| TEXAS                                            | 86-0778979                              |
|--------------------------------------------------|-----------------------------------------|
| (State                  or other jurisdiction of | (I.R.S.                  Employer       |
| incorporation                  or organization)  | Identification                  Number) |

| 10930                  W. Sam Houston Pkwy., N., Suite 200 | 77064                       |
|------------------------------------------------------------|-----------------------------|
| (Address                  of principal executive offices)  | (Zip                  Code) |

----

----

**PART      I - FINANCIAL INFORMATION**

**ITEM      1 - FINANCIAL STATEMENTS**

**INTERNET      AMERICA, INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

|                                                                                                                                                                                                              |   | **December                31,** |        | **June                30,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|-------------|-----------------------------|--------|
|                                                                                                                                                                                                              |   | **2006**                   |        | **2006**               |   |
|                                                                                                                                                                                                              |   | (unaudited)                     |        | (audited)                   |   |
| ASSETS                                                                                                                                                                                                            |   |
| CURRENT                ASSETS:                                                                                                                                                                                    |   |                            |        |                        |   |   |   |
| Cash                and cash equivalents                                                                                                                                                                          |   | $                               | 674,612     |                        | $      | 937,401 |   |
| Accounts                receivable, net of allowance for uncollectible accounts                of $10,703 and $6,996 as of December 31, 2006 and                June 30, 2006, respectively                       |   |                            | 140,362     |                        |   | 120,208 |   |
| Inventory                                                                                                                                                                                                         |   |                            | 216,913     |                        |   | 280,888 |   |
| Prepaid                expenses and other current assets                                                                                                                                                          |   |                            | 471,645     |                        |   | 299,379 |   |
| Total                current assets                                                                                                                                                                               |   |                            | 1,503,532   |                        |   | 1,637,876 |   |
| PROPERTY                AND EQUIPMENT — Net                                                                                                                                                                 |   |                            | 978,257     |                        |   | 1,082,590 |   |
| OTHER                ASSETS — Net                                                                                                                                                                           |   |                            | 4,677,237   |                        |   | 4,812,122 |   |
| TOTAL                                                                                                                                                                                                             |   | $                               | 7,159,026   |                        | $      | 7,532,588 |   |
|                                                                                                                                                                                                              |   |                            |        |                        |   |   |   |
| LIABILITIES                AND SHAREHOLDERS' EQUITY                                                                                                                                                               |   |                            |        |
|                                                                                                                                                                                                              |   |                            |        |                        |   |   |   |
| CURRENT                LIABILITIES:                                                                                                                                                                               |   |                            |        |                        |   |   |   |
| Trade                accounts payable                                                                                                                                                                             |   | $                               | 294,460     |                        | $      | 419,766 |   |
| Accrued                liabilities                                                                                                                                                                                |   |                            | 401,010     |                        |   | 465,836 |   |
| Deferred                revenue                                                                                                                                                                                   |   |                            | 1,254,741   |                        |   | 1,292,430 |   |
| Current                portion of long-term debt                                                                                                                                                                  |   |                            | 99,544      |                        |   | 98,208 |   |
| Current                portion of capital lease obligations                                                                                                                                                       |   |                            | 48,826      |                        |   | 57,390 |   |
| Total                current liabilities                                                                                                                                                                          |   |                            | 2,098,581   |                        |   | 2,333,630 |   |
| Long-term                debt                                                                                                                                                                                     |   |                            | 108,993     |                        |   | 169,044 |   |
| Capital                lease obligations                                                                                                                                                                          |   |                            | 104,034     |                        |   | 127,344 |   |
| Other                long-term liabilities                                                                                                                                                                        |   |                            | 9,370       |                        |   | 47,320 |   |
| Total                liabilities                                                                                                                                                                                  |   |                            | 2,320,978   |                        |   | 2,677,338 |   |
|                                                                                                                                                                                                              |   |                            |        |                        |   |   |   |
| COMMITMENTS                AND CONTINGENCIES                                                                                                                                                                      |   |                            | —     |                        |   | — |   |
| SHAREHOLDERS'                EQUITY:                                                                                                                                                                              |   |                            |        |                        |   |  |   |
|                                                                                                                                                                                                              |   |                            |        |                        |   |   |   |
| Common                stock, $.01 par value; 40,000,000 shares authorized, 12,508,914 issued                and                outstanding as of December 31, 2006 and                June 30, 2006, respectively |   |                            | 125,089     |                        |   | 125,089 |   |
| Additional                paid-in capital                                                                                                                                                                         |   |                            | 57,082,244  |                        |   | 57,061,952 |   |
| Accumulated                deficit                                                                                                                                                                                |   |                            | (52,369,285 | )                           |   | (52,331,791 | ) |
| Total                shareholders' equity                                                                                                                                                                         |   |                            | 4,838,048   |                        |   | 4,855,250 |   |
| TOTAL                                                                                                                                                                                                             |   | $                               | 7,159,026   |                        | $      | 7,532,588 |   |

