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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934
|- | -------------------------------------------------------------------------------



FOR THE TRANSITION PERIOD FROM  TO



COMMISSION FILE NUMBER 000-25147



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INTERNET AMERICA, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|TEXAS                                                          |  | 86-0778979                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|350 N. ST. PAUL, SUITE 3000, DALLAS, TX                        |  | 75201                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             



(214) 861-2500

(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



As of May 9, 2005, registrant had 10,597,035 shares of Common Stock at $.01 par value, outstanding.



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PART I - FINANCIAL INFORMATION



ITEM 1 - FINANCIAL STATEMENTS



INTERNET AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                                                                                 |  |                |             |   |               |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                                                                                                 |  | March 31, 2005 |             |   | June 30, 2004 |  
|ASSETS                                                                                                                                                           |  |                |             |   |               |   |             |  
|                                                                                                                                                                 |  |               
|CURRENT ASSETS:                                                                                                                                                  |  |                |             |   |               |   |             |  
|Cash and cash equivalents                                                                                                                                        |  | $              | 1,139,414   |   |               | $ | 1,869,750   |  
|Accounts receivable, net of allowance for uncollectible accounts of $58,469 and $74,819 as of March 31, 2005 and June 30, 2004
respectively                      |  |                | 177,235     |   |               |   | 214,649     |  
|Prepaid expenses and other current assets                                                                                                                        |  |                | 211,752     |   |               |   | 80,285      |  
|                                                                                                                                                                 |  |                |             |   |               |   |             |  
|Total current assets                                                                                                                                             |  |                | 1,528,401   |   |               |   | 2,164,684   |  
|PROPERTY AND EQUIPMENT  Net                                                                                                                                     |  |                | 691,337     |   |               |   | 298,417     |  
|OTHER ASSETS  Net                                                                                                                                               |  |                | 5,030,770   |   |               |   | 4,360,838   |  
|                                                                                                                                                                 |  |                |             |   |               |   |             |  
|TOTAL                                                                                                                                                            |  | $              | 7,250,508   |   |               | $ | 6,823,939   |  
|                                                                                                                                                                 |  |                |             |   |               |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                             |  |                |             |   |               |   |             |  
|                                                                                                                                                                 |  |               
|CURRENT LIABILITIES:                                                                                                                                             |  |                |             |   |               |   |             |  
|Trade accounts payable                                                                                                                                           |  | $              | 462,494     |   |               | $ | 562,999     |  
|Accrued liabilities                                                                                                                                              |  |                | 625,675     |   |               |   | 630,755     |  
|Deferred revenue                                                                                                                                                 |  |                | 1,428,128   |   |               |   | 1,587,172   |  
|Note payable                                                                                                                                                     |  |                | 12,500      |   |               |   | 112,500     |  
|Current portion of long-term debt                                                                                                                                |  |                | 298,678     |   |               |   |            |  
|Current portion of capital lease obligations                                                                                                                     |  |                | 68,603      |   |               |   |            |  
|                                                                                                                                                                 |  |                |             |   |               |   |             |  
|Total current liabilities                                                                                                                                        |  |                | 2,896,078   |   |               |   | 2,893,426   |  
|                                                                                                                                                                 |  |               
|Long-term debt                                                                                                                                                   |  |                | 114,626     |   |               |   |            |  
|Capital lease obligations                                                                                                                                        |  |                | 204,497     |   |               |   |            |  
|                                                                                                                                                                 |  |                |             |   |               |   |             |  
|Total liabilities                                                                                                                                                |  |                | 3,215,201   |   |               |   | 2,893,426   |  
|                                                                                                                                                                 |  |                |             |   |               |   |             |  
|                                                                                                                                                                 |  |               
|COMMITMENTS AND CONTINGENCIES                                                                                                                                    |  |                |             |   |               |   |             |  
|SHAREHOLDERS EQUITY:                                                                                                                                            |  |                |             |   |               |   |             |  
|Common stock, $.01 par value; 40,000,000 shares authorized 10,593,647 and 10,449,652 issued and outstanding as of March 31, 2005 and June 30,
2004, respectively |  |                | 105,936     |   |               |   | 104,497     |  
|Additional paid-in capital                                                                                                                                       |  |                | 55,739,914  |   |               |   | 55,622,488  |  
|Treasury stock, at cost; 200,000 and - 0 - shares outstanding as of March 31, 2005 and June 30, 2004, respectively                                               |  |                | (160,000    | ) |               |   |            |  
|Note receivable from a shareholder                                                                                                                               |  |                |            |   |               |   | (82,000     | )
|Accumulated deficit                                                                                                                                              |  |                | (51,650,543 | ) |               |   | (51,714,472 | )
|                                                                                                                                                                 |  |                |             |   |               |   |             |  
|Total shareholders equity                                                                                                                                       |  |                | 4,035,307   |   |               |   | 3,930,513   |  
|                                                                                                                                                                 |  |                |             |   |               |   |             |  
|TOTAL                                                                                                                                                            |  | $              | 7,250,508   |   |               | $ | 6,823,939   |  
|                                                                                                                                                                 |  |                |             |   |               |   |             |  



See accompanying notes
to condensed consolidated financial statements.



2



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INTERNET AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------- |  | ---------------------------- | ---------- | - | --------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                            |  | Three Months Ended March 31, |            |   | Nine Months Ended March 31, |  
|                                            |  | 2005                         |            |   | 2004                        |   |            | 2005 |  |   | 2004       |  
|REVENUES:                                   |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Internet services                           |  | $                            | 2,570,057  |   |                             | $ | 2,826,827  |      |  | $ | 7,727,423  |   |  | $ | 9,365,653  |  
|Other                                       |  |                              | 216,896    |   |                             |   | 5,586      |      |  |   | 331,583    |   |  |   | 16,873     |  
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Total                                       |  |                              | 2,786,953  |   |                             |   | 2,832,413  |      |  |   | 8,059,006  |   |  |   | 9,382,526  |  
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|OPERATING COSTS AND EXPENSES:               |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Connectivity and operations                 |  |                              | 1,923,264  |   |                             |   | 1,342,944  |      |  |   | 4,898,216  |   |  |   | 4,918,196  |  
|Sales and marketing                         |  |                              | 180,566    |   |                             |   | 313,666    |      |  |   | 498,409    |   |  |   | 446,896    |  
|General and administrative                  |  |                              | 750,743    |   |                             |   | 1,229,381  |      |  |   | 2,186,468  |   |  |   | 2,989,584  |  
|Bad debt expense (recoveries)               |  |                              | 87         |   |                             |   | 54,847     |      |  |   | (4,134     | ) |  |   | 184,289    |  
|Depreciation and amortization               |  |                              | 184,385    |   |                             |   | 66,838     |      |  |   | 410,465    |   |  |   | 260,524    |  
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Total                                       |  |                              | 3,039,045  |   |                             |   | 3,007,676  |      |  |   | 7,989,424  |   |  |   | 8,799,489  |  
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|OPERATING (LOSS ) INCOME                    |  |                              | (252,092   | ) |                             |   | (175,263   | )    |  |   | 69,582     |   |  |   | 583,038    |  
|INTEREST EXPENSE (INCOME), NET              |  |                              | 5,589      |   |                             |   | (71,063    | )    |  |   | 5,653      |   |  |   | (89,214    | )
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|NET (LOSS) INCOME                           |  | $                            | (257,681   | ) |                             | $ | (104,200   | )    |  | $ | 63,929     |   |  | $ | 672,252    |  
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|NET (LOSS) INCOME PER COMMON SHARE:         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|BASIC                                       |  | $                            | (0.02      | ) |                             | $ | (0.01      | )    |  | $ | 0.01       |   |  | $ | 0.06       |  
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|DILUTED                                     |  | $                            | (0.02      | ) |                             | $ | (0.01      | )    |  | $ | 0.01       |   |  | $ | 0.06       |  
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|BASIC                                       |  |                              | 10,578,144 |   |                             |   | 10,418,944 |      |  |   | 10,523,010 |   |  |   | 10,398,501 |  
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|DILUTED                                     |  |                              | 10,578,144 |   |                             |   | 10,418,944 |      |  |   | 10,571,961 |   |  |   | 10,411,110 |  
|                                            |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  



See accompanying notes
to condensed consolidated financial statements.



