Loans Payable

6 Months Ended

Jun. 30, 2020

NOTE 7 – LOANS PAYABLE

Notes payable consists of the following at June 30, 2020 and December 31, 2019:

	June 30, 2020			December 31, 2019

Notes payable to Celtic Bank – past due (a)	$	38,000		$	64,000
SBA Paycheck Protection Program loan (b)		205,000			-
SBA Economic Injury Disaster Loan (c)		150,000			-
Total loans payable	$	393,000		$	64,000
Loans payable, current portion		(38,000	)		(64,000	)
Loans payable, net of current portion		355,000			-

	a)	On May 21, 2019, the Company entered into a loan agreement with Celtic Bank in the principal amount of $150,000 with interest at 40.44% per annum and due on May 21, 2020. The loan was guaranteed by Alvin Hao, a former officer of the Company. A total of $64,000 was owed on the loan as of December 31, 2019. During the six months ended June 30, 2020, the Company made principal payments of $26,000, leaving a total of $38,000 owed on the loan as of June 30, 2020. The loan is currently past due.

	b)	On May 7, 2020, the Company was granted a loan (the “PPP loan”) from Wells Fargo Bank in the aggregate amount of $205,000, pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act.

		The PPP loan agreement is dated May 8, 2020, matures on May 7, 2022, bears interest at a rate of 1% per annum, with the first six months of interest deferred, and is unsecured and guaranteed by the U.S. Small Business Administration. The loan term may be extended to May 7, 2025, if mutually agreed to by the Company and lender. We applied ASC 470, Debt, to account for the PPP loan. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP loan may only be used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, qualifying group health care benefits, qualifying rent and debt obligations, and qualifying utilities. The Company intends to use the entire loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses. The Company intends to apply for forgiveness of the PPP loan with respect to these qualifying expenses, however, we cannot assure that such forgiveness of any portion of the PPP loan will occur. As for the potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded. The terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The Company was in compliance with the terms of the PPP loan as of June 30, 2020.

On June 7, 2020, the Company obtained an Economic Injury Disaster Loan from the United States Small Business Administration (SBA) in the amount of $150,000. Interest on the loan is at the rate of 3.75% per year, and all loan payments are deferred for twelve months, at which time the balance is payable in monthly installments of $731 over a 30-year term. The loan is secured by all the Company’s assets.

Generation Alpha, Inc. 10-Q