UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE


SECURITIES
EXCHANGE ACT OF 1934





FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009





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





INTERNET
AMERICA, INC.


(Exact
name of registrant as specified in its charter)





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





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





(713)
968-2500


(Registrant's
telephone number, including area code)





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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  ̈               No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer   ̈
              Accelerated
      filer   ̈Non-accelerated
      filer   ̈ (Do not check if
      a smaller reporting company)
              Smaller
      reporting company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈               No
x





As of
November 11, 2009, registrant had 16,558,914 shares of Common Stock at $.01 par
value, outstanding.





PART
I - FINANCIAL INFORMATION





ITEM
1 - FINANCIAL STATEMENTS





INTERNET
AMERICA, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE
SHEETS





September 30,
                  
                  
                  June 30,2009
                  
                  
                  2009(unaudited)
                  
                  
                  (audited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                  
                  $
                  1,756,562
                  
                  
                  $
                  2,421,264Restricted
      cash
                  
                  
                  6,432
                  
                  
                  
                  6,432Accounts
      receivable, net of allowance for uncollectible accounts of $4,165 and
      $6,824  (as of September 30, 2009 and June 30, 2009,
      respectively)
                  
                  
                  88,080
                  
                  
                  
                  122,128Inventory
                  
                  
                  267,598
                  
                  
                  
                  255,534Prepaid
      expenses and other current assets
                  
                  
                  503,499
                  
                  
                  
                  542,606Assets
      held for Sale
                  
                  
                  18,335
                  
                  
                  
                  -Total
      current assets
                  
                  
                  2,640,506
                  
                  
                  
                  3,347,964Property
      and Equipment—net
                  
                  
                  2,109,006
                  
                  
                  
                  2,150,562Goodwill—net
                  
                  
                  2,413,127
                  
                  
                  
                  2,413,127Subscriber
      acquisition costs—net
                  
                  
                  588,399
                  
                  
                  
                  744,869Other
      Assets—net
                  
                  
                  52,260
                  
                  
                  
                  53,318TOTAL
                  
                  $
                  7,803,298
                  
                  
                  $
                  8,709,840LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Trade
      accounts payable
                  
                  $
                  246,816
                  
                  
                  $
                  298,903Accrued
      liabilities
                  
                  
                  496,649
                  
                  
                  
                  573,013Deferred
      revenue
                  
                  
                  966,093
                  
                  
                  
                  1,029,773Current
      portion of long-term debt
                  
                  
                  742,858
                  
                  
                  
                  613,746Current
      portion of capital lease obligations
                  
                  
                  24,231
                  
                  
                  
                  22,929Total
      current liabilities
                  
                  
                  2,476,647
                  
                  
                  
                  2,538,364Long-term
      debt
                  
                  
                  1,073,600
                  
                  
                  
                  664,772Long-term
      capital lease obligations
                  
                  
                  23,997
                  
                  
                  
                  30,565Total
      liabilities
                  
                  
                  3,574,244
                  
                  
                  
                  3,233,701COMMITMENTS
      AND CONTINGENCIES
                  
                  
                  -
                  
                  
                  
                  -SHAREHOLDERS'
      EQUITY:Preferred
      stock $.01 par value: 5,000,000 shares authorized, 2,889,076 issued and
      outstanding as of September 30, 2009 and June 30, 2009
                  
                  
                  28,891
                  
                  
                  
                  28,891Common
      stock, $.01 par value: 40,000,000 shares authorized, 16,558,914 and
      16,857,031 issued and outstanding as of  September 30, 2009 and
      June 30, 2009, respectively
                  
                  
                  165,589
                  
                  
                  
                  168,571Additional
      paid-in capital
                  
                  
                  62,954,737
                  
                  
                  
                  63,676,806Accumulated
      deficit
                  
                  
                  (58,919,807
                  )
                  
                  
                  (58,398,129
                  )Total
      Internet America, Inc. shareholders' equity
                  
                  
                  4,229,410
                  
                  
                  
                  5,476,139Noncontrolling
      interest in subsidiary
                  
                  
                  (356
                  )
                  
                  
                  -Total
      shareholders' equity
                  
                  
                  4,229,054
                  
                  
                  
                  5,476,139TOTAL
                  
                  $
                  7,803,298
                  
                  
                  $
                  8,709,840





See
accompanying notes to condensed consolidated financial statements.