3



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INTERNET AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                                          |  |                             |           |   |      |   |           |  
|--------------------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | - | ---- | - | --------- | -
|                                                                                                          |  | Nine Months Ended March 31, |          
|                                                                                                          |  | 2005                        |           |   | 2004 |  
|OPERATING ACTIVITIES:                                                                                     |  |                             |           |   |      |   |           |  
|Net income                                                                                                |  | $                           | 63,929    |   |      | $ | 672,251   |  
|Adjustments to reconcile net income to net cash used in operating activities:                             |  |                             |           |   |      |   |           |  
|Depreciation and amortization                                                                             |  |                             | 410,465   |   |      |   | 260,524   |  
|Bad debt (recoveries) expense                                                                             |  |                             | (4,134    | ) |      |   | 184,289   |  
|Non-cash stock compensation expense                                                                       |  |                             |          |   |      |   | 4,000     |  
|Non-cash settlement expense                                                                               |  |                             |          |   |      |   | 212,500   |  
|Changes in operating assets and liabilities, net of acquisitions:                                         |  |                             |           |   |      |   |           |  
|Accounts receivable                                                                                       |  |                             | 31,598    |   |      |   | (337,624  | )
|Prepaid expenses and other current assets                                                                 |  |                             | (131,466  | ) |      |   | (7,911    | )
|Other assets                                                                                              |  |                             | (900      | ) |      |   | 19,555    |  
|Accounts payable and accrued liabilities                                                                  |  |                             | (183,581  | ) |      |   | (700,449  | )
|Deferred revenue                                                                                          |  |                             | (331,015  | ) |      |   | (330,928  | )
|                                                                                                          |  |                             |           |   |      |   |           |  
|Net cash used in operating activities                                                                     |  |                             | (145,104  | ) |      |   | (23,793   | )
|                                                                                                          |  |                             |           |   |      |   |           |  
|INVESTING ACTIVITIES:                                                                                     |  |                             |           |   |      |   |           |  
|Purchases of property and equipment, net                                                                  |  |                             | (222,866  | ) |      |   | (24,678   | )
|Cash paid for acquisitions                                                                                |  |                             | (109,250  | ) |      |   |          |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|Net cash used in investing activities                                                                     |  |                             | (332,116  | ) |      |   | (24,678   | )
|                                                                                                          |  |                             |           |   |      |   |           |  
|FINANCING ACTIVITIES:                                                                                     |  |                             |           |   |      |   |           |  
|Proceeds from issuance of common stock                                                                    |  |                             | 64,286    |   |      |   | 29,083    |  
|Principal payments under long-term debt                                                                   |  |                             | (227,447  | ) |      |   |          |  
|Principal payments under capital lease obligations                                                        |  |                             | (17,294   | ) |      |   | (14,096   | )
|Purchase of stock option pursuant to letter of credit agreement                                           |  |                             |          |   |      |   | (150,000  | )
|                                                                                                          |  |                             |           |   |      |   |           |  
|Purchase of treasury stock, net of note receivable forgiven                                               |  |                             | (72,661   | ) |      |   |          |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|Net cash used in financing activities                                                                     |  |                             | (253,116  | ) |      |   | (135,013  | )
|                                                                                                          |  |                             |           |   |      |   |           |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                                 |  |                             | (730,336  | ) |      |   | (183,484  | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                            |  |                             | 1,869,750 |   |      |   | 1,968,091 |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                  |  | $                           | 1,139,414 |   |      | $ | 1,784,607 |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|SUPPLEMENTAL INFORMATION:                                                                                 |  |                             |           |   |      |   |           |  
|Cash paid for interest                                                                                    |  | $                           | 20,244    |   |      | $ | 19        |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                                                              |  |                             |           |   |      |   |           |  
|Forgiveness of note receivable and related accrued interest in connection with purchase of treasury stock |  | $                           | 87,349    |   |      | $ |          |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|Assets acquired through capital lease obligation                                                          |  | $                           | 223,444   |   |      | $ |          |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|Stock issued in connection with acquisitions                                                              |  | $                           | 54,580    |   |      | $ |          |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|Debt assumed in connection with acquisitions                                                              |  | $                           | 257,748   |   |      | $ |          |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|Debt issued in connection with acquisitions                                                               |  | $                           | 356,327   |   |      | $ |          |  
|                                                                                                          |  |                             |           |   |      |   |           |  
|Note payable issued in connection with lawsuit settlement                                                 |  | $                           |          |   |      | $ | 137,500   |  
|                                                                                                          |  |                             |           |   |      |   |           |  



See accompanying notes
to condensed consolidated financial statements.



4



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INTERNET AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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



Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Article 10 of Regulation S-X of the Securities and Exchange Commission. The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all
adjustments necessary to achieve a fair statement of the Companys financial position and results of operations for the interim periods presented. All such adjustments are of a normal and recurring nature. These condensed financial statements
should be read in conjunction with the financial statements and related footnotes for our fiscal year ended June 30, 2004 included in the Companys Annual Report on Form 10-K (File No. 000-25147).



|2. | Acquisitions
|-- | ------------



During the nine months ended March 31, 2005, the Company completed the acquisition of five internet service providers (ISPs). The combined
aggregate purchase price was approximately $1,033,000, including approximately $109,000 in cash and common stock valued at approximately $55,000. The remaining consideration included the issuance of approximately $356,000 in debt and the assumption
of approximately $513,000 in liabilities. The value of the 72,000 shares issued in connection with acquisitions was determined based on the average market price of the Companys common shares over the 2-day period before and after the terms of
the acquisitions were agreed to and announced.



Subscriber
acquisition costs recorded in connection with the acquisitions totaled approximately $858,000. The fair values assigned to the assets acquired and liabilities assumed at the date of acquisition are based upon preliminary estimates. The Company is in
the process of obtaining supplemental information related to certain intangible assets and equipment, accordingly, the allocation of the purchase price is subject to refinement.



All of the above acquisitions were accounted for as purchases and, accordingly, the operations of the acquired companies
were included in the financial statements from their respective date of acquisition. Pro forma information for acquisitions is not presented as the impact is not material.



|3. | Basic and Diluted Net Income Per Share
|-- | --------------------------------------



There are no adjustments required to be made to net income for the purpose of computing basic and diluted earnings per share (EPS) for the
three and nine months ended March 31, 2005 and 2004. For the three months ended March 31, 2005 and 2004 diluted earnings per share is the same as basic earnings per share due to the net loss. For the nine months ended March 31, 2005 and 2004,
options to purchase 129,750 and 20,000 shares of common stock were included in the computation of diluted EPS because the options were in the money as of March 31, 2005 and 2004, respectively, and it resulted in 48,951 and 12,609 common
stock equivalents to be added to the weighted average shares for the nine months ended March 31, 2005 and 2004, respectively. During the nine months ended March 31, 2005 and 2004, options to purchase 361,145 and 465,037 shares of common stock were
not included in the computation of diluted EPS because the options were not in the money as of March 31, 2005 and 2004, respectively.





