As of December 31, 2021 and 2020, the Company had a $2.3 million and $2.5 million,
respectively, interest rate swap which qualifies as a derivative. This financial derivative is
designated as a cash flow hedge. This financial instrument is used to mitigate interest rate
risk associated with our outstanding $2.3 million loan which has a floating interest rate
based on the three-month London Interbank Offered Rate (“LIBOR”) plus 1.88% as of
December 31, 2021. The combined effect of the LIBOR-based borrowing formula and the
swap produces an “all-in fixed borrowing cost” equal to 5.95%. The fair value of the financial
derivative, as of December 31, 2021 and 2020, included in our Consolidated Balance Sheets
under “Other Liabilities and Deferred Credits” as “Derivative instrument” was $290,000 and
$460,000, respectively. Changes in the fair value of this derivative were deferred in
accumulated other comprehensive income.
Swap settlements are recorded in the statements of income (loss) with the hedged item as
interest expense. During the years ended December 31, 2021 and 2020, $68,000 loss and
$42,000 income, respectively, was reclassified pre-tax from accumulated other
comprehensive income (loss) to interest expense as a result of swap settlements. The
Company expects to reclassify approximately $76,000, pre-tax, from accumulated other
comprehensive income to interest expense as a result of swap settlements, over the next
twelve months.
Paycheck Protection Program Loan
On May 7, 2020, the Company received loan proceeds in the amount of approximately
$2,543,600 under the Small Business Administration (SBA) PPP. The PPP, established as part
of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which was enacted
March 27, 2020, provides for loans to qualifying businesses for amounts up to 2.5 times the
average monthly payroll expenses of the qualifying business. The loan and accrued interest
may be forgiven after eight or twenty-four weeks providing the Company uses the loan
proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains
certain payroll levels.
Any unforgiven portion of the PPP loan is payable over two years, from the date of the initial
approval of the loan, at an interest rate of 1%, with deferral of payments for the first ten
months. Early in 2022, the Company’s application for forgiveness was denied and the PPP
loan has been reclassified to current portion of long-term debt with a maturity date of May
7, 2022.
40