2




Financial
Statements - Continued





INTERNET
AMERICA, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Three Months EndedSeptember 30,2009
                
                
                2008REVENUES:Internet
      services
                
                $
                1,798,417
                
                
                $
                1,954,715Other
                
                
                38,406
                
                
                
                50,138Total
                
                
                1,836,823
                
                
                
                2,004,853OPERATING
      COSTS AND EXPENSES:Connectivity
      and operations
                
                
                1,319,621
                
                
                
                1,351,178Sales
      and marketing
                
                
                78,459
                
                
                
                70,013General
      and administrative
                
                
                700,684
                
                
                
                587,928Provision
      for bad debt expense
                
                
                (2,658
                )
                
                
                1,088Depreciation
      and amortization
                
                
                247,421
                
                
                
                295,797Total
                
                
                2,343,527
                
                
                
                2,306,004LOSS
      FROM OPERATIONS
                
                
                (506,704
                )
                
                
                (301,151
                )INTEREST
      INCOME
                
                
                (3,996
                )
                
                
                (15,722
                )INTEREST
      EXPENSE
                
                
                19,326
                
                
                
                25,404NET
      LOSS
                
                $
                (522,034
                )
                
                $
                (310,833
                )LESS:
      NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST
                
                $
                (356
                )
                
                $
                31NET
      LOSS ATTRIBUTABLE TO INTERNET AMERICA, INC.
                
                $
                (521,678
                )
                
                $
                (310,864
                )NET
      LOSS PER COMMON SHARE:BASIC
      AND DILUTED
                
                $
                (0.03
                )
                
                $
                (0.02
                )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING:BASIC
      AND DILUTED
                
                
                16,646,405
                
                
                
                16,857,031





See
accompanying notes to condensed consolidated financial
statements.


3


Financial
Statements - Continued





INTERNET
AMERICA, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Three Months EndedSeptember 30,2009
                
                
                2008OPERATING
      ACTIVITIES:Net
      loss
                
                $
                (521,678
                )
                
                $
                (310,864
                )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesNoncontrolling
      interest
                
                
                (356
                )
                
                
                31Depreciation
      and amortization
                
                
                247,421
                
                
                
                295,797Loss
      on disposal of fixed assets
                
                
                11,935
                
                
                
                5,850Provision
      for bad debt expense (recoveries)
                
                
                (2,658
                )
                
                
                1,088Non-cash
      stock compensation expense
                
                
                20,893
                
                
                
                22,989Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                36,706
                
                
                
                (19,772
                )Inventory
                
                
                (12,064
                )
                
                
                (41,931
                )Prepaid
      expenses and other current assets
                
                
                39,107
                
                
                
                (29,803
                )Other
      assets
                
                
                1,058
                
                
                
                855Accounts
      payable and accrued liabilities
                
                
                (128,451
                )
                
                
                (113,170
                )Deferred
      revenue
                
                
                (63,680
                )
                
                
                (78,297
                )Net
      cash used in operating activities
                
                
                (371,767
                )
                
                
                (267,227
                )INVESTING
      ACTIVITIES:Purchases
      of property and equipment, net
                
                
                (139,835
                )
                
                
                (35,872
                )Proceeds
      from sale of property and equipment
                
                
                -
                
                
                
                2,200Net
      cash used in investing activities
                
                
                (139,835
                )
                
                
                (33,672
                )FINANCING
      ACTIVITIES:Principal
      payments of long-term debt
                
                
                (147,834
                )
                
                
                (140,807
                )Principal
      payments of capital leases
                
                
                (5,266
                )
                
                
                -Net
      cash used in financing activities
                
                
                (153,100
                )
                
                
                (140,807
                )NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                
                
                (664,702
                )
                
                
                (441,706
                )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                
                
                2,421,264
                
                
                
                3,911,680CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                
                $
                1,756,562
                
                
                $
                3,469,974SUPPLEMENTAL
      INFORMATION:Cash
      paid for interest
                
                $
                19,076
                
                
                $
                23,668NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Cancelation
      of common stock shares for long term debt in connection with
      acquisition
                
                $
                745,943
                
                
                $
                -Debt
      issued in connection with canceled common stock, net
                
                $
                685,774
                
                
                $
                -Non
      cash adjustment to intangible assets related to imputed interest on
      long-term debt issued for cancelation of common stock
                
                $
                60,170
                
                
                $
                -





See
accompanying notes to condensed consolidated financial
statements.