5



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|4. | Other Assets
|-- | ------------



The carrying value of other assets at March 31, 2005 is as follows:



|                              |  |          |             |   |                            |   |          |                    |  |       |        |  |   |             |  
|----------------------------- |  | -------- | ----------- | - | -------------------------- | - | -------- | ------------------ |  | ----- | ------ |  | - | ----------- | -
|                              |  | Goodwill |             |   | SubscriberAcquisitionCosts |   |          | Deposits And Other |  | Total |       
|Original Cost                 |  | $        | 26,023,407  |   |                            | $ | 857,660  |                    |  | $     | 66,261 |  | $ | 26,947,328  |  
|Less accumulated amortization |  |          | (21,727,930 | ) |                            |   | (188,628 | )                  |  |       |       |  |   | (21,916,558 | )
|                              |  |          |             |   |                            |   |          |                    |  |       |        |  |   |             |  
|Other assets, net             |  | $        | 4,295,477   |   |                            | $ | 669,032  |                    |  | $     | 66,261 |  | $ | 5,030,770   |  
|                              |  |          |             |   |                            |   |          |                    |  |       |        |  |   |             |  



The weighted average
amortization period for subscriber acquisition costs is 24 months for dial-up customers and 36 months for wireless customers. Amortization expense for the three and nine months ended March 31, 2005, was approximately $100,000 and $189,000,
respectively. As of March 31, 2005, expected amortization expense for the fiscal years ended June 30, 2005, 2006, 2007 and 2008 is shown below:



|                    |  |                       |         |             |   |             |  |             |         |  |   |       
|------------------- |  | --------------------- | ------- | ----------- | - | ----------- |  | ----------- | ------- |  | - | ------
|                    |  | Remainder Fiscal 2005 |         | Fiscal 2006 |   | Fiscal 2007 |  | Fiscal 2008
|Amortization Amount |  | $                     | 100,652 |             | $ | 400,203     |  | $           | 153,010 |  | $ | 15,167



|5. | Employee Stock Option Plans
|-- | ---------------------------



The Company applies Accounting Principles Board Opinion (APB) No. 25 and related Interpretations in accounting for its employee stock option
plans. The estimated fair value of each option grant was determined by reference to the quoted market price of the Companys common shares at the date of grant over the amount an employee must pay to acquire the common shares of the Company. No
compensation expense has been charged against operations for the nine months ended March 31, 2005 and 2004 related to stock option plans.



Had compensation cost for the Companys stock options been determined based on the fair value at the grant dates for awards consistent with the
method of Statement of Financial Accounting Standard (SFAS) No. 123, the Companys net income (loss) and income (loss) per share for the three and nine months ended March 31, 2005 and 2004 would have been as indicated below:



|                                          |  |                                   |          |   |                                   |   |          |                                  |  |   |                                  |   |  |   |          |  
|----------------------------------------- |  | --------------------------------- | -------- | - | --------------------------------- | - | -------- | -------------------------------- |  | - | -------------------------------- | - |  | - | -------- | -
|                                          |  | Three Months Ended March 31, 2005 |          |   | Three Months Ended March 31, 2004 |   |          | Nine Months Ended March 31, 2005 |  |   | Nine Months Ended March 31, 2004 |  
|Reported (loss) net income                |  | $                                 | (257,681 | ) |                                   | $ | (104,200 | )                                |  | $ | 63,929                           |   |  | $ | 672,251  |  
|Less: SFAS No. 123 compensation expense   |  |                                   | (48,246  | ) |                                   |   | (25,140  | )                                |  |   | (160,589                         | ) |  |   | (231,904 | )
|                                          |  |                                   |          |   |                                   |   |          |                                  |  |   |                                  |   |  |   |          |  
|Pro forma net (loss) income               |  | $                                 | (305,927 | ) |                                   | $ | (129,340 | )                                |  | $ | (96,660                          | ) |  | $ | 440,347  |  
|                                          |  |                                   |          |   |                                   |   |          |                                  |  |   |                                  |   |  |   |          |  
|Reported basic (loss) income per share    |  | $                                 | (0.02    | ) |                                   | $ | (0.01    | )                                |  | $ | 0.01                             |   |  | $ | 0.06     |  
|                                          |  |                                   |          |   |                                   |   |          |                                  |  |   |                                  |   |  |   |          |  
|Reported diluted (loss) income per share  |  | $                                 | (0.02    | ) |                                   | $ | (0.01    | )                                |  | $ | 0.01                             |   |  | $ | 0.06     |  
|                                          |  |                                   |          |   |                                   |   |          |                                  |  |   |                                  |   |  |   |          |  
|Less: SFAS No. 123 compensation expense   |  | $                                 | (0.01    | ) |                                   | $ | (0.01    | )                                |  | $ | (0.02                            | ) |  |   | (0.02    | )
|                                          |  |                                   |          |   |                                   |   |          |                                  |  |   |                                  |   |  |   |          |  
|Pro forma basic (loss) income per share   |  | $                                 | (0.03    | ) |                                   | $ | (0.01    | )                                |  | $ | (0.01                            | ) |  | $ | 0.04     |  
|                                          |  |                                   |          |   |                                   |   |          |                                  |  |   |                                  |   |  |   |          |  
|Pro forma diluted (loss) income per share |  | $                                 | (0.03    | ) |                                   | $ | (0.01    | )                                |  | $ | (0.01                            | ) |  | $ | 0.04     |  
|                                          |  |                                   |          |   |                                   |   |          |                                  |  |   |                                  |   |  |   |          |  



6



---

|5. | Employee Stock Option Plans (continued)
|-- | ---------------------------------------



Options to purchase 19,608 shares of common stock were exercised during the three months ended March 31, 2005 and options to purchase 49,608 shares of
common stock were exercised during the nine months ending March 31, 2005. During the three and nine months ended March 31, 2004, options to purchase 18,000 and 23,000 shares of common stock were exercised, respectively.



|6. | Restructuring Charges
|-- | ---------------------



In March 2005 the Company completed a reduction-in-force terminating approximately 17% of its workforce. During the three and nine months ended March 31,
2005, the Company recorded and paid termination benefits in the form of severance costs of approximately $80,000 related to this reduction-in-force. The Company completed an additional reduction-in-force in April 2005. See Footnote 12 
Subsequent Events.



|7. | Income Taxes
|-- | ------------



During the nine months ended March 31, 2005 and 2004, the Company generated net income. No provision for income taxes has been recorded as the Company has
reduced the valuation allowance on its net operating losses generated in prior periods. As of March 31, 2005, the Company continues to maintain a full valuation allowance for its net deferred tax assets of approximately $11.4 million. Given its
limited history of generating net income, the Company has concluded that it is not more likely than not that the net deferred tax assets will be realized.



|8. | Long-Term Debt
|-- | --------------



Long-term debt consists of:



|                                                                                                                  |  |                     |          |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------- | -------- | -
|                                                                                                                  |  | As ofMarch 31, 2005 |         
|Note payable due November 15, 2007, payable in monthly installments of $1,825, bearing interest at prime plus 3%  |  | $                   | 53,503   |  
|Note payable due September 22, 2007, payable in three annual installments of $41,667 with interest imputed at 8%  |  |                     | 107,379  |  
|Note payable due April 1, 2006, payable in eighteen monthly installments of $5,629 with interest imputed at 8%    |  |                     | 69,928   |  
|Note payable due October 1, 2005, payable in four quarterly installments of $23,863 with interest imputed at 8%   |  |                     | 68,853   |  
|Note payable due May 30, 2007, payable in monthly installments of approx. $987 with interest imputed at 6.75%     |  |                     | 26,466   |  
|Note payable due November 17, 2005 payable in four quarterly installments of $12,000 with interest imputed at 8%  |  |                     | 34,625   |  
|Note payable due September 15, 2005, payable in four quarterly installments of $3,809 with interest imputed at 8% |  |                     | 7,434    |  
|Credit card line of credit advance, payable on demand, bearing interest at prime plus 6.50%                       |  |                     | 45,116   |  
|                                                                                                                  |  |                     |          |  
|                                                                                                                  |  |                     | 413,304  |  
|                                                                                                                  | 
|Less current portion                                                                                              |  |                     | (298,678 | )
|                                                                                                                  |  |                     |          |  
|Total long-term debt                                                                                              |  | $                   | 114,626  |  
|                                                                                                                  |  |                     |          |  



