SOLITARIO RESOURCES CORP. 10-Q

Item 1. Financial Statements SOLITARIO ZINC CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands of U.S. dollars, March 31, December 31, except share and per share amounts) 2023 2022 Assets Current assets: Cash and cash equivalents $ 440 $ 316 Short-term investments 3,163 3,951 Investments in marketable equity securities, at fair value 1,278 949 Prepaid expenses and other 26 38 Total current assets 4,907 5,254 Mineral properties 16,646 16,646 Other assets 118 134 Total assets $ 21,671 $ 22,034 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 188 $ 228 Operating lease liability 25 35 Total current liabilities 213 263 Long-term liabilities Asset retirement obligation – Lik 125 125 Total long-term liabilities 125 125 Commitments and contingencies Equity: Shareholders’ equity: Preferred stock, $ 0.01 par value, authorized 10,000,000 shares (none issued and outstanding at March 31, 2023 and December 31, 2022) - - Common stock, $ 0.01 par value, authorized 100,000,000 shares ( 64,801,373 and 64,801,373 shares, respectively, issued and outstanding at March 31, 2023 and December 31, 2022) 648 648 Additional paid-in capital 74,953 74,886 Accumulated deficit ( 54,268 ) ( 53,888 ) Total shareholders’ equity 21,333 21,646 Total liabilities and shareholders’ equity $ 21,671 $ 22,034 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 March 31 2023 2022 Costs, expenses and other: Exploration expense $ 275 $ 226 Depreciation 6 8 General and administrative 476 387 Total costs, expenses and other 757 621 Other (loss) income Interest and dividend income 27 27 Loss on derivative instruments - ( 1 ) (Loss) gain on sale of marketable equity securities - ( 81 ) Unrealized gain (loss) on short-term investments 21 ( 51 ) Unrealized gain on marketable equity securities 329 213 Total other income 377 107 Net loss ( 380 ) $ ( 514 ) Loss per common share: Basic and diluted $ ( 0.01 ) $ ( 0.01 ) Weighted average shares outstanding: Basic and diluted 64,801 62,728 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) Three months ended March 31, 2023 2022 Operating activities: Net loss $ ( 380 ) $ ( 514 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 6 8 Amortization of right of use lease asset 10 10 Unrealized gain on marketable equity securities ( 329 ) ( 213 ) Unrealized (gain) loss on short-term investments ( 21 ) 51 Employee stock option expense 67 13 Loss on sale of marketable equity securities - 81 Loss on derivative instruments - 1 Changes in operating assets and liabilities: Prepaid expenses and other assets 12 ( 14 ) Accounts payable and other current liabilities ( 50 ) ( 20 ) Net cash used in operating activities ( 685 ) ( 597 ) Investing activities: Sale (Purchase) of short-term investments, net 809 ( 1,578 ) Cash from sale of marketable equity securities - 26 Purchase of mineral properties - ( 10 ) Net cash (used in) provided by investing activities 809 ( 1,562 ) Financing activities: Issuance of common stock, net - 2,023 Stock options exercised - 19 Net cash provided by financing activities - 2,042 Net (decrease) increase in cash and cash equivalents 124 ( 117 ) Cash and cash equivalents, beginning of period 316 462 Cash and cash equivalents, end of period $ 440 $ 345 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 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 has never developed a 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 the sale of certain mineral royalties. Revenues and / or proceeds from the sale or joint venture of properties or assets, although potentially 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 Golden Crest project in South Dakota to be its core mineral property assets. Nexa Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, is continuing 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. Solitario anticipates using its cash and short-term investments, in part, to fund costs and activities 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 months ended March 31, 2023 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, 2023. 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, 2022. 