4


INTERNET
AMERICA, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.
            Basis
      of Presentation





Certain
information and footnote disclosures normally included in consolidated financial
statements prepared in accordance with U.S. generally accepted accounting
principles have been condensed or omitted pursuant to Article 8 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 presentation of Internet
America, Inc.’s (“the Company’s”) consolidated 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 consolidated financial
statements for the year ended June 30, 2009, included in the Company’s Annual
Report on Form 10-K (SEC Accession No. 0001144204-09-050404 ).





2.
            Liquidity




The
Company is subject to risks including the presence of recurring losses and
negative cash flow, among others. During the first quarter of fiscal 2010, the
Company devoted substantial time and resources to submitting an application to
expand its service area by utilizing funds made available by The American
Recovery and Reinvestment Act (“ARRA”) legislation. Internet America is awaiting
further communication from the government agencies responsible for the
evaluation of the ARRA grant applications regarding the status of its
application.  This information is necessary in order to reasonably
project certain future cash flow and operating profits.  Additionally,
the grant program requires a minimum of 20% of the project costs to be funded
from non-federal sources. If awarded the grants as applied for, the Company has
commitments to obtain the minimum outside capital funding. Additionally, the
Company’s application includes a request for immediate funding of certain
permitted pre-application expenses which have contributed to its negative cash
flow in the quarters ended September 30, 2009 and June 30, 2009.




Internet
America is uncertain about positive cash flow and operating profits in the near
future; accordingly, the Company will be dependent on reducing certain
discretionary spending to provide financing to support its operations and for
any capital expenditures. If efforts to increase operating margins and/or
decrease capital expenditures are unsuccessful or other negative factors arise,
this would adversely affect future profits and the Company’s ability to achieve
intended business objectives or, possibly, continue as a going
concern.





3.
            Basic
      and Diluted Net Loss Per Share





There are
no adjustments required to be made to net loss for the purpose of computing
basic and diluted earnings per share (“EPS”) for the three months ended
September 30, 2009 and 2008.  During the three months ended September
30, 2009 and 2008, options to purchase 753,639 and 567,778 shares of common
stock,  respectively, and 394,922 and 0 shares of common stock
warrants, respectively, were not included in the computation of diluted EPS
because the options and warrants were not “in the money” as of September 30,
2009 and 2008, respectively.  There were no options or warrants “in
the money” at September 30, 2009 and 2008.  There were no options or
warrants exercised to purchase shares of common stock during the three months
ended September 30, 2009 or 2008.





4.
            Use
      of Estimates





The
preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ significantly from these
estimates.


5





5.
            Goodwill
      and Subscriber Acquisition Costs





Pursuant
to Financial Accounting Standards Board (“FASB”) guidance on goodwill and other
intangibles, the Company performs an impairment test annually during the fourth
quarter of its fiscal year or when events and circumstances indicate goodwill
might be permanently impaired. Accordingly, during the year ended June 30, 2009,
the Company recorded $1,120,000 as impairment of goodwill related to potential
reduction in future cash flows from the acquisitions of NeoSoft and PDQ.Net. The
Company concluded that no impairment of goodwill occurred during the quarter
ended September 30, 2009.





The
Company allocates the purchase price for acquisitions to acquired subscriber
bases and goodwill based on fair value at the time of
acquisition.  Subscriber acquisition costs, net of amortization,
totaled approximately $588,399 and $744,869, as of September 30, 2009 and June
30, 2009, respectively.  The weighted average amortization period for
subscriber acquisition costs is 48 months for both dial-up and wireless
broadband Internet customers. Amortization expense for the three months ended
September 30, 2009 and 2008 was $96,298 and $129,034,
respectively.  As of September 30, 2009, amortization expense for the
fiscal years ended June 30, 2010, 2011 and 2012 is expected to be approximately
$357,000, $323,000 and $4,000, respectively.





As
further discussed below, during the quarter ended September 30, 2009, the former
owners of TeleShare tendered the 298,117 shares of common stock issued to them
as part of the acquisition cost and held in escrow, in exchange for a
non-interest bearing promissory note for $745,943.   The Company
reduced subscriber acquisition costs to record imputed interest of $60,170 in
connection with the issuance of the promissory note.