----

**INTERNET      AMERICA, INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

|                                                       |   | **Three                Months Ended** |       | **Six                Months Ended** |   |
|------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------|--------|
|                                                       |   | **December                31,**       |       | **December                31,**     |   |
|                                                       |   | **2006**                         |       | **2005**                       |   | **2006**  |   | **2005**  |   |
| REVENUES:                                                  |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| Internet                services                           |   | $                                     | 2,001,747  |                                | $      | 2,157,583 |   | $ | 4,085,723 |   | $ | 4,399,144 |   |
| Other                                                      |   |                                  | 66         |                                |   | 314,132 |   |   | 66 |   |   | 720,374 |   |
| Total                                                      |   |                                  | 2,001,813  |                                |   | 2,471,715 |   |   | 4,085,789 |   |   | 5,119,518 |   |
| OPERATING                COSTS AND EXPENSES:               |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| Connectivity                and operations                 |   |                                  | 1,037,329  |                                |   | 1,558,543 |   |   | 2,029,613 |   |   | 3,093,720 |   |
| Sales                and marketing                         |   |                                  | 53,158     |                                |   | 89,576 |   |   | 94,515 |   |   | 164,283 |   |
| General                and administrative                  |   |                                  | 744,447    |                                |   | 839,414 |   |   | 1,573,684 |   |   | 1,535,932 |   |
| Provision                for bad debt expense              |   |                                  | 1,702      |                                |   | 19,843 |   |   | 2,704 |   |   | 31,526 |   |
| Depreciation                and amortization               |   |                                  | 206,717    |                                |   | 211,652 |   |   | 413,692 |   |   | 429,029 |   |
| Total                                                      |   |                                  | 2,043,353  |                                |   | 2,719,028 |   |   | 4,114,208 |   |   | 5,254,490 |   |
| LOSS                FROM OPERATIONS                        |   |                                  | (41,540    | )                                   |   | (247,313 | ) |   | (28,419 | ) |   | (134,972 | ) |
| INTEREST                EXPENSE, NET                       |   |                                  | 2,468      |                                |   | 24,157 |   |   | 9,075 |   |   | 27,782 |   |
| NET                LOSS                                    |   | $                                     | (44,008    | )                                   | $      | (271,470 | ) | $ | (37,494 | ) | $ | (162,754 | ) |
| NET                LOSS PER COMMON SHARE:                  |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| BASIC                                                      |   | $                                     | (0.00      | )                                   | $      | (0.02 | ) | $ | (0.00 | ) | $ | (0.01 | ) |
| DILUTED                                                    |   | $                                     | (0.00      | )                                   | $      | (0.02 | ) | $ | (0.00 | ) | $ | (0.01 | ) |
| WEIGHTED                AVERAGE COMMON SHARES OUTSTANDING: |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| BASIC                                                      |   |                                  | 12,508,914 |                                |   | 12,452,659 |   |   | 12,508,914 |   |   | 12,445,732 |   |
| DILUTED                                                    |   |                                  | 12,508,914 |                                |   | 12,452,659 |   |   | 12,508,914 |   |   | 12,445,732 |   |