7



---

|9. | Capital Lease Obligations
|-- | -------------------------



The Company leases certain phone equipment, wireless equipment and switches under leases with bargain purchase options. The following is a schedule by
fiscal years of the future minimum lease payments under these capital leases together with the present value of the net minimum lease payments as of March 31, 2005:



|                                              |  |   |         |  
|--------------------------------------------- |  | - | ------- | -
|2005 remainder                                |  | $ | 20,386  |  
|2006                                          |  |   | 88,101  |  
|2007                                          |  |   | 74,113  |  
|2008                                          |  |   | 54,368  |  
|2009                                          |  |   | 54,368  |  
|2010                                          |  |   | 31,714  |  
|                                              |  |   |         |  
|Total minimum lease payments                  |  |   | 323,050 |  
|Less amounts representing interest            |  |   | (49,950 | )
|                                              |  |   |         |  
|Present value of minimum capitalized payments |  |   | 273,100 |  
|Less current portion                          |  |   | (68,603 | )
|                                              |  |   |         |  
|Long-term capitalized lease obligations       |  | $ | 204,497 |  
|                                              |  |   |         |  



|10. | Related Parties
|--- | ---------------



The Company entered into a consulting agreement for a one-year term beginning October 1, 2003 with the former Chairman and CEO of the Company, Jack T.
Smith (Mr. Smith). The agreement, which terminated September 30, 2004, stated that a consulting fee was to be paid at a rate of $10,000 per month. During the nine months ended March 31, 2005, the Company paid a total of $30,000 in
consulting fees to Mr. Smith. The Company also had an $82,000 note receivable due from Mr. Smith and accrued interest income due on the note of $5,349. Included in interest income for the nine months ended March 31, 2005, is approximately $1,300
related to Mr. Smiths note receivable. In October 2004, the Company entered into a release agreement with Mr. Smith resulting in a cash payment to Mr. Smith of approximately $73,000 and the cancellation of the note receivable and related
accrued interest, in connection with the purchase by the Company of 200,000 shares of common stock from Mr. Smith.



During the nine months ended March 31, 2005, the Company paid approximately $23,000 in marketing consulting fees and related expenses to Marc Ladin
Consulting for services rendered through July 2004. Marc Ladin is the son of William E. Ladin, the CEO of the Company. Marc Ladin became Vice President-Marketing and Sales for the Company in August 2004 and resigned from the position in April 2005.



In April 2004, the Company settled a lawsuit it had filed
against Gary Corona, a former non-employee board of director of the Company, and, as a result, entered into a non-interest bearing note payable with Mr. Corona due in eleven monthly installments of $12,500. Included in short-term note payable on the
balance sheet as of March 31, 2005, is $12,500 related to the settlement with Mr. Corona.



|11. | New Accounting Pronouncements
|--- | -----------------------------



In December 2004, the Financial Accounting Standards Board issued a revision to Statement No. 123 (revised 2004) (SFAS 123R), Share-Based
Payment. SFAS 123R will, with certain exceptions, require entities that grant stock options and shares to employees to recognize the fair value of those options and shares as compensation cost over the service (vesting) period in their financial
statements. The measurement of that cost will be based on the fair value of the equity or liability instruments issued. SFAS 123R is required to be adopted by the Company on July 1, 2005. As part of this adoption, the Company will begin expensing
its options and has also elected to not restate prior period results. Since the Company will continue to issue stock options to employees as a form of incentive compensation and because the Company has outstanding stock options that will vest on or
after July 1, 2005, the Company expects the adoption of this statement to have an impact on the financial statements, but the impact has not yet been determined.



8



---

|12. | Subsequent Events
|--- | -----------------



In April 2005 the Company completed a reduction-in-force, terminating an additional 23 employees over and above the reduction-in-force carried out in
March 2005. Termination benefits in the form of severance costs were approximately $53,000 related to this reduction-in-force.



On May 4, 2005, the Company received preliminary results from an on-going sales tax audit being conducted by the Texas State Comptrollers office for
the calendar years 2001 through 2003. Based on a review of the preliminary results with outside consultants the Company estimates a probable loss contingency in the range of approximately $100,000 to $250,000. Included on the balance sheet as of
March 31, 2005, is a reserve of approximately $100,000 related to this loss contingency.



9



---

ITEM 2.



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Certain statements contained in this Form 10-Q 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-K for the fiscal year ended June 30, 2004 and other publicly filed reports discuss some additional important
factors that could cause our actual results to differ materially from those in any forward-looking statements.



Overview



Internet America is an Internet service provider (ISP) offering a wide array of Internet services tailored to meet the needs of individual and
business subscribers. We provide a high quality Internet experience with fast, reliable service and responsive customer care. As of March 31, 2005, we served approximately 55,000 subscribers in the southwestern United States, primarily in Dallas and
Houston, Texas. A subscriber represents an active, billed service. One customer account may represent multiple subscribers depending on the number of active and billed services for that customer.



As outlined in our Form 10-K for the fiscal year ended June 30, 2004, our
growth strategy is to expand Internet Americas customer base by acquiring dial-up ISPs in markets surrounding our major market cities and then introduce or expand our broadband products in the acquired markets. The Company completed five
acquisitions during the nine months ended March 31, 2005, including Interlink Computer Connection (Hillsboro), Texas Unwired (TXUN), MyLinux ISP (My Linux), Wacool (Wacool) and Hilco (Hilco).
These acquisitions added a total of approximately 5,400 subscribers to our customer base. The Company intends to continue to aggressively pursue additional acquisition opportunities. However, additional financing will be required to fund any future
acquisitions.



Following the acquisition of Hilco in November
2004, the operations of TXUN, Wacool and Hilco were merged into Hillsboro. The Company consolidated all four operations into the Hillsboro Regional Division in order to eliminate duplicate costs. In addition, the Company began combined selling
efforts and faster deployment of broadband services. While there remain significant potential improvements and challenges, to date we are pleased with the revenue growth from this division. In May 2005 the Company launched an additional
non-metropolitan regional business division in Corsicana, Texas and intends to open two additional non-metropolitan divisions by the end of the current fiscal year ending June 30, 2005. Although there can be no assurance that it will be able to do
so, the Company believes that it will be able to duplicate the successes achieved with the Hillsboro Regional Division in these new divisions.



The Company also continues to research new broadband products including broadband over power lines (BPL) and wireless broadband. The Company
began a BPL pilot program in January, 2005, in a suburb of Dallas, Texas and introduced a VoIP (Voice over Internet Protocol) program for its customers in February, 2005. In addition to becoming a wireless internet service provider with
the successful integration of Hillsboro and TXUN, in November 2004 the Company became a wireless equipment reseller. Becoming a reseller has allowed the Company to obtain better pricing as we build out our internal wireless network infrastructure,
and also enabled us to capitalize on the expanding wireless network products market.



The Company continues to experience an attrition of dial-up service customers. The loss of these customers is primarily attributable to their moving to broadband connectivity with other service providers. While the
Company does not currently have an adequate, competitive broadband solution for a majority of its customers in the major metropolitan areas, the loss of customers was mitigated by the addition of new customers through acquisitions and the increase
in broadband customers in non-metropolitan markets. The Company believes that the initiatives it has undertaken in acquisitions, its development of new sources for broadband services, the introduction of new products like Fax to e-mail and VoIP, and
its focus on marketing in non-metropolitan areas will positively impact its subscriber and revenue base in the near-term and mid-term future. The Company continues to explore creative ways to retain existing dialup customers.



10



---

The Company is actively pursuing development and acquisition opportunities in non-metropolitan markets
where competition is less intense and the demand for internet connectivity may be underserved. In pursuing this strategy, the Company is narrowing its focus to products and developments that contribute directly to its implementation. Management is
realigning both capital and human resources to focus on acquisitions, broadband connectivity, VoIP, and Fax to e-mail software. Additionally, management is evaluating other product offerings to ensure that we are maximizing profitability. In March
2005, as a result of this evaluation, the Company outsourced its Airnews product.