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 condition. Solitario’s business still could be adversely impacted by the effects of the coronavirus (“COVID-19”) or other epidemics or pandemics. Solitario continues to evaluate the effects of COVID-19 on its operations and at times during the pandemic has taken pro-active steps to address the impacts on its operations, including reducing costs, in response to the economic uncertainty associated with potential risks from COVID-19. These prior cost reductions included implementing salary reductions and evaluating and reducing certain planned exploration programs through its joint venture partners at the Florida Canyon and Lik exploration projects. Certain of Solitario’s joint venture partners have, from time to time, modified plans with respect to the projects in which Solitario holds an interest in response to the COVID-19 pandemic. Also, Solitairo has evaluated the potential impacts on its ability to access future traditional funding sources on the same or reasonably similar terms as in past periods. Solitario will continue to monitor the effects of COVID-19 on its operations, financial condition, and liquidity. However, the extent to which COVID-19 or other epidemics or pandemics ultimately impact Solitario’s business, including its 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 any new outbreak and the actions taken to contain or treat the COVID-19 pandemic or other epidemics or pandemics. 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 US dollars. 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, 2023, $ 425,000 of Solitario’s cash 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, 2023, Solitario has $ 3,163,000 of its current assets in United States Treasury Securities (“USTS”) with maturities of 30 days to 11 months . The USTS 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 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 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, 2023 and 2022. Potentially dilutive shares related to outstanding common stock options of 5,390,000 and 5,440,000 , respectively, for the three months ended March 31, 2023 and 2022 were excluded from the calculation of diluted loss per share because the effects were anti-dilutive. 2. Mineral Properties The following table details Solitario’s investment in Mineral Properties: (in thousands) March 31, December 31, 2023 2022 Exploration Lik project (Alaska – US) $ 15,611 $ 15,611 Golden Crest (South Dakota – US) 1,035 1,035 Total exploration mineral properties $ 16,646 $ 16,646 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. 7 Table of Contents Exploration expense The following items comprised exploration expense: (in thousands) Three months ended March 31, 2023 2022 Geologic and field expenses $ 232 $ 194 Administrative 43 32 Total exploration costs $ 275 $ 226 Asset Retirement Obligation In connection with the acquisition of its interest in the Lik project in 2017, Solitario has 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 is 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. At March 31, 2023 and December 31, 2022 Solitario owns the following marketable equity securities: March 31 2023 December 31 2022 shares Fair value (000’s) Shares Fair value (000’s) Kinross Gold Corp 100,000 $ 471 100,000 $ 409 Vendetta Mining Corp. 7,750,000 373 7,750,000 229 Vox Royalty Corp. 134,055 412 134,055 311 Highlander Silver Corp 200,000 22 200,000 - Total $ 1,278 $ 949 The following tables summarize Solitario’s marketable equity securities and adjustments to fair value: (in thousands) March 31, 2023 December 31, 2022 Marketable equity securities at cost $ 1,440 $ 1,440 Cumulative unrealized loss on marketable equity securities ( 162 ) ( 491 ) Marketable equity securities at fair value $ 1,278 $ 949 8 Table of Contents The following table represents changes in marketable equity securities during the three months ended March 31, 2023 and 2022: (in thousands) Three months ended March 31, 2023 2022 Cost of marketable equity securities sold $ - $ 107 Realized loss on marketable equity securities sold - ( 81 ) Proceeds from the sale of marketable equity securities sold - ( 26 ) Net gain on marketable equity securities 329 132 Change in marketable equity securities at fair value $ 329 $ 106 The following table represents the realized and unrealized gain (loss) on marketable equity securities: (in thousands) Three months ended March 31, 2023 2022 Unrealized gain on marketable securities $ 329 $ 213 Realized loss on marketable equity securities sold - ( 81 ) Net gain on marketable securities $ 329 $ 132 Solitario did not sell any marketable equity securities during the three months ended March 31, 2023. During the three months ended March 31, 2022, Solitario sold 500,000 shares of Vendetta Mining Corp. (“Vendetta”) common stock for proceeds of $ 26,000 and recorded a loss on sale of $ 81,000 on the date of sale. 4. Leases Solitario 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 seven months at March 31, 2023, with no renewal option. At March 31, 2023 and December 31, 2022, the right-of-use office lease asset for the WR Lease is classified as other assets and the related liability as current operating lease liability 