----

**INTERNET      AMERICA, INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

|                                                                                                          |   | **Six                  months Ended** |     |
|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------|
|                                                                                                          |   | **December                  31,**     |     |
|                                                                                                          |   | **2006**                         |     | **2005**  |   |
| OPERATING                  ACTIVITIES:                                                                        |   |                                  |     |   |   |   |   |
| Net                  loss                                                                                     |   | $                                     | (37,494  | ) | $ | (162,754 | ) |
| Adjustments                  to reconcile net loss to net cash                                                |   |                                  |     |   |   |   |   |
| provided                  by operating activities:                                                            |   |                                  |     |   |   |   |   |
| Depreciation                  and amortization                                                                |   |                                  | 413,692  |   |   | 429,029 |   |
| Gain                  on disposal of fixed assets                                                             |   |                                  | (89      | ) |   | — |   |
| Provision                  for bad debt expense                                                               |   |                                  | 2,704    |   |   | 31,526 |   |
| Stock                  based compensation                                                                     |   |                                  | 20,292   |   |   | — |   |
| Changes                  in operating assets and liabilities, net of effect of                  acquisitions: |   |                                  |     |   |   |   |   |
| Accounts                  receivable                                                                          |   |                                  | (22,858  | ) |   | (3,349 | ) |
| Inventory                                                                                                     |   |                                  | 132,888  |   |   | (208,446 | ) |
| Prepaid                  expenses and other current assets                                                    |   |                                  | (172,266 | ) |   | (42,683 | ) |
| Other                  assets                                                                                 |   |                                  | —  |   |   | (8,082 | ) |
| Accounts                  payable and accrued liabilities                                                     |   |                                  | (259,045 | ) |   | 81,082 |   |
| Other                  liabilities                                                                            |   |                                  | (37,950  | ) |   | — |   |
| Deferred                  revenue                                                                             |   |                                  | (37,689  | ) |   | (112,864 | ) |
| Net                  cash provided by operating activities                                                    |   |                                  | 2,185    |   |   | 3,459 |   |
| INVESTING                  ACTIVITIES:                                                                        |   |                                  |     |   |   |   |   |
| Purchases                  of property and equipment                                                          |   |                                  | (174,985 | ) |   | (204,075 | ) |
| Proceeds                  from sale of property and equipment                                                 |   |                                  | 600      |   |   | — |   |
| Cash                  paid at closing for acquisitions                                                        |   |                                  | —  |   |   | (50,000 | ) |
| Net                  cash used in investing activities                                                        |   |                                  | (174,385 | ) |   | (254,075 | ) |
| FINANCING                  ACTIVITIES:                                                                        |   |                                  |     |   |   |   |   |
| Proceeds                  from issuance of common stock                                                       |   |                                  | —  |   |   | 7,808 |   |
| Principal                  payments under note payable                                                        |   |                                  | (58,715  | ) |   | (159,917 | ) |
| Principal                  payments under capital lease obligations                                           |   |                                  | (31,874  | ) |   | (35,824 | ) |
| Net                  cash used in financing activities                                                        |   |                                  | (90,589  | ) |   | (187,933 | ) |
| NET                  DECREASE IN CASH AND CASH EQUIVALENTS                                                    |   |                                  | (262,789 | ) |   | (438,549 | ) |
| CASH                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                               |   |                                  | 937,401  |   |   | 2,364,287 |   |
| CASH                  AND CASH EQUIVALENTS, END OF PERIOD                                                     |   | $                                     | 674,612  |   | $ | 1,925,738 |   |
| SUPPLEMENTAL                  INFORMATION:                                                                    |   |                                  |     |   |   |   |   |
| Cash                  paid for interest                                                                       |   | $                                     | 30,167   |   | $ | 28,415 |   |
| NON-CASH                  INVESTING AND FINANCING ACTIVITIES:                                                 |   |                                  |     |   |   |   |   |
| Transfers                  between fixed assets and inventory                                                 |   | $                                     | —  |   | $ | 82,963 |   |
| Assets                  acquired through accounts payable                                                     |   | $                                     | 68,913   |   | $ | 50,794 |   |
| Stock                  issued in connection with acquisitions                                                 |   | $                                     | —  |   | $ | 32,500 |   |
| Debt                  issued in connection with acquisitions                                                  |   | $                                     | —  |   | $ | 94,612 |   |

----

**INTERNET      AMERICA, INC. AND SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

| 1. | Basis                of Presentation |
|----|--------------------------------------|

| 2. | Basic                and Diluted Net Loss Per Common                Share |
|----|---------------------------------------------------------------------------|

| 3. | Employee                Stock Option Plans |
|----|--------------------------------------------|

----

| 3. | Employee                Stock Option Plans (continued) |
|----|--------------------------------------------------------|

|                                    |   | **Six                Months Ended December 31, 2006**      |                    |
|-----------------------------------------|--------|------------------------------------------------------------|-------------------------|
|                                    |   | **Net                Loss Before Adoption of SFAS 123(R)** |                    | **Effect                of Stock-Based Compensation Expense** |   | **Net                Income (Loss) As Reported** |   |
| Loss                before income tax   |   | $                                                          | (                17,202 | ) | $ | (20,292 | ) | $ | (37,494 | ) |
| Provision                for income tax |   |                                                       | —                 |   |   | — |   |   | — |   |
| Net                Loss                 |   | $                                                          | (                17,202 | ) | $ | (20,292 | ) | $ | (37,494 | ) |
| Earnings                per share:      |   |                                                       |                    |   |   |   |   |   |   |   |
| Basic                                   |   | $                                                          | (0.00                   | ) | $ | (0.00 | ) | $ | (0.00 | ) |
| Diluted                                 |   | $                                                          | (0.00                   | ) | $ | (0.00 | ) | $ | (0.00 | ) |

|                                                      |   | **Six                Months Ended****December                31, 2005** |     |
|-----------------------------------------------------------|--------|-------------------------------------------------------------------------|----------|
| Reported                net loss                          |   | $                                                                       | (162,754 | ) |
| Less:                SFAS No. 123(R) compensation expense |   |                                                                    | (31,387  | ) |
| Pro                forma net loss                         |   | $                                                                       | (194,141 | ) |
| Reported                basic loss per share              |   | $                                                                       | (0.01    | ) |
| Reported                diluted loss per share            |   | $                                                                       | 0.01     | ) |
| Less:                SFAS No. 123(R) compensation expense |   |                                                                    | (0.00    | ) |
| Pro                forma basic loss per share             |   | $                                                                       | (0.01    | ) |
| Pro                forma diluted loss per share           |   | $                                                                       | (0.01    | ) |

| 4. | Use                of estimates |
|----|---------------------------------|