Management continues to evaluate overall profitability and, as a result, affected a reduction-in-force (RIF) in March and April 2005. The March 2005 RIF included 18 employees and resulted in approximately
$80,000 of severance costs and the April 2005 RIF included 23 employees and resulted in approximately $53,000 in severance costs. The Company anticipates annual savings from the two RIFs of approximately $1.7 million. However, an increase in head
count may be required upon the completion of certain acquisitions.



Individuals and businesses are increasingly adopting broadband access via DSL, cable and wireless and we believe, particularly with the emergence of low-cost, high-speed solutions, that broadband will continue to grow as the preferred
method of connectivity. High-speed connectivity is essential to the commercially viable deployment of new, value-added services such as internet telephony, particularly VoIP, video and audio programming distribution and other high bandwidth
applications. We believe this will significantly impact our ability, as well as that of other ISPs, to compete. We are, however, committed to becoming a leader in offering cost effective broadband solutions to individuals and businesses, and we will
continue to pursue alternative methods of low-cost, high-speed connectivity.



Additionally, many of our DSL services include a local loop sold to us at wholesale prices by either SBC Communications, Inc. (SBC) or Verizon Communication, Inc. (Verizon). Pricing and
availability of our DSL services are subject to the competitive pressures of those local exchange carriers, both of which also sell their own DSL services on a retail basis. Thus, pressures from SBC or Verizon may cause us to decrease the price of
our DSL services, resulting in a decrease in revenue per subscriber, or may cause us to make fewer new sales of DSL services. However, our relationship with ALLTEL, which provides the DSL service to the subscribers acquired with My Linux, is
structured differently and does not include our purchasing and reselling of the local loop.



Statement of Operations



Internet services revenue is derived from dial-up Internet access, including analog and ISDN access, DSL access, dedicated connectivity, wireless access, bulk dial-up access, Web hosting services, and value-added services, such as multiple
e-mail boxes, personalized e-mail addresses and Fax 2 e-mail services. In addition to miscellaneous revenue, other revenue includes Neo server revenue, which was discontinued in November 2004, and wireless equipment reseller revenues.



A brief description of each element of our operating expenses follows:



Connectivity and operations expenses consist
primarily of setup costs for new subscribers, telecommunication costs, merchant processing fees and wages of network operations and customer support personnel. Connectivity costs include (i) fees paid to telephone companies for subscribers
dial-up connections to our network; (ii) fees paid to backbone providers for connections from our network to the Internet; and (iii) equipment and tower lease costs for our new wireless networks.



Sales and marketing expenses consist primarily of creative
and production costs, costs of media placement, management salaries and call center wages. Advertising costs are expensed as incurred.



General and administrative expenses consist primarily of administrative salaries, professional services, rent and other general office and
business expenses.



Bad debt expense
(recoveries) consists primarily of customer accounts that have been deemed uncollectible and will potentially be written off in future periods, net of recoveries. Historically, the expense has been based on the aging of customer accounts whereby all
customer accounts that are 90 days or older have been provided for as a bad debt expense.



11



---

Depreciation expense is computed using the straight-line method over the estimated useful
lives of the assets or the capital lease term, as appropriate. Data communications equipment, computers, data servers and office equipment are depreciated over three years. We depreciate furniture, fixtures and leasehold improvements over five
years. Amortization expense consists of the amortization of subscriber acquisition costs.



Our business is not subject to any significant seasonal influences.



12



---

Results of Operations



Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004



The following table sets forth certain unaudited financial data for the three months ended March 31, 2005 and 2004.
Operating results for any period are not indicative of results for any future period. Dollar amounts are shown in thousands (except per share data and subscriber counts).



|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|------------------------------------------- |  | -------------------------------- | ------ | - | -------------------------------- | ----- | -- | ------- | - | ------ | ------------- |  | ----- | --
|                                            |  | Three Months EndedMarch 31, 2005 |        |   | Three Months EndedMarch 31, 2004 |      
|                                            |  | (000s)                          |        |   | % of Revenues                    |       |    | (000s) |   |        | % of Revenues | 
|STATEMENT OF OPERATIONS DATA:               |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|REVENUES:                                   |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|Internet services                           |  | $                                | 2,570  |   |                                  | 92.2  | %  |         | $ | 2,827  |               |  | 99.8  | % 
|Other                                       |  |                                  | 217    |   |                                  | 7.8   | %  |         |   | 5      |               |  | 0.2   | % 
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|Total                                       |  |                                  | 2,787  |   |                                  | 100.0 | %  |         |   | 2,832  |               |  | 100.0 | % 
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|OPERATING COSTS AND EXPENSES:               |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|Connectivity and operations                 |  |                                  | 1,923  |   |                                  | 69.0  | %  |         |   | 1,342  |               |  | 47.4  | % 
|Sales and marketing                         |  |                                  | 181    |   |                                  | 6.5   | %  |         |   | 314    |               |  | 11.1  | % 
|General and administrative                  |  |                                  | 751    |   |                                  | 26.9  | %  |         |   | 1,229  |               |  | 43.4  | % 
|Bad debt expense                            |  |                                  |       |   |                                  | 0.0   | %  |         |   | 55     |               |  | 1.9   | % 
|Depreciation and amortization               |  |                                  | 184    |   |                                  | 6.6   | %  |         |   | 67     |               |  | 2.4   | % 
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|Total                                       |  |                                  | 3,039  |   |                                  | 109.0 | %  |         |   | 3,007  |               |  | 106.2 | % 
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|OPERATING LOSS                              |  |                                  | (252   | ) |                                  | (9.0  | )% |         |   | (1745  | )             |  | (6.2  | )%
|INTEREST EXPENSE (INCOME), NET              |  |                                  | 6      |   |                                  | (.2   | )% |         |   | (71    | )             |  | 2.5   | % 
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|NET LOSS                                    |  | $                                | (258   | ) |                                  | (9.2  | )% |         | $ | (104   | )             |  | (3.7  | )%
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|NET LOSS PER COMMON SHARE:                  |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|BASIC AND DILUTED                           |  | $                                | (0.02  | ) |                                  |       |    |         | $ | (0.01  | )             |  |       |   
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|BASIC AND DILUTED                           |  |                                  | 10,578 |   |                                  |       |    |         |   | 10,419 |               |  |       |   
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|OTHER DATA:                                 |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|Subscribers at end of period (1)            |  |                                  | 55,000 |   |                                  |       |    |         |   | 65,000 |               |  |       |   
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|EBITDA(2)                                   |  | $                                | (68    | ) |                                  |       |    |         | $ | (108   | )             |  |       |   
|EBITDA margin(3)                            |  |                                  | 0.0    | % |                                  |       |    |         |   | (3.8   | )%            |  |       |   
|                                            |  |                                  |        |  
|Reconciliation of net income to EBITDA:     |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|Net loss                                    |  | $                                | (258   | ) |                                  |       |    |         | $ | (104   | )             |  |       |   
|Add:                                        |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|Depreciation and amortization               |  |                                  | 184    |   |                                  |       |    |         |   | 67     |               |  |       |   
|Interest expense (income), net              |  |                                  | 6      |   |                                  |       |    |         |   | (71    | )             |  |       |   
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   
|EBITDA(2)                                   |  | $                                | (68    | ) |                                  |       |    |         | $ | (108   | )             |  |       |   
|                                            |  |                                  |        |   |                                  |       |    |         |   |        |               |  |       |   

---

|(1) | A subscriber represents an active, billed service. One customer account may represent multiple subscribers depending on the number of active and billed services for that customer.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | EBITDA (earnings before interest, taxes, depreciation and amortization) is not a measurement of financial performance under generally accepted accounting principles (GAAP) and
should not be considered an alternative to net income as a measure of performance. Management has consistently used EBITDA on a historical basis as a measurement of the Companys current operating cash income.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | EBITDA margin represents EBITDA as a percentage of total revenue.
|--- | -----------------------------------------------------------------





13



---

Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 (Continued)



Total revenue.Total revenue decreased by $45,000, or 1.6%, to
$2,787,000 for the three months ended March 31, 2005, from $2,832,000 for the three months ended March 31, 2004. The Companys subscriber count decreased by 10,000 or 15.4%, to 55,000 as of March 31, 2005 compared to 65,000 as of March 31,
2004. The net decrease in revenue is the direct result of the decrease in subscriber counts offset by increased revenue related primarily to dial-up and wireless access revenue from acquisitions and wireless equipment reseller revenue. Revenue from
acquisitions and wireless equipment reseller revenue was approximately $426,000 and $216,000, respectively, for the three months ended March 31, 2005. The Company became a wireless access provider in September 2004 and in November 2004 became a
wireless equipment reseller. The decrease in subscriber count is primarily attributed to the loss of dial-up customers.



