NEW ULM TELECOM INC

On April 16, 2020, Nuvera received a $2,889,000 loan under the Small Business Administration’s (SBA) Payroll Protection Program (PPP). The PPP is designed to provide a direct incentive for small businesses to keep their workers employed during the Coronavirus (COVID-19) crisis. The SBA will forgive loans if all employees are kept on the payroll for eight weeks starting April 16, 2020 and the money is used for payroll, rent or utilities. Nuvera intends to retain employment of all employees through this time frame and follow all the SBA rules regarding this loan. See Item 5 – Other Information and Exhibit 10.1 for information regarding this loan including the terms of the loan.

^{On May 6,} 2020, the Company’s BOD decided that, given the continuing uncertainty about the severity and duration of the COVID-19 pandemic and its potential effect on the country’s economy generally and on the Company’s future sales and profitability specifically, as well as the Company’s need to preserve its liquidity and capital resources, the Company will (i) suspend declaring and paying a dividend in the second quarter of 2020 and (ii) temporarily suspend future purchases under its Stock Repurchase Program. The Company will continue to monitor the COVID-19 pandemic and make decisions about future dividends and stock repurchases as more information becomes available.

The recent COVID-19 pandemic and the global attempt to contain it may harm our industry, business, results of operations and ability to raise additional capital. The global spread of COVID-19 and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. In response to government mandates, health care advisories and otherwise responding to employee and vendor concerns, we have altered certain aspects of our operations. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. As of the date of this filing, while the company’s facilities and in-market locations continue to operate, we did restrict public access to our offices and halted all customer in-location service installations and are performing those installations remotely, which negatively impacted the growth in our customer base and may negatively impact sales until the COVID-19 pandemic moderates. We have required all non-essential employees to work from home. The COVID-19 pandemic has also increased traffic on our networks as the State of Minnesota has issued executive orders requiring remote-learning for schools, the shutdown of non-essential businesses and a work-from home order for many workers in multiple industries. We have seen an increase in customers for our internet product including increased demand for higher bandwidth speeds, but a decline in customers for our other products and services. We also expect that due to number of job losses due to the COVID-19 pandemic that a number of customers may have difficulty in paying for their existing services and our ability to ultimately retain those customers. Factors deriving from the COVID-19 response that have or may negatively impact sales and gross margins in the future include, but are not limited to: limitations on the ability of our suppliers and content providers to manufacture, or procure from manufactures, the products and services we sell, or to meet delivery and installation requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; limitations on the ability of carriers to deliver our products or our inability to install our products; limitations on the ability of our customers to conduct business and purchase our products and services; and limitations on the ability of our customers to pay us on a timely basis. We are experiencing disruptions in our business as we implement modifications to preserve adequate liquidity and ensure that our business can continue to operate during this uncertain time. Certain states, including Minnesota, have issued executive orders requiring all workers remain at home, unless their work is critical, essential, or life-sustaining. We believe that, based on the various standards published to date, the work our employees are performing, particularly with respect to providing network services critical to long-distance learning, remote business functions and home entertainment options is critical and essential. We continue to and plan to continue to retain our current workforce to ensure the smooth operations of our networks and services. With respect to liquidity, we are evaluating and taking actions to reduce costs and spending across our organization. This includes limiting or eliminating discretionary spending and non-essential capital investment expenditures. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. The full extent to which the COVID-19 pandemic and the various responses to it impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the availability and cost to access the capital markets; the effect on our customers and customer demand for and ability to pay for our services; disruptions or restrictions on our employees’ ability to work and travel; interruptions or restrictions related to the provision of our services, including impacts on content delivery networks and; and any stoppages, disruptions or increased costs associated with our operations. During the COVID-19 crisis, we may not be able to provide the same level of customer service and product installation, that our members are used to which could negatively impact their perception of our service resulting in an increase in service cancellations. If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders.  While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources, we believe that it is important to share where our company stands today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 progresses.

The global spread of COVID-19 and the various attempts to contain it have created and are expected to create volatility with our future cash flows. Our future cash flows are expected to be impacted by our customer’s inability to pay for their existing services or their inability to aquire our services due to their personal financial hardships created by COVID-19. We may not be able to expand our network, acquire new customers or service existing customers based on our future cash flow position. We have implemented a Company policy whereby we are conserving cash by eliminating discretionary spending and limiting our CapEx spending to critical projects including fulfilling our A-CAM build requirements. We are experiencing disruptions in our business as we implement these modifications to preserve adequate liquidity and ensure that our business can continue to operate during this uncertain time. 

On April 16, 2020, Nuvera received approximately $2.9 million in support from the U.S. federal government under the Paycheck Protection Program established as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP Loan is unsecured and is evidenced by a note in the favor of Citizens Bank Minnesota as the lender (Note), which is filed as Exhibit 10.1 to this Form 10-Q and incorporated by reference herein.

The interest rate on the Note is 1.0% per annum. Payments of principal and interest are deferred for 180 days from the date of the Note (the deferral period). The PPP provides a mechanism for forgiveness of up to the full amount borrowed as long as Nuvera uses the loan proceeds during the eight-week period after the loan origination for eligible purposes, including U.S. payroll costs, certain benefit costs, rent and utilities costs, and maintains its employment and compensation levels, subject to certain other requirements and limitations. The amount of the loan forgiveness is subject to reduction, among other reasons, if Nuvera terminates employees or reduces salaries or wages during the eight-week period. Any unforgiven portion of the PPP Loan is payable over a two-year term, with payments deferred during the deferral period. Nuvera is permitted to prepay the Note at any time without payment of any premium. The Note contains customary events of default, including, among others, those relating to failure to make a payment, bankruptcy, material defaults on other indebtedness, breaches of representations, and material adverse changes.