6.
            Long-Term
      Debt





On July
27, 2007, Internet America acquired substantially all of the outstanding shares
of TeleShare from Mark and Cynthia Ocker for $1,850,000, payable in shares of
Company common stock and a note.  In accordance with the terms of the
purchase agreement, 298,117 shares of common stock were placed in escrow until
the second anniversary of the closing date, at which time the former owners of
TeleShare could elect to receive the shares out of escrow or a note for the
value of the shares at $2.50 per share.  On July 15, 2009, the former
owners of TeleShare notified the Company of their election to tender the 298,117
shares of common stock, and  effective July 27, 2009 the Company
issued a promissory note for $745,943. The non interest bearing note will be
paid in 20 equal quarterly installments beginning on October 27, 2009.  The
Company recorded the long-term debt net of a discount of $60,170 for imputed
interest on the non-interest bearing note. Long-term debt consists
of:





September
                    
                    
                    June
      30,2009
                    
                    
                    2009Note
      payable due July 19, 2009, payable in quarterly payments of $7,751
      with interest imputed at 9% (net of unamortized discount of
      $1,667)
                    
                    $
                    29,272
                    
                    
                    $
                    36,211Note
      payable due January 23, 2011 payable in bi-annual installments of
      $13,917 with interest imputed at 8% (net of unamortized discount of
      $1,647)
                    
                    
                    23,106
                    
                    
                    
                    23,106Note
      payable due August 08, 2010, payable in monthly installments of $1,033
      beginning October 08, 2008 with interest imputed at 5% (net of unamortized
      discount of $279)
                    
                    
                    11,088
                    
                    
                    
                    14,025Note
      payable due June 20, 2012, payable in monthly installments of $2,088 with
      interest imputed at 9% (net of unamortized discount of
    $8,065)
                    
                    
                    60,834
                    
                    
                    
                    65,656Note
      payable due July 20, 2010, payable in monthly installments of $1,818 with
      interest imputed at 6.5% (net of unamortized discount of
    $530)
                    
                    
                    17,646
                    
                    
                    
                    22,757Note
      payable due July 20, 2010, payable in monthly installments of $1,409 with
      interest imputed at 6.5% (net of unamortized discount of
    $411)
                    
                    
                    13,677
                    
                    
                    
                    17,637Note
      payable due December 23, 2010, payable in monthly payments of $26,199 with
      interest imputed at 5.5% (net of unamortized discount of
      $13,420)
                    
                    
                    379,571
                    
                    
                    
                    452,548Note
      payable due July 22, 2014, payable in monthly payments of $37,297 with
      interest imputed at 3.25% (net of unamortized discount of
      $60,170)
                    
                    
                    685,773
                    
                    
                    
                    -Loan
      and Security Agreement with United States Department of Agriculture Rural
      Utilities Service
                    
                    
                    595,491
                    
                    
                    
                    646,5781,816,458
                    
                    
                    
                    1,278,518Less
      current portion
                    
                    
                    (742,858
                    )
                    
                    
                    (613,746
                    )Total
      long-term debt
                    
                    $
                    1,073,600
                    
                    
                    $
                    664,772




6




As of
September 30, 2009, the Company’s long-term debt which is secured by certain
inventory and equipment and certificates of deposit totaled approximately
$1,076,000.




7.
              Shareholders’
      Equity





Upon the
surrender by Mark and Cynthia Ocker of the 298,119 escrowed shares in exchange
for a promissory note issued by the Company, the total number of outstanding
shares of Company common stock was reduced to 16,558,914 as a result of the
cancellation of those shares.




8.
              Income
      Taxes





During
the three months ended September 30, 2009 and 2008, the Company generated a net
loss of $521,678 and $310,864, respectively.  No provision for income
taxes has been recorded for the three months ended September 30, 2009 and 2008,
as the Company has net operating losses generated in the current and prior
periods.  As of September 30, 2009, the Company continues to maintain
a full valuation allowance for its net deferred tax assets of approximately
$14.7 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.





On July
1, 2007, the Company adopted FASB guidance on accounting for uncertainty in
income taxes.  As a result of the implementation of the guidance,
management assessed its various income tax positions, and this assessment
resulted in no adjustment. The preparation of various tax returns requires the
use of estimates for federal and state income tax purposes.  Those
estimates may be subject to review by respective taxing
authorities.  A revision, if any, to an estimate may result in
assessment of additional taxes, penalties and interest.  At this time,
a range in which our estimates may change is not quantifiable and a change, if
any, is not expected to be material.  The Company will account for
interest and penalties related to uncertain tax positions in the current period
income statement, as necessary.  The 2005, 2006, 2007 and 2008 tax
periods remain subject to examination by various federal and state tax
jurisdictions.