Connectivity and operations.Connectivity and operations expense increased by $0.6 million, or 46.2%, to $1.9 million for the three months ended
March 31, 2005 from $1.3 million for the three months ended March 31, 2004. Approximately $257,000 and $185,000 of the increase relates to connectivity costs for acquisitions and wireless equipment reseller cost of sales, respectively, incurred in
the three months ended March 31, 2005. Approximately $324,000 of the net change relates to changes in sales tax expense. In the three months ended March 31, 2005 the Company recorded sales tax expense of $72,000 related to a reserve for an on-going
sales tax audit for the calendar years 2001 to 2003 compared to a $252,000 reduction in expense in the three months ended March 31, 2004 for refunds of sales tax overpaid in 1999 and 2000.



Excluding the changes for acquisitions and wireless equipment reseller cost
of sales in 2005 and sales tax, the net difference between the two periods is a decrease of approximately $186,000. This decrease relates primarily to the consolidation of internet and telephone connections and circuits to more closely align with
demand, as well as the renegotiation of contracts with several of our major telecom vendors offset by severance costs of approximately $73,000 incurred in connection with the reduction-in-force carried out by the Company in March 2005. As a
percentage of total revenue, connectivity and operations expense increased to 69.0% for the three months ended March 31, 2005, from 47.4% for the three months ended March 31, 2004 due lower margins on the wireless equipment reseller revenue as well
as the decrease in revenues. Additionally, the refund of sales tax in 2004 contributed to the higher margin for that period.



Sales and marketing.Sales and marketing expense decreased by $133,000, or 42.4%, to $181,000 for the three months ended March 31, 2005, compared
to $314,000 for the three months ended March 31, 2004. The decrease relates primarily to a larger advertising campaign in the three months ended March 31, 2004 compared to the same period in 2005 offset by increased marketing wages for the Vice
President  Marketing and Sales hired in August 2004. Sales and marketing expense for the three months ended March 31, 2005 also includes severance costs, as a result of the reduction in force, of approximately $4,000.



General and administrative.General and administrative expense
decreased by $0.5 million or 38.9%, to $751,000 for the three months ended March 31, 2005, from $1,229,000 for the three months ended March 31, 2004. The decrease is primarily a result of expenses incurred during the three months ended March 31,
2004 in connection with the settlement of a lawsuit with a former non-employee director, Mr. Gary Corona, including legal fees of approximately $312,000 and lawsuit settlement expense of approximately $213,000 for total costs of approximately
$525,000. General and administrative expense for the three months ended March 31, 2005 also includes severance costs, as a result of the reduction in force, of approximately $3,000.



Provision for bad debt expense.Provision for bad debt expense decreased by $55,000, or 99.8%, to $87 for the three
months ended March 31, 2005, from $55,000 for the three months ended March 31, 2004. The decrease is mainly related to an overall improvement in the Companys aging of customer accounts that are at least 90 days old and improved billing and
collection efforts. As of March 31, 2005, the Company continues to be fully reserved for all customer accounts that are at least 90 days old.



Depreciation and amortization. Depreciation and amortization increased by $117,000, or 174.6%, to $184,000 for the three months ended March 31,
2005, from $67,000 for the three months ended March 31, 2004. The increase relates to a $100,000 increase in amortization expense related to subscriber acquisition costs and a $17,000 increase in depreciation expense related to depreciating property
and equipment acquired via the acquisitions.



14



---

Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 (Continued)



Interest expense (income), net.For the three months ended
March 31, 2005, the Company recorded approximately $12,000 in interest expense and approximately $6,000 in interest income. The interest expense recorded in the quarter ended March 31, 2005, relates to interest charges on newly issued and assumed
debt related to acquisitions. Interest income represents interest earned on the Companys money market accounts. For the three months ended March 31, 2004, the Company recorded no interest expense, but did record approximately $71,000 in
interest income of which approximately $62,000 relates to interest earned on an overpayment of sales tax during 2000 with the remainder related to interest earned on the Companys cash balances.



15



---

Nine Months Ended March 31, 2005 Compared to Nine Months Ended March 31, 2004



The following table sets forth certain unaudited financial data for the nine
months ended March 31, 2005 and 2004. Operating results for any period are not indicative of results for any future period. Dollar amounts are shown in thousands (except per share data and subscriber counts).



|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | ----- | - | ------- | - | ------ | ------------- |  | ----- | --
|                                            |  | Nine Months EndedMarch 31, 2005 |        |   | Nine Months EndedMarch 31, 2004 |      
|                                            |  | (000s)                         |        |   | % of Revenues                   |       |   | (000s) |   |        | % of Revenues | 
|STATEMENT OF OPERATIONS DATA:               |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|REVENUES:                                   |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|Internet services                           |  | $                               | 7,727  |   |                                 | 95.9  | % |         | $ | 9,366  |               |  | 99.8  | % 
|Other                                       |  |                                 | 332    |   |                                 | 4.1   | % |         |   | 17     |               |  | 0.2   | % 
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|Total                                       |  |                                 | 8,059  |   |                                 | 100.0 | % |         |   | 9,383  |               |  | 100.0 | % 
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|OPERATING COSTS AND EXPENSES:               |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|Connectivity and operations                 |  |                                 | 4,898  |   |                                 | 60.8  | % |         |   | 4,918  |               |  | 52.4  | % 
|Sales and marketing                         |  |                                 | 498    |   |                                 | 6.2   | % |         |   | 447    |               |  | 4.8   | % 
|General and administrative                  |  |                                 | 2,187  |   |                                 | 27.1  | % |         |   | 2,990  |               |  | 31.9  | % 
|Bad debt (recoveries) expense               |  |                                 | (4     | ) |                                 | 0.0   | % |         |   | 184    |               |  | 2.0   | % 
|Depreciation and amortization               |  |                                 | 410    |   |                                 | 5.1   | % |         |   | 261    |               |  | 2.8   | % 
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|Total                                       |  |                                 | 7,989  |   |                                 | 99.2  | % |         |   | 8,800  |               |  | 93.8  | % 
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|OPERATING INCOME                            |  |                                 | 70     |   |                                 | 0.8   | % |         |   | 583    |               |  | 6.2   | % 
|INTEREST EXPENSE (INCOME), NET              |  |                                 | 6      |   |                                 | 0.0   | % |         |   | (89    | )             |  | (0.9  | )%
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|NET INCOME                                  |  | $                               | 64     |   |                                 | 0.8   | % |         | $ | 672    |               |  | 7.2   | % 
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|NET INCOME PER COMMON SHARE:                |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|BASIC                                       |  | $                               | 0.01   |   |                                 |       |   |         | $ | 0.06   |               |  |       |   
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|DILUTED                                     |  | $                               | 0.01   |   |                                 |       |   |         | $ | 0.06   |               |  |       |   
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|BASIC                                       |  |                                 | 10,523 |   |                                 |       |   |         |   | 10,399 |               |  |       |   
|DILUTED                                     |  |                                 | 10,572 |   |                                 |       |   |         |   | 10,411 |               |  |       |   
|                                            |  |                                 |        |  
|CASH FLOW DATA:                             |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|Cash flow used in operations                |  |                                 | (145   | ) |                                 |       |   |         |   | (24    | )             |  |       |   
|Cash flow used in investing activities      |  |                                 | (332   | ) |                                 |       |   |         |   | (25    | )             |  |       |   
|Cash flow used in financing activities      |  |                                 | (253   | ) |                                 |       |   |         |   | (135   | )             |  |       |   
|                                            |  |                                 |        |  
|OTHER DATA:                                 |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|Subscribers at end of period (1)            |  |                                 | 55,000 |   |                                 |       |   |         |   | 65,000 |               |  |       |   
|EBITDA(2)                                   |  | $                               | 480    |   |                                 |       |   |         | $ | 844    |               |  |       |   
|EBITDA margin(3)                            |  |                                 | 6.0    | % |                                 |       |   |         |   | 9.0    | %             |  |       |   
|                                            |  |                                 |        |  
|Reconciliation of net income to EBITDA:     |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|Net income                                  |  | $                               | 64     |   |                                 |       |   |         | $ | 672    |               |  |       |   
|Add:                                        |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|Depreciation and amortization               |  |                                 | 410    |   |                                 |       |   |         |   | 261    |               |  |       |   
|Interest expense (income), net              |  |                                 | 6      |   |                                 |       |   |         |   | (89    | )             |  |       |   
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   
|EBITDA(2)                                   |  | $                               | 480    |   |                                 |       |   |         | $ | 844    |               |  |       |   
|                                            |  |                                 |        |   |                                 |       |   |         |   |        |               |  |       |   