----

| 5. | Other                Assets |
|----|-----------------------------|

|                                                                              |   | **December                31, 2006** |        | **June                30, 2006** |   |
|-----------------------------------------------------------------------------------|--------|--------------------------------------|-------------|----------------------------------|--------|
| Goodwill                                                                     |   | $                                    | 26,047,266  |                             | $      | 26,047,266 |   |
| Accumulated                amortization-goodwill                             |   |                                 | (21,734,139 | )                                |   | (21,734,139 | ) |
| Total                goodwill, net                                                |   |                                 | 4,313,127   |                             |   | 4,313,127 |   |
|                                                                              |   |                                 |        |                             |   |   |   |
| Subscriber                acquisition costs                                       |   |                                 | 1,244,102   |                             |   | 1,244,102 |   |
| Accumulated                amortization-subscriber acquisition costs    |   |                                 | (909,566    | )                                |   | (774,681 | ) |
| Total                subscriber acquisition costs, net                            |   |                                 | 334,536     |                             |   | 469,421 |   |
|                                                                              |   |                                 |        |                             |   |   |   |
| Deposits                                                                          |   |                                 | 29,574      |                             |   | 29,574 |   |
| Total                other assets, net                                            |   | $                                    | 4,677,237   |                             | $      | 4,812,122 |   |

| 6. | Income                Taxes |
|----|-----------------------------|

----

| 7. | Long-Term                Debt |
|----|-------------------------------|

|                                                                                                                                                                                                            |   | **December                31, 2006** |    | **June                30, 2006** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|----------------------------------|--------|
| Note                payable due November 15, 2007, payable in monthly installments of                $1,825,                bearing interest at prime plus 3%                                              |   | $                                    | 21,264  |                             | $      | 31,200 |   |
| Note                payable due September 22, 2007, payable in annual installments of                $41,667                with interest imputed at 8% (net of unamortized discount of                $3,087)  |   |                                 | 38,580  |                             |   | 74,303 |   |
| Note                payable due May 30, 2007, payable in monthly installments of approximately                $987, bearing interest at prime plus 2%                                                           |   |                                 | 7,868   |                             |   | 13,201 |   |
| Note                payable due July 19, 2009, payable in quarterly payments of $7,751                with                interest imputed at 9% (net of unamortized discount of                $29,409)        |   |                                 | 94,612  |                             |   | 94,612 |   |
| Note                payable due January 23, 2011, payable in bi-annual installments of                $13,917                with interest imputed at 8% (net of unamortized discount of                $8,131) |   |                                 | 34,257  |                             |   | 32,980 |   |
| Credit                card line of credit advance, payable on demand, bearing interest                at prime                plus 6.5%                                                                         |   |                                 | 11,956  |                             |   | 20,956 |   |
|                                                                                                                                                                                                            |   |                                 | 208,537 |                             |   | 267,252 |   |
| Less                current portion                                                                                                                                                                             |   |                                 | (99,544 | )                                |   | (98,208 | ) |
| Total                long-term debt                                                                                                                                                                             |   | $                                    | 108,993 |                             | $      | 169,044 |   |

| 8. | Capital                Lease Obligations |
|----|------------------------------------------|

| 2007                                                         |   | $      | 31,954  |   |
|--------------------------------------------------------------|--------|--------|---------|--------|
| 2008                                                         |   |   | 54,368  |   |
| 2009                                                         |   |   | 54,368  |   |
| 2010                                                         |   |   | 31,714  |   |
| Total                minimum lease payments                  |   |   | 172,404 |   |
| Less                amounts representing interest            |   |   | (19,544 | )      |
| Present                value of minimum capitalized payments |   |   | 152,860 |   |
| Less                current portion                          |   |   | (48,826 | )      |
| Long-term                capitalized lease obligations       |   | $      | 104,034 |   |

----

| 9. | Related                Parties |
|----|--------------------------------|

|                                |   | **Six                Months Ended December 31,** |   |
|-------------------------------------|--------|--------------------------------------------------|--------|
|                                |   | **2006**                                         |   | **2005** |   |
| Troy                LeMaile Stovall |   | $                                                | 8,250  |   | $ | 7,500 |   |
| Justin                McClure       |   |                                             | 8,000  |   |   | 7,500 |   |
| John                Palmer          |   |                                             | 7,500  |   |   | 6,500 |   |
| Total                director fees  |   | $                                                | 23,750 |   | $ | 21,500 |   |

| 10. | New                Accounting Pronouncements |
|-----|----------------------------------------------|

----

**ITEM      2. **
**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF **
**FINANCIAL      CONDITION AND RESULTS OF OPERATIONS**

*Certain      statements contained in this Form 10-QSB constitute "forward-looking statements"      within the meaning of Section 27A of the Securities Act of 1933 and Section      21E      of the Securities Exchange Act of 1934. These statements, identified by words      such as "anticipate," "believe," "estimate," "should," "expect" and similar      expressions include our expectations and objectives regarding our future      financial position, operating results and business strategy. These statements      reflect the current views of management with respect to future events and are      subject to risks, uncertainties and other factors that may cause our actual      results, performance or achievements, or industry results, to be materially      different from those described in the forward-looking statements. We do not      intend to update the forward-looking information to reflect actual results      or      changes in the factors affecting such forward-looking information. Our Annual      Report on Form 10-KSB for the fiscal year ended June 30, 2006 and other publicly      filed reports discuss some important factors that could cause our actual results      to differ materially from those in any forward-looking      statements.*

