Note 4 - Coronavirus Aid, Relief and Economic Security
Paycheck Protection Program Loan (PPP Loan)
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) to extend liquidity to small businesses and
assist in retaining employees during the COVID-19 pandemic. On April 23, 2020, GSE was approved for and on the next day received a $10
million loan pursuant to a Paycheck Protection Program Note (the “PPP Loan”) from Citizens Bank, N.A. pursuant to the CARES Act. Pursuant to the CARES Act, the PPP Loan was guaranteed by the U.S. Small Business Administration (“SBA”) and
eligible for forgiveness under certain circumstances. Repayment of the PPP Loan was scheduled to begin on August 9, 2021.
The aim of the PPP Loan is to provide funding for businesses for certain
payroll and nonpayroll costs. Proceeds for the PPP Loan are eligible for complete forgiveness, if used at least 60% for payroll cost with up to 40% for certain other nonpayroll costs. Forgiveness for amounts less than the total amount of the
PPP Loan ($10 million) is allowed, retaining 60/40 requirements, but will be limited based upon the amount of funds used for
payroll costs and further reduced by a full-time employee and salary/hourly rate wage reduction limitation. GSE has relied primarily on eligible wages and expenses and is well within the ratios.
The SBA has stated that PPP loans above $2 million will be subject to audit
for appropriate usage of the funds and confirmation of loan forgiveness. GSE has stated, as part of the initial application, that the receipt of such funds were required in order to maintain its employees during the pandemic, and GSE was
confident in its ability to report on the proper use the funds and obtain full forgiveness. GSE has also prepared and performed extensive review in its submission of the mandated Form 3590 – PPP Loan Necessity Questionnaire and remains
confident to that end.
The July 5 legislation provides for an automatic 10 month deferment, after
the coverage period, on the first payment, placing it on August 9, 2021. Subsequent payments, in accordance with our loan documentation, will occur monthly in equal monthly proportions, beginning with the first full month following the
deferment period and will be comprised of principal and interest, with the loan fully due on April 23, 2022. Although the first payment is not required until September 2021, the loan balance accrues at an interest rate of 1% from April 23, 2020. If the loan is forgiven, the related interest incurred is also forgiven.
We realized all possible PPP Loan forgiveness expenses through the 24 week
coverage period during the 2020 fiscal year. We applied for forgiveness in Q1 of 2021 with expected response in Q2 of 2021 (although the exact timing of a response from the SBA is not free from doubt). Any balance unforgiven by the SBA and
accruing 1% interest since inception will be payable starting on the date instructed by the SBA and in equal monthly payments with
the final balance due by April 23, 2022. Loan forgiveness is achieved by applying for forgiveness with the Company’s lender, the Bank, with expenses eligible for forgiveness as incurred and receiving final clearance from the SBA. The Bank has
successfully completed their review and provided the loan forgiveness application and support to the SBA on February 26, 2021. SBA provided through regulation that its process would take no more than 90 days. Upon receipt of the funds, a Loan
Payable – PPP balance of $10 million was recorded and related interest expense is being accrued. As of June 30, 2021, GSE reported
the loan balance and accrued interest as a short term payable.
The PPP Loan contains events of default and other provisions customary for a
loan of this type. The Payroll Protection Program provides that (1) the use of PPP Loan amount shall be limited to certain qualifying expenses, and (2) 100% of the principal amount of the loan is guaranteed by the Small Business Administration.
The SBA provides for certain customary events of default, including if the
Company (i) fails to do anything required by the Note and other Loan Documents; (ii) does not disclose, or anyone acting on its behalf does not disclose, any material fact to the Bank or the SBA; (iii) makes, or anyone acting on its behalf
makes, a materially false or misleading representation to lender or the SBA; (iv) reorganizes, merges, consolidates or otherwise changes ownership or business structure without the Bank’s prior written consent; (v) takes certain prohibited
actions after the Bank makes a determination that the PPP Loan is not entitled to full forgiveness. Upon default the Bank may require immediate payment of all amounts owing under the PPP Loan or file suit and obtain judgment.
As of June 30, 2021, we had $10 million of principal remained outstanding on the PPP Loan together with accrued interest of $118 thousand as debt, which are classified as current in our consolidated balance sheets. We recorded $25 and $50 thousand of interest expense during the three and six months
ended June 30, 2021.
On August 5, 2021, the Company received approval from Small Business Administration ("SBA") that the PPP loan including all accrued interest thereon was
forgiven. (See Note 17).
Employee Retention Credits (ERC)
Employee retention tax credits made available under the CARES Act allow eligible
employers claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. During the second quarter of 2021, we performed analysis to determine our eligibility for the Employee Retention Credit for the first quarter of 2021. We amended certain payroll tax filings and applied for a refund of $2.4 million in June 2021. For the second quarter of 2021, we have applied for a refund of $1.8 million from the IRS with the timely filing of Form 941 and have already recognized a benefit of $0.9 million in value from unremitted payroll taxes as allowable. We believe we are also eligible to receive the employee retention credit in the third quarter of 2021 and we are
reducing our payroll taxes as permitted under the Coronavirus Aid, Relief and Economic Security Act.