---

|(1) | A subscriber represents an active, billed service. One customer account may represent multiple subscribers depending on the number of active and billed services for that customer.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | EBITDA (earnings before interest, taxes, depreciation and amortization) is not a measurement of financial performance under generally accepted accounting principles (GAAP) and
should not be considered an alternative to net income as a measure of performance. Management has consistently used EBITDA on a historical basis as a measurement of the Companys current operating cash income.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | EBITDA margin represents EBITDA as a percentage of total revenue.
|--- | -----------------------------------------------------------------



16



---

Nine Months Ended March 31, 2005 Compared to Nine Months Ended March 31, 2004 (Continued)



Total revenue.Total revenue decreased by $1.3 million, or 13.8%, to
$8.1 million for the nine months ended March 31, 2005, from $9.4 million for the nine months ended March 31, 2004. The Companys subscriber count decreased by 10,000, or 15.4%, to 55,000 as of March 31, 2005 compared to 65,000 as of March 31,
2004. The decrease in revenue is the direct result of the decrease in subscriber counts offset by increased revenue related primarily to dial-up and wireless access revenue from acquisitions and wireless equipment reseller revenue. Revenue from
acquisitions and wireless equipment reseller revenue was approximately $810,000 and $296,000, respectively, for the nine months ended March 31, 2005. The Company became a wireless access provider in September 2004 and in November 2004 became a
wireless equipment reseller. The decrease in subscriber count is primarily attributed to the loss of dial-up customers.



Connectivity and operations.Connectivity and operations expense decreased by $20,000, or 0.4%, to $4,898,000 for the nine months ended March 31,
2005 from $4,918,000 for the nine months ended March 31, 2004. Approximately $447,000 and $253,000 of the net change in this expense relates to increased connectivity costs for acquisitions and wireless equipment reseller cost of sales,
respectively, incurred in the nine months ended March 31, 2005. Approximately $415,000 of the net change relates to a net increase in sales tax expense. In the nine months ended March 31, 2005 the Company recorded sales tax expense of approximately
$72,000 related to a reserve for an on-going sales tax audit for the calendar years 2001 to 2003 compared to a $343,000 reduction in expense in the nine months ended March 31, 2004 for refunds of sales tax overpaid in 1999 and 2000.



Excluding the changes for acquisition connectivity costs and wireless
equipment reseller cost of sales in 2005 and the sales tax, the net difference between the two periods is a decrease of approximately $1,135,000. Approximately $1.3 million of this change relates primarily to a decrease in connectivity costs due to
the consolidation of internet and telephone connections and circuits to more closely align with demand, as well as the renegotiation of contracts with several of our major telecom vendors. The remaining difference relates primarily to a net decrease
in customer care and systems payroll of approximately $151,000, offset by of severance costs of approximately $73,000 and increased wages for the Hillsboro division of approximately $136,000. As a percentage of total revenue, connectivity and
operations expense increased to 60.8% for the nine months ended March 31, 2005, from 52.4% for the nine months ended March 31, 2004 due lower margins on the wireless equipment reseller revenue as well as the decrease in revenues.



Sales and marketing.Sales and marketing expense increased by $51,000,
or 11.4%, to $498,000 for the nine months ended March 31, 2005, compared to $447,000 for the nine months ended March 31, 2004 The increase relates primarily to the hiring of two new sales and marketing staff members including the new wireless
equipment reseller manager and the Vice President  Marketing and Sales hired in August 2004 offset by decreased advertising costs incurred in the nine months ended March 31, 2005. Sales and marketing expense for the nine month ended March 31,
2005 also includes severance costs, as a result of the reduction in force, of approximately $4,000.



General and administrative.General and administrative expense decreased by $0.8 million, or 26.7%, to $2.2 million for the nine months ended March
31, 2005, from $3.0 million for the nine months ended March 31, 2004. The decrease is primarily a result of expenses incurred during the nine months ended March 31, 2004 in connection with the settlement of a lawsuit with former, non-employee
director, Mr. Gary Corona including legal fees of approximately $312,000 and lawsuit settlement expense of approximately $213,000 for total costs of approximately $525,000. The remaining decrease is primarily attributable to staff reductions
resulting in decreased payroll and benefits costs as well as reduced office operating costs. General and administrative expense for the nine months ended March 31, 2005 also includes severance costs, as a result of the reduction in force, of
approximately $3,000.



Provision for bad debt expense.Provision for bad debt expense decreased by $188,000, or 102.2% for the nine months ended March 31, 2005 mainly related to an overall improvement in the Companys aging of customer accounts that are at least 90 days old and improved billing
and collection efforts. As of March 31, 2005, the Company continues to be fully reserved for all customer accounts that are at least 90 days old.



Depreciation and amortization. Depreciation and amortization increased by $149,000, or 57.1%, to $410,000 for the nine months ended March 31, 2005,
from $261,000 for the nine months ended March 31, 2004. The increase relates primarily to increased amortization expense related to subscriber acquisition costs.





17



---

Nine Months Ended March 31, 2005 Compared to Nine Months Ended March 31, 2004 (Continued)



Interest expense (income), net.For the nine months ended March 31,
2005, the Company recorded approximately $27,000 in interest expense and approximately $21,000 in interest income. The interest expense recorded in the period relates to interest charges on newly issued and assumed debt related to acquisitions.
Interest income represents interest earned on the Companys money market accounts. For the nine months ended March 31, 2004, the Company recorded no interest expense, but did record approximately $89,000 in interest income of which
approximately $62,000 relates to interest earned on an overpayment of sales tax during 2000 with the remainder related to interest earned on the Companys cash balances.



Liquidity and Capital Resources



We have financed our operations to date primarily through public and private sales of equity securities, loans from shareholders and third parties and
cash flows from operations.



Cash used in operating activities
totaled $145,000 and $24,000 for the nine months ended March 31, 2005 and 2004, respectively. The net change of $121,000 relates primarily to net income plus depreciation, bad debt and non-cash items for the nine months ended March 31, 2005 of
$470,000 compared to $1,334,000 for the nine months ended March 31, 2005, offset primarily by the decrease in accounts payable and accrued liabilities in 2005 as a result of the Company paying vendors on a timelier basis and the resolution of
billing disputes with telecommunications vendors.



Cash used in
investing activities totaled $332,000 and $24,000 for the nine months ended March 31, 2005 and 2004, respectively. The increase in investing activities is primarily the result of the Company implementing its new growth strategy through both
acquisitions and new product development including the deployment of new wireless technology.