9.
            Related
      Parties





The
following table shows amounts paid to four non-employee directors for serving on
the Company’s board of directors and payments made to Cynthia Ocker, former
owner of TeleShare, for contract services during the three months ended
September 30, 2009 and 2008:





Three Months EndedSeptember 30,2009
                  
                  
                  2008Troy
      LeMaile Stovall
                  
                  $
                  3,750
                  
                  
                  $
                  3,000Justin
      McClure
                  
                  
                  3,750
                  
                  
                  
                  3,000John
      Palmer
                  
                  
                  4,250
                  
                  
                  
                  3,000Steven
      Mihaylo
                  
                  
                  4,250
                  
                  
                  
                  3,893Cynthia
      Ocker
                  
                  
                  35,241
                  
                  
                  
                  32,007$
                  51,241
                  
                  
                  $
                  44,900




On
September 14, 2009, Internet America issued a Warrant to purchase 197,461 shares
of Common Stock to each of Steve Mihaylo and Ambassador John Palmer, both
directors of Company. These warrants were issued as consideration for
documentation provided by these two directors regarding the Company’s ability to
obtain the minimum outside capital funding in connection with an application by
the Company for a grant from the Broadband Technology Opportunity Program.
The grant program required a minimum of 20% of the project costs to be funded
from non-federal sources. The Warrants are exercisable at $0.38 per share for 5
years.


7





10.
            Recent
      Accounting Pronouncements





In June
2009, the FASB issued guidance on subsequent events. This guidance establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. In particular, the statement provides standards
regarding the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements; the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. In accordance with this guidance, an
entity should apply the requirements to interim or annual financial periods
ending after June 15, 2009. The Company adopted this pronouncement in the
quarter ending June 30, 2009. The Corporation evaluated subsequent events for
recognition or disclosure through November 16, 2009, the date the financial
statements were reviewed for filing, and it had an immaterial effect on the
Company’s consolidated financial statements through November 16,
2009.





In June
2009, the FASB issued the FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles (the “Codification”). The
Codification is the source of authoritative U.S. generally accepted accounting
principles “GAAP” recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange
Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this Statement,
the Codification superseded all then-existing non-SEC accounting and reporting
standards. All other nongrandfathered non-SEC accounting literature not included
in the Codification became nonauthoritative. The Codification is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. This Statement is effective for the Company on July 1, 2009.
This statement did not have a material effect on the Company’s consolidated
financial statements.





In
December 2007, the FASB issued guidance on noncontrolling interests in
consolidated financial statements. The guidance establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
recorded as equity in the consolidated financial statements. This Statement also
requires that consolidated net income shall be adjusted to include the net
income attributed to the noncontrolling interest. Disclosure on the face of the
income statement of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest is required.  This guidance
became effective for the Company on July 1, 2009.


8





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, 2009 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, Inc. (the “Company” or “Internet America”) is an Internet service
provider ("ISP") that is focused on providing wireless high-speed broadband
Internet in rural markets, and presently serves 8,100 wireless broadband
Internet subscribers.  Since the Company’s founding in 1995, we have a
history of providing an array of Internet services to residential and business
subscribers and serve approximately 26,400 total subscribers in Texas as of
September 30, 2009.  Initially providing primarily dial-up Internet
services, the Company grew rapidly to over 150,000 subscribers. In recent years,
Internet America has evolved its product offering to include high-speed
broadband, and entered the rural wireless broadband market in 2004,
incorporating a core competency of managing large numbers of internet
subscribers. 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. A decline in non-wireless
subscribers and revenues is expected and will continue primarily due to our
customers migrating to high-speed providers in metropolitan areas.





During
2009, we focused on quality process implementation including investing in
infrastructure upgrades, increasing network capacity and simplifying internal
systems and procedures.  Our efforts improved productivity and
customer satisfaction, and also resulted in improved EBITDA and decreases in
expenses and headcount last year.   We expect our ongoing commitment
to defect-free quality services to contribute to our future profitability and
productivity. We anticipate no significant negative churn in wireless broadband
subscribers, which has increased slightly from approximately 8,000 subscribers
at June 30, 2009 to 8,100 at the end of this quarter. Management is disappointed
with the slow growth in the rural markets which seems to be related to the
changing economic conditions.  We continue to expect modest growth
rather than large gains in subscribers in our existing network
footprint.





During
this quarter, the Company entered into an agreement with a third-party service
provider to provide Voice over Internet Protocol (“VoIP”) and Hosted VoIP PBX
services to its embedded customer base throughout Texas and to new residential
and business customers nationwide. Providing these customers with bundled
broadband Internet access and commercial-grade VoIP services is expected to
increase revenue per subscriber during fiscal 2010.