**Overview**

----

**Statement      of Operations**

----

**Results      of Operations**

*Three      Months Ended December 31, 2006 Compared to Three Months Ended December 31,      2005*

|                                              |   | **Three                  Months Ended****December                  31, 2006** |    | **Three                  Months Ended****December                  31, 2005** |   |
|--------------------------------------------------------|--------|-------------------------------------------------------------------------------|---------|-------------------------------------------------------------------------------|--------|
|                                                   |   | **(000's)**                                                              |    | **%                  of****Revenues**                                    |   | **(000's)**  |   | **%                  of****Revenues** |   |
| STATEMENT                OF INCOME DATA:               |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| REVENUES:                                              |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| Internet                  services                     |   | $                                                                             | 2,002   |                                                                          |   | 100.0 | % | $ | 2,158 |   |   | 87.3 | % |
| Other                                                  |   |                                                                          | — |                                                                          |   | — | % |   | 314 |   |   | 12.7 | % |
| Total                                                  |   |                                                                          | 2,002   |                                                                          |   | 100.0 | % |   | 2,472 |   |   | 100.0 | % |
| OPERATING                  COSTS AND EXPENSES:         |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| Connectivity                  and operations           |   |                                                                          | 1,037   |                                                                          |   | 51.8 | % |   | 1,558 |   |   | 63.0 | % |
| Sales                  and marketing                   |   |                                                                          | 53      |                                                                          |   | 2.6 | % |   | 90 |   |   | 3.6 | % |
| General                  and administrative            |   |                                                                          | 745     |                                                                          |   | 37.3 | % |   | 839 |   |   | 33.9 | % |
| Provision                  for bad debt expense        |   |                                                                          | 2       |                                                                          |   | 0.1 | % |   | 20 |   |   | 0.8 | % |
| Depreciation                  and amortization         |   |                                                                          | 207     |                                                                          |   | 10.3 | % |   | 212 |   |   | 8.6 | % |
| Total                                                  |   |                                                                          | 2,044   |                                                                          |   | 102.1 | % |   | 2,719 |   |   | 109.9 | % |
| OPERATING                  LOSS                        |   |                                                                          | (42     | )                                                                             |   | (2.1 | )% |   | (247 | ) |   | (9.9 | )% |
| INTEREST                  EXPENSE, NET                 |   |                                                                          | 2       |                                                                          |   | .1 | % |   | 24 |   |   | 1.0 | % |
| NET                  LOSS                              |   | $                                                                             | (44     | )                                                                             |   | (2.2 | )% | $ | (271 | ) |   | (10.9 | )% |
| NET                  LOSS PER COMMON SHARE:            |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| BASIC                                                  |   | $                                                                             | (0.00   | )                                                                             |   |   |   | $ | (0.02 | ) |   |   |   |
| DILUTED                                                |   | $                                                                             | (0.00   | )                                                                             |   |   |   | $ | (0.02 | ) |   |   |   |
| WEIGHTED                  AVERAGE COMMON               |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| SHARES                  OUTSTANDING:                   |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| BASIC                                                  |   |                                                                          | 12,509  |                                                                          |   |   |   |   | 12,453 |   |   |   |   |
| DILUTED                                                |   |                                                                          | 12,509  |                                                                          |   |   |   |   | 12,453 |   |   |   |   |
|                                                   |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| OTHER                  DATA:                           |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| Subscribers                  at end of period (1)      |   |                                                                          | 37,000  |                                                                          |   |   |   |   | 49,000 |   |   |   |   |
| EBITDA(2)                                              |   | $                                                                             | 165     |                                                                          |   |   |   | $ | (35 | ) |   |   |   |
| EBITDA                  margin(3)                      |   |                                                                          | 8.2     | %                                                                             |   |   |   |   | (1.4 | )% |   |   |   |
|                                                   |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| Reconciliation                  of net loss to EBITDA: |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| Net                  loss                              |   | $                                                                             | (44     | )                                                                             |   |   |   | $ | (271 | ) |   |   |   |
| Add:                                                   |   |                                                                          |    |                                                                          |   |   |   |   |   |   |   |   |   |
| Depreciation                  and amortization         |   |                                                                          | 207     |                                                                          |   |   |   |   | 212 |   |   |   |   |
| Interest                  expense, net                 |   |                                                                          | 2       |                                                                          |   |   |   |   | 24 |   |   |   |   |
| EBITDA(2)                                              |   | $                                                                             | 165     |                                                                          |   |   |   | $ | (35 | ) |   |   |   |

----

----

*Three      Months Ended December 31, 2006 Compared to Three Months Ended December 31,      2005      (Continued)*