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, 2023 and 2022, 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, 2023 and 2022, cash lease payments of $ 11,000 and $ 11,000 , respectively, were made on the WR Lease. These cash payments, less imputed interest of $ 1,000 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. Solitario has $ 25,000 of remaining cash payments under the WR Lease as of March 31, 2023. The maturities of Solitario’s lease liability for its WR Lease are as follows at March 31, 2023: Future lease payments (in thousands) Total lease payments $ 25 Less the portion of lease payments representing interest - Present value of lease payments $ 25 Supplemental cash flow information related to our operating lease was as follows for the three months ended March 31, 2023 and 2022: (in thousands) Three months ended March 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash outflows from WR Lease payments $ 11 $ 11 9 Table of Contents 5 Other Assets The following items comprised other assets: (in thousands) March 31, December 31, 2023 2022 Furniture and fixtures, net of accumulated depreciation $ 91 $ 97 Office lease asset 23 33 Exploration bonds and other assets 4 4 Total other $ 118 $ 134 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 based on quoted market prices. During the three months ended March 31, 2023 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, 2023: (in thousands) Level 1 Level 2 Level 3 Total Assets Short-term investments $ 3,163 $ - $ - $ 3,163 Marketable equity securities $ 1,278 $ - $ - $ 1,278 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, 2022: (in thousands) Level 1 Level 2 Level 3 Total Assets Short-term investments $ 3,951 $ - $ - $ 3,951 Marketable equity securities $ 949 $ - $ - $ 949 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, 2023 and December 31, 2022, 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, 2023 and 2022, 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 the WR Lease which provides for total minimum rent payments of 25,000 through October of 2023. 10 Table of Contents 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, as amended, a total of 5,750,000 shares of Solitario common stock were 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 or a committee appointed by the Board of Directors. As of March 31, 2023, and December 31, 2022, there were options outstanding that are exercisable to acquire 5,390,000 and 5,390,000 , respectively, shares of Solitario common stock, with exercise prices between $ 0.20 and $ 0.67 per share. During the three months ended March 31, 2023, and 2022, Solitario did not grant any options. During the three months ended March 31, 2023, no options were exercised. During the three months ended March 31, 2022, options for 73,000 shares were exercised with an average exercise price of $ 0.26 per share for proceeds of $ 19,000 . During the three months ended March 31, 2023, and 2022, Solitario recorded stock option compensation expense of $ 67,000 and $ 13,000 , respectively. At March 31, 2023, the total unrecognized stock option compensation cost related to non-vested options is $ 550,000 and is expected to be recognized over a weighted average period of 29 months. 10. Shareholders’ Equity Shareholders’ Equity for the three months ended March 31, 2023: (in thousands, except Share amounts) Common Common Additional Total Stock Stock Paid-in Accumulated Shareholders’ Shares Amount Capital Deficit Equity Balance at December 31, 2022 64,801,373 $ 648 $ 74,886 $ ( 53,888 ) $ 21,646 Stock option expense - - 67 - 67 Net loss - - - ( 380 ) ( 380 ) Balance at March 31, 2023 64,801,373 $ 648 $ 74,953 $ ( 54,268 ) $ 21,333 Shareholders’ Equity for the three months ended March 31, 2022: (in thousands, except Share amounts) Common Common Additional Total Stock Stock Paid-in Accumulated Shareholders’ Shares Amount Capital Deficit Equity Balance at December 31, 2021 62,036,399 $ 620 $ 72,523 $ ( 49,960 ) $ 23,183 Stock option expense - - 13 - 13 Issuance of shares – ATM, net 2,650,724 27 1,996 - 2,023 Issuance of shares - option exercises 73,000 1 18 - 19 Net loss - - - ( 514 ) ( 514 ) Balance at March 31, 2022 64,760,123 $ 648 $ 74,550 $ ( 50,474 ) $ 24,724 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 is 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 three months ended March 31, 2023, Solitario did not sell any shares of common stock under the ATM Agreement. During the three months ended March 31, 2022, Solitario sold an aggregate of 2,650,724 shares of common stock under the ATM Agreement at an average price of $ 0.79 per share for net proceeds of $ 2,023,000 after commissions and sale expenses. 11 Table of Contents