Under the
present economic recession, many companies are seeking to reduce travel time and
expenses. Also, the quality and availability of internet connectivity is
improving and the power of personal computers is growing. Management believes
video conferencing presents an opportunity for growth and has identified this as
a natural addition to our products and services in existing and potential
markets. Under a reseller agreement, the Company provides one-on-one and multi
party high-quality, resilient video conferencing using desktop computers. The
Company offers its customers access to this technology in the form of hosted
services or direct sale of hardware and software. Hosted video conferencing
products may be very attractive to mid-size businesses without long-term capital
costs or commitments, and Internet America can provide them with immediate
access to new, high performance technology.


9





During
the first quarter of fiscal 2010, the Company devoted substantial time and
resources to submitting an application to expand our service area by utilizing
funds made available for economic stimulus by The American Recovery and
Reinvestment Act (“ARRA”) legislation, whose mission includes making high-speed
broadband and other technologies available to everyone residing in the United
States.  A non-recurring increase in general and administrative costs
of $120,000 was incurred for the fiscal quarter ended September 30, 2009 for
personnel, consulting and other direct costs incurred in completing the
application. Overall direct expenses incurred to date as of September 30, 2009
related to the application totaled approximately $162,000.  The
Company’s application includes request for immediate funding of permitted
pre-application expenses.  These expenses have contributed to the
Company’s negative cash flow in the quarters ended September 30, 2009 and June
30, 2009. Excluding these non-recurring costs, the Company’s general and
administrative expenses remained stable for the quarter ended September 30, 2009
compared to the same period last fiscal year, as we maintained efficient
operations.





Management
awaits further communication regarding the status of its application in order to
reasonably project certain future cash flow and operating profits. The grant
program requires a minimum of 20% of the project costs to be funded from
non-federal sources. If awarded funds, the Company has commitments to obtain the
minimum outside capital funding. More information on our proposed project is
included in our Annual Report on Form 10-K for the fiscal year ended June 30,
2009, recent press-releases and other publicly filed reports.





In
addition to our proposed growth detailed in our ARRA application, we believe our
continued efforts to improve the quality and efficiency of our operations over
the last few years, as well as additional service offerings such as desktop
video conferencing and VoIP may lead to a more rapid rate of growth and revenue
per subscriber. This
should contribute to improvements in profitability and cash flow from
operations.





Management
is uncertain about positive cash flow and operating profits in the near future;
accordingly, the Company will be dependent on reducing certain discretionary
spending to provide financing to support its operations and for any capital
expenditures. We can provide no assurance that we will be successful in
achieving any or all of our initiatives, that the achievement or existence of
such initiatives will result in positive cash flow or profit improvements, or
that other factors will not arise that would adversely affect future profits and
our ability to achieve our intended business objectives.





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-Email
services.   In addition to miscellaneous revenue, other revenue
includes telex messaging service 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.





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 five years. We depreciate furniture, fixtures and leasehold
improvements over five years or the lease term.  Buildings are
depreciated over fifteen years. Amortization expense consists of the
amortization of subscriber acquisition costs, which are amortized over four
years.





Our business is not subject to any
significant seasonal influences.


10


Results
of Operations





Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008





The following table sets forth
certain unaudited financial data for the three months ended September 30, 2009
and 2008.  Operating results for any period are not indicative of
results for any future period.  Dollar amounts are shown in thousands
(except per share data, shares and subscriber counts).





Three Months Ended September
      30,2009
                    
                    
                    % of Revenues
                    
                    
                    2008
                    
                    
                    % of RevenuesSTATEMENT
      OF OPERATIONS DATA:REVENUES:Internet
      services
                    
                    $
                    1,798
                    
                    
                    
                    98.0
                    %
                    
                    $
                    1,955
                    
                    
                    
                    97.5
                    %Other
                    
                    
                    38
                    
                    
                    
                    2.0
                    %
                    
                    
                    50
                    
                    
                    
                    2.5
                    %Total
                    
                    
                    1,836
                    
                    
                    
                    100.0
                    %
                    
                    
                    2,005
                    
                    
                    
                    100.0
                    %OPERATING
      COSTS AND EXPENSES:Connectivity
      and operations
                    
                    
                    1,320
                    
                    
                    
                    71.9
                    %
                    
                    
                    1,351
                    
                    
                    
                    67.4
                    %Sales
      and marketing
                    
                    
                    78
                    
                    
                    
                    4.2
                    %
                    
                    
                    70
                    
                    
                    
                    3.5
                    %General
      and administrative
                    
                    
                    701
                    
                    
                    