*Total      revenue. *

*Connectivity      and operations. *

*Sales      and marketing. *

*General      and administrative. *

*Provision      for bad debt expense. *

*Depreciation      and amortization.*

*Interest      expense, net. *

----

*Six      Months Ended December 31, 2006 Compared to Six Months Ended December 31,      2005*

|                                                    |   | **Six                  Months Ended****December                  31, 2006** |    | **Six                  Months Ended****December                  31, 2005** |   |
|---------------------------------------------------------|--------|-----------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------|--------|
|                                                    |   | **(000's)**                                                                 |    | **%                  of Revenues**                                          |   | **(000's)** |   | %                  of **Revenues** |   |
| STATEMENT                  OF INCOME DATA:              |   |                                                                        |    |                                                                        |   |   |   |   |   |   |   |   |   |
| REVENUES:                                               |   |                                                                        |    |                                                                        |   |   |   |   |  |   |   |  |   |
| Internet                  services                      |   | $                                                                           | 4,086   |                                                                        |   | 100.0 | % | $ | 4,399 |   |   | 85.9 | % |
| Other                                                   |   |                                                                        | — |                                                                        |   | — | % |   | 720 |   |   | 14.1 | % |
| Total                                                   |   |                                                                        | 4,086   |                                                                        |   | 100.0 | % |   | 5,119 |   |   | 100.0 | % |
| OPERATING                  COSTS AND EXPENSES:          |   |                                                                        |         |                                                                        |   |  |   |   |  |   |   |  |   |
| Connectivity                  and operations            |   |                                                                        | 2,030   |                                                                        |   | 49.7 | % |   | 3,094 |   |   | 60.4 | % |
| Sales                  and marketing                    |   |                                                                        | 95      |                                                                        |   | 2.3 | % |   | 164 |   |   | 3.2 | % |
| General                  and administrative             |   |                                                                        | 1,573   |                                                                        |   | 38.5 | % |   | 1,536 |   |   | 30.0 | % |
| Provision                  for bad debt expense         |   |                                                                        | 3       |                                                                        |   | 0.1 | % |   | 31 |   |   | 0.6 | % |
| Depreciation                  and amortization          |   |                                                                        | 413     |                                                                        |   | 10.1 | % |   | 429 |   |   | 8.4 | % |
| Total                                                   |   |                                                                        | 4,114   |                                                                        |   | (100.7 | )% |   | 5,254 |   |   | (102.6 | )% |
| OPERATING                  LOSS                         |   |                                                                        | (28     | )                                                                           |   | (0.7 | )% |   | (135 | ) |   | (2.6 | )% |
| INTEREST                  EXPENSE, NET                  |   |                                                                        | 9       |                                                                        |   | (0.2 | )% |   | 28 |   |   | (0.6 | )% |
| NET                  LOSS                               |   | $                                                                           | (37     | )                                                                           |   | (0.9 | )% | $ | (163 | ) |   | (3.2 | )% |
| NET                  LOSS PER COMMON SHARE:             |   |                                                                        |         |                                                                        |   |  |   |   |  |   |   |  |   |
| BASIC                                                   |   | $                                                                           | (0.00   | )                                                                           |   |  |   | $ | (0.01 | ) |   |  |   |
| DILUTED                                                 |   | $                                                                           | (0.00   | )                                                                           |   |  |   | $ | (0.01 | ) |   |  |   |
| WEIGHTED                  AVERAGE COMMON                |   |                                                                        |         |                                                                        |   |  |   |   |  |   |   |  |   |
| SHARES                  OUTSTANDING:                    |   |                                                                        |         |                                                                        |   |  |   |   |  |   |   |  |   |
| BASIC                                                   |   |                                                                        | 12,509  |                                                                        |   |  |   |   | 12,446 |   |   |  |   |
| DILUTED                                                 |   |                                                                        | 12,509  |                                                                        |   |  |   |   | 12,446 |   |   |  |   |
|                                                    |   |                                                                        |    |                                                                        |   |   |   |   |   |   |   |   |   |
| CASH                  FLOW DATA:                        |   |                                                                        |         |                                                                        |   |  |   |   |  |   |   |  |   |
| Cash                  flow provided by operations       |   | $                                                                           | (2      | )                                                                           |   |  |   | $ | 3 |   |   |  |   |
| Cash                  flow used in investing activities |   | $                                                                           | (174    | )                                                                           |   |  |   | $ | (254 | ) |   |  |   |
| Cash                  flow used in financing activities |   | $                                                                           | (90     | )                                                                           |   |  |   | $ | (188 | ) |   |  |   |
|                                                    |   |                                                                        |    |                                                                        |   |   |   |   |   |   |   |   |   |
| OTHER                  DATA:                            |   |                                                                        |         |                                                                        |   |  |   |   |  |   |   |  |   |
| Subscribers                  at end of period (1)       |   |                                                                        | 37,000  |                                                                        |   |  |   |   | 49,000 |   |   |  |   |
| EBITDA(2)                                               |   | $                                                                           | 385     |                                                                        |   |  |   | $ | 294 |   |   |  |   |
| EBITDA                  margin(3)                       |   |                                                                        | 9.4     | %                                                                           |   |  |   |   | 5.7 | % |   |  |   |
|                                                    |   |                                                                        |    |                                                                        |   |   |   |   |   |   |   |   |   |
| Reconciliation                  of net loss to EBITDA:  |   |                                                                        |    |                                                                        |   |   |   |   |   |   |   |   |   |
| Net                  loss                               |   | $                                                                           | (37     | )                                                                           |   |   |   | $ | (163 | ) |   |   |   |
| Add:                                                    |   |                                                                        |    |                                                                        |   |   |   |   |   |   |   |   |   |
| Depreciation                  and amortization          |   |                                                                        | 413     |                                                                        |   |   |   |   | 429 |   |   |   |   |
| Interest                  expense, net                  |   |                                                                        | 9       |                                                                        |   |  |   |   | 28 |   |   |  |   |
| EBITDA(2)                                               |   | $                                                                           | 385     |                                                                        |   |  |   | $ | 294 |   |   |  |   |

