Note 17 – Paycheck Protection Plan loans and Economic Injury Disaster Loans

Paycheck protection plan loans

On April 23, 2020 and May 5, 2020, The Company and WCI each received loans in the amount of $76,500 and $383,342, respectively, from the Bank of Southern California and Republic Bank of Arizona (collectively, the “PPP Loans”). The Paycheck Protection Program was established under Sections 1102 and 1106 of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which was enacted March 27, 2020. The CARES Act temporarily amends Section 7(a) of the Small Business Act to expand the scope and criterion of a business’s eligibility to receive financial assistance from the Small Business Administration (“SBA”).

Originally, Section 1106 of the CARES Act limited the period during which PPP loan expenditures were eligible for forgiveness to eight weeks after the loan disbursement date. On June 5, 2020, the Paycheck Protection Program Flexibility Act (“PPP Flexibility Act”) extended the PPP loan term and forgiveness period to the earlier of (i) twenty-four weeks after the PPP loan disbursement date, or (ii) December 31, 2020. Section 1106 of the CARES Act required that 75% of PPP loan proceeds be spent on eligible payroll costs during the forgiveness period to qualify for loan forgiveness, with the remaining 25% of PPP proceeds spent on qualified non-payroll expenses. In contrast, the PPP Flexibility Act requires that borrowers spend at least 60% of PPP loan proceeds on eligible payroll costs, with the remaining 40% of PPP loan proceeds spent on any combination of qualified non-payroll expenses. Section 3(c) of the PPP Flexibility Act provides for deferment of PPP loan payments for ten months after the end of the loan forgiveness covered period. On October 7, 2020, the SBA further clarified that lenders must recognize that the PPP Flexibility Act automatically extended the deferral period for payments on all PPP loans, even if the executed promissory note indicated a shorter deferral period. The Company’s PPP loan payment schedules have been revised to reflect the extended term for deferral of payments.

The PPP Loans may be forgivable so long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.

The Company has recorded the PPP Loans as a liability in accordance with FASB ASC 470, “Debt” and has recorded accrued interest through September 30, 2020. Proceeds from the PPP Loans will remain recorded as a liability until either (1) the PPP Loans are, in part or wholly, forgiven, and the Company has been legally released, or (2) the Company pays off the PPP Loans. If the PPP Loans are, in part, or wholly forgiven, the liability will be reduced and a gain on the extinguishment will be recognized.

The Company has used approximately 96% of its PPP Loans proceeds to fund payroll expenses, with the remainder spent for utilities and rent. As of September 30, 2020, the Company has met the PPP eligibility criteria for forgiveness of all PPP Loan amounts in excess of the $10,000 Economic Injury Disaster Loan Advance (“EIDL Advance”) received by WCI. WCI applied for forgiveness in August 2020 but has not yet received formal notice of forgiveness. Mentor expects to apply for forgiveness of its PPP Loan in the fourth quarter of 2020.

The Company has not taken any action that would cause any portion of the loans to be ineligible for forgiveness. However, to the extent that any amount is deemed unforgivable, such amount is payable over two years at an interest rate of 1%, following the deferral provided under the PPP Flexibility Act of ten months after the covered period.

PPP loan balances at September 30, 2020 consist of the following:

Interest expense on PPP Loans for the three and nine months ended September 30, 2020 was $1,048 and $1,798, respectively.

Economic injury disaster loan

On April 24, 2020, WCI received a $10,000 SBA EIDL Advance. The EIDL Advance is an emergency grant under Section 1110 of the Cares Act, which expands businesses’ access to Economic Injury Disaster Loans under Section 7(b)(2) of the Small Business Act. Because EIDL Advance repayment is not required, the EIDL Advance is recognized in other income for the nine months ended September 30, 2020. This amount will reduce the portion of PPP Loans available for forgiveness by $10,000.

On July 9, 2020, WCI received an additional Economic Injury Disaster Loan in the amount of $150,000 through the SBA. The loan is secured by all tangible and intangible personal property of WCI, bears interest at 3.75% per annum, requires monthly installment payments of $731 beginning July 2020, and matures July 2050. The loan is collateralized by all tangible and intangible assets of WCI.

EIDL loan balances at September 30, 2020 consist of the following:

Interest expense on the EIDL Loan for the three and nine months ended September 30, 2020 was $1,172.