is expected to be recognized over a weighted average period of 22 months. 13 Table of Contents 12. Shareholders’ Equity Shareholders’ Equity for the six months ended June 30, 2021: (in thousands, except Share amounts) Common Common Additional Total Stock Stock Paid-in Accumulated Shareholders’ Shares Amount Capital Deficit Equity Balance at December 31, 2020 58,108,366 581 $ 70,514 $ ( 47,593 ) $ 23,502 Stock option expense - - 72 - 72 Issuance of shares – ATM, net 150,400 2 31 - 33 Issuance of shares - option exercises 185,000 1 82 - 83 Net loss - - - ( 1,196 ) (1,196 ) Balance at June 30, 2021 58,443,766 $ 584 $ 70,699 $ ( 48,789 ) $ 22,494 Shareholders’ Equity for the six months ended June 30, 2021: (in thousands, except Share amounts) Common Common Additional Total Stock Stock Paid-in Accumulated Shareholders’ Shares Amount Capital Deficit Equity Balance at December 31, 2019 58,133,066 581 $ 70,204 $ ( 46,654 ) $ 24,131 Stock option expense - - 215 - 215 Purchase of shares for cancellation ( 21,100 ) - ( 4 ) - ( 4 ) Net loss - - - ( 352 ) (352 ) Balance at June 30, 2020 58,111,966 $ 581 $ 70,415 $ ( 47,006 ) $ 23,990 At the Market Offering Agreement On February 2, 2021, Solitario entered into an at-the-market offering agreement (the “ATM Agreement”) with H. C. Wainwright & Co., LLC (“Wainwright”), under which Solitario may, from time to time, issue and sell shares of Solitario’s common stock through Wainwright as sales manager in an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $ 9.0 million (the “ATM Program”). The common stock will be distributed at the market prices prevailing at the time of sale. As a result, prices of the common stock sold under the ATM Program may vary as between purchasers and during the period of distribution. The ATM Agreement provides that Wainwright is entitled to compensation for its services at a commission rate of 3.0 % of the gross sales price per share of common stock sold. During the six months ended June 30, 2021, Solitario recorded $ 144,000 as a charge to additional paid-in-capital for one-time expenses related to entering into the ATM Agreement. During the six months ended June 30, 2021, Solitario sold an aggregate of 150,400 shares of common stock under the ATM Program at an average price of $ 1.21 per share for net proceeds of $ 177,000 after commissions and sale expenses. Share Repurchase Program On October 28, 2015, the Board of Directors approved a share repurchase program that authorized Solitario to purchase up to two million shares of its outstanding common stock. During 2020, the Board of Directors extended the expiration date of the share repurchase program through December 31, 2021. Solitario did not purchase any shares under the share repurchase plan during the three and six months ended June 30, 2021. During the three and six months ended June 30, 2020, Solitario purchased 4,400 and 21,100 shares of Solitario common stock, respectively, for an aggregate purchase price of $ 1,000 and $ 4,000 , respectively. As of June 30, 2021, Solitario has purchased a total of 994,000 shares for an aggregate purchase price of $ 467,000 under the share repurchase program since its inception. 14 Table of Contents