Cash used in financing activities totaled $253,000 and $135,000 for the nine months ended March 31, 2005 and 2004, respectively. Cash used in financing activities for the nine months ended March 31, 2005 included
$72,000 paid to Jack Smith for the purchase of 200,000 shares of outstanding company stock in October 2004, and also included principal payments on long-term debt and capital lease obligations totaling approximately $245,000. Cash used in financing
activities for the nine months ended March 31, 2004 included $150,000 paid to purchase an outstanding stock option of the Company from William O. Hunt.



Cash used in financing activities for the nine months ended March 31, 2005 and 2004 also included proceeds from shares issued under the Companys
employee stock purchase plan and the exercise of stock options totaling approximately $64,000 and $29,000, respectively.



We estimate that cash on hand of $1.1 million at March 31, 2005 along with anticipated cash flow from operations will be sufficient for meeting our
working capital needs for fiscal 2005 for continuing operations in existing markets. As of March 31, 2005, the Company had negative working capital of approximately $1.4 million which included approximately $1.4 million in deferred revenue.
Management believes that the Company will be able to meet the service obligations related to the deferral of revenue and that cash generated from recently acquired operations will be adequate to meet its payment obligations under debt issued and
assumed in connection these acquisitions. However, additional financing will be required to fund future acquisitions or expansion into new markets. Continued decreases in revenues and subscriber count may adversely affect the liquidity of the
Company.



The Company is exploring the possibility of a private
placement of approximately $1.5 million to fund acquisitions and additional wireless deployment in new non-metropolitan markets.



If additional capital financing arrangements, including public or private sales of debt or equity securities, or additional borrowings from commercial
banks, are insufficient or unavailable, or if we experience shortfalls in anticipated revenues or increases in anticipated expenses, we will modify our operations and growth strategies to match available funding.



18



---

Liquidity and Capital Resources (continued)



In addition, the following are contractual cash obligations entered into by the Company through March 31, 2005, for the next
five fiscal years ending June 30:



|                       |  |       |           |                  |   |         |  |      |           |      |   |         |  |            |         |  |   |         |  |   |       
|---------------------- |  | ----- | --------- | ---------------- | - | ------- |  | ---- | --------- | ---- | - | ------- |  | ---------- | ------- |  | - | ------- |  | - | ------
|                       |  | Total |           | Remainderof 2005 |   | 2006    |  | 2007 |           | 2008 |   | 2009    |  | Thereafter
|Connectivity contracts |  | $     | 912,289   |                  | $ | 196,111 |  | $    | 452,269   |      | $ | 263,909 |  | $          |        |  | $ |        |  | $ |      
|Operating leases       |  |       | 1,210,560 |                  |   | 115,694 |  |      | 450,380   |      |   | 320,168 |  |            | 240,133 |  |   | 84,185  |  |   |      
|Long-term debt         |  |       | 413,304   |                  |   | 131,117 |  |      | 167,415   |      |   | 67,786  |  |            | 46,986  |  |   |        |  |   |      
|Capital leases         |  |       | 323,050   |                  |   | 20,386  |  |      | 88,101    |      |   | 74,113  |  |            | 54,368  |  |   | 54,368  |  |   | 31,714
|                       |  |       |           |                  |   |         |  |      |           |      |   |         |  |            |         |  |   |         |  |   |       
|                       |  | $     | 2,859,203 |                  | $ | 463,308 |  | $    | 1,158,165 |      | $ | 725,976 |  | $          | 341,487 |  | $ | 138,553 |  | $ | 31,714
|                       |  |       |           |                  |   |         |  |      |           |      |   |         |  |            |         |  |   |         |  |   |       



New Accounting Pronouncements



In December 2004, the Financial Accounting Standards
Board issued a revision to Statement No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. SFAS 123R will, with certain exceptions, require entities that grant stock options and shares to employees to recognize the fair value
of those options and shares as compensation cost over the service (vesting) period in their financial statements. The measurement of that cost will be based on the fair value of the equity or liability instruments issued. SFAS 123R is required to be
adopted by the Company on July 1, 2005. As part of this adoption, the Company will begin expensing its options and has also elected to not restate prior period results. Since the Company will continue to issue stock options to employees as a form of
incentive compensation and because the Company has outstanding stock options that will vest on or after July 1, 2005, the Company expects the adoption of this statement to have an impact on the financial statements, but the impact has not yet been
determined.



Safe Harbor Statement



The following Safe Harbor Statement is made pursuant to the
Private Securities Litigation Reform Act of 1995. Certain of the statements contained in the body of this Report are forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual
results to differ materially from those described in the forward-looking statements. With respect to such forward-looking statements, we seek the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include,
without limitation, that (1) we will not be able to provide our subscribers with access to broadband fast enough to grow our subscriber base, including DSL and commercial services customers, (2) we will not improve EBITDA, profitability or product
margins, (3) we will not continue to achieve operating efficiencies, (4) we will not be competitive with existing or new competitors, (5) we will not keep up with industry pricing or technological developments impacting the Internet, (6) needed
financing will not be available to us if and as needed, and (7) we will be adversely affected by dependence on network infrastructure, telecommunications providers and other vendors, by regulatory changes and by general economic and business
conditions. This list is intended to identify certain of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere herein. These factors are not intended to
represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements included in our other publicly filed reports and documents.



19



---

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK



We do not issue or engage in trading of market-risk sensitive instruments.
We also do not purchase for investment, hedging or for purposes other than trading, instruments that are likely to expose the Company to market risk. We have not entered into any forward nor purchased any futures contracts, nor purchased
any options or entered into any swaps. We invest in short-term high-grade interest bearing instruments. In this regard, our interest income is most sensitive to changes in the general level of U.S. interest rates.



ITEM 4. CONTROLS AND PROCEDURES



An evaluation was carried out under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) in effect as of March 31, 2005. Based upon that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that, as of March 31, 2005, the design and operation of these disclosure controls and procedures
were effective in timely alerting them to the material information relating to the Company required to be included in its periodic filings with the Securities and Exchange Commission. There were no changes in our internal control over financial
reporting during the three months ended March 31,2005 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



20



---

PART II - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



We are involved from time to time in routine disputes and legal proceedings occurring in the ordinary course of business. Management believes these
matters, individually and in the aggregate, are immaterial to our financial condition, results of operations and cash flows.



ITEM 6. EXHIBITS



(a) 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)
|        | 
|11.1    |  | Statement regarding computation of per share earnings(4)                                                                                    
|        | 
|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 Sandra T. Everett*                                                                                
|        | 
|32.1    |  | Section 1350 Certification of William E. Ladin, Jr.*                                                                                        
|        | 
|32.2    |  | Section 1350 Certification of Sandra T. Everett*                                                                                            

---



|* | Filed herewith
|- | --------------

|(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) | See Note 2 to the Financial Statements.
|--- | ---------------------------------------



21



---

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|               |  |                        |  |                                                   
|-------------- |  | ---------------------- |  | --------------------------------------------------
|               |  | INTERNET AMERICA, INC.
|               |  | (Registrant)          
|               |  |                       
|Date: 05/16/05 |  | By:                    |  | /s/ William E. Ladin, Jr.                         
|               |  |                        |  | William E. Ladin                                  
|               |  |                        |  | President and Chief Executive Officer             
|               |  |                       
|Date: 05/16/05 |  | By:                    |  | /s/ Sandra T. Everett                             
|               |  |                        |  | Sandra T. Everett                                 
|               |  |                        |  | Controller, Secretary and Chief Accounting Officer
|               |  |                        |  | (Principal Accounting Officer)                    



22



---

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)
|            | 
|1.1         |  | Statement regarding computation of per share earnings (4)                                                                                   
|            | 
|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 Sandra T. Everett*                                                                                
|            | 
|32.1        |  | Section 1350 Certification of William E. Ladin, Jr.*                                                                                        
|            | 
|32.2        |  | Section 1350 Certification of Sandra T. Everett*                                                                                            



---

|* | Filed herewith
|- | --------------

|(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) | See Note 3 to the Financial Statements
|--- | --------------------------------------



23