                    38.2
                    %
                    
                    
                    588
                    
                    
                    
                    29.3
                    %Provisions
      for (recoveries of) bad debt
                    
                    
                    (3
                    )
                    
                    
                    (0.2
                    )%
                    
                    
                    1
                    
                    
                    
                    0.0
                    %Depreciation
      and amortization
                    
                    
                    247
                    
                    
                    
                    13.5
                    %
                    
                    
                    296
                    
                    
                    
                    14.8
                    %Total
                    
                    
                    2,343
                    
                    
                    
                    127.6
                    %
                    
                    
                    2,306
                    
                    
                    
                    115.0
                    %OPERATING
      LOSS
                    
                    
                    (507
                    )
                    
                    
                    (27.6
                    )%
                    
                    
                    (301
                    )
                    
                    
                    (15.0
                    )%INTEREST
      INCOME
                    
                    
                    4
                    
                    
                    
                    0.2
                    %
                    
                    
                    15
                    
                    
                    
                    0.8
                    %INTEREST
      EXPENSE
                    
                    
                    (19
                    )
                    
                    
                    (1.1
                    )%
                    
                    
                    (25
                    )
                    
                    
                    (1.3
                    )%NET
      LOSS
                    
                    $
                    (522
                    )
                    
                    
                    (28.5
                    )%
                    
                    $
                    (311
                    )
                    
                    
                    (15.5
                    )%LESS:
      NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
                    
                    $
                    (0
                    )
                    
                    
                    0.0
                    %
                    
                    $
                    (0
                    )
                    
                    
                    0.0
                    %NET
      LOSS ATTRIBUTABLE TO INTERNET AMERICA, INC.
                    
                    $
                    (522
                    )
                    
                    
                    (28.5
                    )%
                    
                    $
                    (311
                    )
                    
                    
                    (15.5
                    )%NET
      LOSS PER COMMON SHARE:BASIC
      AND DILUTED
                    
                    $
                    (0.03
                    )
                    
                    
                    
                    
                    
                    $
                    (0.02
                    )WEIGHTED
      AVERAGE COMMONSHARES
      OUTSTANDING:BASIC
      AND DILUTED
                    
                    
                    16,646,405
                    
                    
                    
                    
                    
                    
                    
                    16,857,031OTHER
      DATA:Subscribers
      at end of period (1)
                    
                    
                    26,400
                    
                    
                    
                    
                    
                    
                    
                    29,000EBITDA(loss)(2)
                    
                    $
                    (260
                    )
                    
                    
                    
                    
                    
                    $
                    (5
                    )EBITDA
      margin(3)
                    
                    
                    (14.1
                    )%
                    
                    
                    
                    
                    
                    
                    (0.3
                    )%CASH
      FLOW DATA:Cash
      flow used in operations
                    
                    $
                    (372
                    )
                    
                    
                    
                    
                    
                    $
                    (267
                    )Cash
      flow used in investing activities
                    
                    $
                    (140
                    )
                    
                    
                    
                    
                    
                    $
                    (34
                    )Cash
      flow used in financing activities
                    
                    $
                    (153
                    )
                    
                    
                    
                    
                    
                    $
                    (141
                    )Reconciliation
      of net loss to EBITDA (loss):Net
      loss
                    
                    $
                    (522
                    )
                    
                    
                    
                    
                    
                    $
                    (311
                    )Add:Depreciation
      and amortization
                    
                    
                    247
                    
                    
                    
                    
                    
                    
                    
                    296Interest
      income
                    
                    
                    4
                    
                    
                    
                    
                    
                    
                    
                    15Interest
      expense
                    
                    
                    (19
                    )
                    
                    
                    
                    
                    
                    
                    (25
                    )EBITDA
      (loss)(2)
                    
                    $
                    (260
                    )
                    
                    
                    
                    
                    
                    $
                    (5
                    )




11





(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.