----

----

*Six      Months Ended December 31, 2006 Compared to Six Months Ended December 31, 2005      (Continued)*

*Total      revenue. *

*Connectivity      and operations. *

*Sales      and marketing. *

*General      and administrative. *

*Provision      for bad debt expense. *

*Depreciation      and amortization.*

*Interest      expense, net. *

**Liquidity      and Capital Resources**

----

**“Safe      Harbor” Statement**

----

**ITEM      3. CONTROLS AND PROCEDURES**

----

**PART      II - OTHER INFORMATION**

**ITEM      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

| MATTER                VOTED ON                                                                                            |   | SHARES                VOTED FOR |       | SHARES                VOTED AGAINST |   | AUTHORITY                WITHHELD |   | ABSTAINING |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|------------|-------------------------------------|--------|-----------------------------------|--------|------------|--------|
| The                election of William E. (Billy) Ladin, Jr. to the board of                directors                     |   |                            | 10,524,376 |                                |   | -                                 |   |       | 67,243 |   |   | 1,917,295 |   |
| The                election of Ambassador John N. Palmer to the board of                directors                         |   |                            | 10,536,612 |                                |   | -                                 |   |       | 55,007 |   |   | 1,917,295 |   |
| The                ratification of the selection of UHY LLP to audit fiscal year 2007                financial statements |   |                            | 10,528,986 |                                |   | 32,812                            |   |       | 62,633 |   |   | 1,917,295 |   |

**ITEM      6. EXHIBITS**

| **Exhibit**  |   | **Description**                                                                                                                                                                                         |
|-------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1               |   | Internet                America, Inc.'s Articles of Incorporation (1)                                                                                                                                        |
|              |   |                                                                                                                                                                                                         |
| 3.2               |   | Internet                America, Inc.'s Bylaws, as amended (2)                                                                                                                                               |
|              |   |                                                                                                                                                                                                         |
| 4.1               |   | Rights                Agreement dated as of August 9, 2004, between Internet America, Inc.                and                American Stock Transfer & Trust Company, as Rights Agent                (3) |
|              |   |                                                                                                                                                                                                         |
| 10.1              |   | Internet                America, Inc. 1996 Incentive Stock Option Plan (4)                                                                                                                                   |
|              |   |                                                                                                                                                                                                         |
| 10.2              |   | Internet                America, Inc. First Amended 1998 Non-Qualified Stock Option Plan                (5)                                                                                                  |
|              |   |                                                                                                                                                                                                         |
| 10.3              |   | Internet                America, Inc. Employee and Consultant Stock Option Plan                (6)                                                                                                           |
|              |   |                                                                                                                                                                                                         |
| 10.4              |   | Internet                America, Inc. 2004 Non-Employee Director Plan (7)                                                                                                                                    |
|              |   |                                                                                                                                                                                                         |
| 31.1              |   | Rule                13a-14(a)/15d-14(a) Certification of William E. Ladin,                Jr.*                                                                                                               |
|              |   |                                                                                                                                                                                                         |
| 31.2              |   | Rule                13a-14(a)/15d-14(a) Certification of Jennifer S.                LeBlanc*                                                                                                                 |
|              |   |                                                                                                                                                                                                         |
| 32.1              |   | Section                1350 Certification of William E. Ladin, Jr.*                                                                                                                                          |
|              |   |                                                                                                                                                                                                         |
| 32.2              |   | Section                1350 Certification of Jennifer S.                LeBlanc*                                                                                                                             |

| (1) | Previously                filed as an exhibit to Internet America's Registration Statement                on Form                SB-2 as amended (file no. 333-59527) initially filed on July 21,                1998, and                incorporated herein by reference. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Previously                filed as an exhibit to Internet America's Registration Statement                on Form                S-8 (file no. 333-120001) filed on October 27, 2004, and incorporated                herein by reference. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Previously                filed as an exhibit to Internet America's Registration Statement                on Form                8-A (file no. 001-32273) filed on August 11, 2004, and incorporated                herein                by reference. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Previously                filed as an exhibit to Internet America’s Registration Statement on Form                S-8 (file no. 333-70461) filed on January 19, 1999, and incorporated                herein by reference. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Previously                filed as an exhibit to Internet America’s Post-Effective Amendment                Registration Statement on Form S-8 (file no. 333-80277) filed on                December                8, 1999, and incorporated herein by                reference. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Previously                filed as an exhibit to Internet America’s Registration Statement on Form                S-8 (file no. 333-92295) filed on December 8, 1999, and incorporated                herein by reference. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Previously                filed as an exhibit to Internet America’s Registration Statement on Form                S-8 (file no. 333-120001) filed on October 27, 2004, and incorporated                herein by reference. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**SIGNATURES**

|                        |                                                             |                                   |
|-----------------------------|------------------------------------------------------------------|----------------------------------------|
|                        | INTERNET                AMERICA,                INC.(Registrant) |
|                   |                                                        |                              |
| Date:              02/09/07 | By:                                                    | /s/              William E. Ladin, Jr. |
|                        | William              E. Ladin, Jr.                               |
|                        | Chairman              and Chief Executive Officer                |
|                        |                                                                           |                                 |
|-----------------------------|--------------------------------------------------------------------------------|--------------------------------------|
| Date:              02/09/07 | By:                                                                  | /s/              Jennifer S. LeBlanc |
|                        | Jennifer              S. LeBlanc                                               |
|                        | Chief              Financial and Accounting Officer and              Secretary |

----

**INDEX      TO EXHIBITS**

| Exhibit                  No. |   | Description                                                                                                                                                                                                          |
|------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         |   |                                                                                                                                                                                                                 |
| 3.1                          |   | Internet                  America, Inc.'s Articles of Incorporation (1)                                                                                                                                              |
|                         |   |                                                                                                                                                                                                                 |
| 3.2                          |   | Internet                  America, Inc.'s Bylaws, as amended (2)                                                                                                                                                     |
|                         |   |                                                                                                                                                                                                                 |
| 4.1                          |   | Rights                  Agreement dated as of August 9, 2004, between Internet America,                  Inc. and                  American Stock Transfer & Trust Company, as Rights Agent                  (3) |
|                         |   |                                                                                                                                                                                                                 |
| 10.1                         |   | Internet                  America, Inc. 1996 Incentive Stock Option Plan (4)                                                                                                                                         |
|                         |   |                                                                                                                                                                                                                 |
| 10.2                         |   | Internet                  America, Inc. First Amended 1998 Non-Qualified Stock Option Plan                  (5)                                                                                                      |
|                         |   |                                                                                                                                                                                                                 |
| 10.3                         |   | Internet                  America, Inc. Employee and Consultant Stock Option Plan                  (6)                                                                                                               |
|                         |   |                                                                                                                                                                                                                 |
| 10.4                         |   | Internet                  America, Inc. 2004 Non-Employee Director Plan (7)                                                                                                                                          |
|                         |   |                                                                                                                                                                                                                 |
| 31.1                         |   | Rule                  13a-14(a)/15d-14(a) Certification of William E. Ladin,                  Jr.*                                                                                                                   |
|                         |   |                                                                                                                                                                                                                 |
| 31.2                         |   | Rule                  13a-14(a)/15d-14(a) Certification of Jennifer S.                  LeBlanc*                                                                                                                     |
|                         |   |                                                                                                                                                                                                                 |
| 32.1                         |   | Section                  1350 Certification of William E. Ladin, Jr.*                                                                                                                                                |
|                         |   |                                                                                                                                                                                                                 |
| 32.2                         |   | Section                  1350 Certification of Jennifer S.                  LeBlanc*                                                                                                                                 |

----

| (1) | Previously                filed as an exhibit to Internet America's Registration Statement                on Form                SB-2 as amended (file no. 333-59527) initially filed on July 21,                1998, and                incorporated herein by reference. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Previously                filed as an exhibit to Internet America's Registration Statement                on Form                S-8 (file no. 333-120001) filed on October 27, 2004, and incorporated                herein by reference. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Previously                filed as an exhibit to Internet America's Registration Statement                on Form                8-A (file no. 001-32273) filed on August 11, 2004, and incorporated                herein                by reference. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Previously                filed as an exhibit to Internet America’s Registration Statement on Form                S-8 (file no. 333-70461) filed on January 19, 1999, and incorporated                herein by reference. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Previously                filed as an exhibit to Internet America’s Post-Effective Amendment                Registration Statement on Form S-8 (file no. 333-80277) filed on                December                8, 1999, and incorporated herein by                reference. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Previously                filed as an exhibit to Internet America’s Registration Statement on Form                S-8 (file no. 333-92295) filed on December 8, 1999, and incorporated                herein by reference. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Previously                filed as an exhibit to Internet America’s Registration Statement on Form                S-8 (file no. 333-120001) filed on October 27, 2004, and incorporated                herein by reference. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----