12





Three Months Ended September 30,
2009 Compared to Three Months Ended September 30, 2008
(Continued)





Total
revenue.Total revenue decreased by $169,000, or 8.4%, to
$1,836,000 for the three months ended September 30, 2009, from $2,005,000 for
the three months ended September 30, 2008.  The Company’s total
subscriber count decreased by 2,600, or 9.0%, to 26,400 as of September 30, 2009
compared to 29,000 as of September 30, 2008.  The Company’s wireless
broadband Internet subscriber count increased slightly to 8,100 as of September
30, 2009, compared to 7,900 as of September 30, 2008. Wireless broadband
Internet revenue increased by $75,000 to $1,116,000 as of September 30, 2009
compared to $1,041,000 as of September 30, 2008. This increase was primarily due
to the stability of the subscriber base and customers migrating to upgraded
service levels upon completion of infrastructure upgrades in certain areas as
well as purchasing additional services during the quarter ended September 30,
2009. Presently stable revenues derived from wireless broadband Internet
subscribers were offset by the decrease in other types of Internet service
revenues of $232,000. This is attributed to the expected decline of dial-up
customers who may move to other providers’ broadband service.  In
connection with the acquisition of TeleShare, the Company derives other revenues
from providing telex messaging services.  Messaging revenues decreased
by $12,000, or 24.0%, to $38,000 as of September 30, 2009, compared to $50,000
as of September 30, 2008.





Connectivity and operations.Connectivity and operations expense decreased by $31,000, or 2.3%, to
$1,320,000 for the three months ended September 30, 2009, from $1,351,000 for
the three months ended September 30, 2008.  Data and
telecommunications expense decreased by $24,000 to $370,000 as of September 30,
2009 compared to $394,000 as of September 30, 2008 due to our renegotiating more
favorable terms with telecommunications service providers.  Salaries,
wages and related personnel decreased by approximately $70,000 to $614,000 as of
September 30, 2009 compared to $684,000 as of September 30, 2009 which is
attributed to efficiencies gained from quality process initiatives. Other
decreases in expense of approximately $3,000 relate to reduction in merchant
fees in fiscal 2010.





The decreases in previously discussed
expenses were offset by increases in installation expenses, tower leases and one
time conversion costs related to transfer email services to a hosted outsource
service provider. Non-recurring costs incurred totaled $33,000 for the quarter
ended September 30, 2009. Increase in consumable supplies expenses of $14,000 to
$148,000 as of September 30, 2009 compared to $134,000 as of September 30, 2008
is primarily due to network improvement activity during this fiscal
year.  Tower lease expense increased by $19,000 to $115,000 as of
September 30, 2009 compared to $96,000 as of September 30, 2008.  The
increase in tower leases relates to improvements in the Company’s wireless
broadband infrastructure and increases in tower rental rates.





Sales and marketing.Sales
and marketing expense increased by $8,000, or 11.4%, to $78,000 for the three
months ended September 30, 2009, compared to $70,000 for the three months ended
September 30, 2008.  Advertising expense increased by $13,000 to
$15,000 as of September 30, 2009 compared to $2,000 as of September 30,
2008.  In fiscal 2009 the Company is focusing on direct advertising in
all improved or enhanced network areas.   The increases in
advertising have been offset by decreases in salaries and wages of $5,000 to
$57,000 as of September 30, 2009 compared to $62,000 as of September 30, 2008
due to restructuring of department personnel to reduce costs.





General and
administrative.General and administrative expense increased
by $113,000, or 19.2%, to $701,000 for the three months ended September 30,
2009, from $588,000 for the three months ended September 30, 2008. The increase
is primarily due to non-recurring expenses totaling $120,000 in connection with our application for
a grant under theARRAto expand access to broadband into
areas in Southeast Texas adjacent to existing operations. Telecommunications
expense increased by $17,000 to $55,000 as of September 30, 2009 from $38,000 as
of September 30, 2008, due primarily to purchasing increased bandwidth capacity.
Other general and administrative costs increased by $28,000 to $84,000 as of
September 30, 2009 compared to $56,000 as of September 30, 2008. Stock
compensation expense and directors’ fees increased slightly by $1,000 to $37,000
as of September 30, 2009.





The
above increases and non-recurring expenses were offset by the following
decreases.  Personnel costs decreased by $8,000 to $228,000 for
September 30, 2009 compared to $236,000 as of September 30, 2008, which is
attributed to efficiencies gained from quality process initiatives. Professional
fees decreased by $16,000 as of September 30, 2009 to $87,000 compared to
$103,000 in September 30, 2008 primarily due to declining consulting fees paid
to contract labor for telex messaging services.  Facilities costs
decreased by $15,000 as of September 30, 2009, to $66,000 at September 30, 2009
from $81,000 at September 30, 2008, due to the closing of additional regional
field offices.   Our insurance expense decreased by $9,000 to
$20,000 as of September 30, 2009 compared to $29,000 as of September 30,
2008.  Travel expenses decreased by $5,000 to $4,000 as of September
30, 2009 compared to $9,000 as of September 30, 2008.


13





Provision for bad debt expense
(recovery).Provision for bad debt expense increased by $4,000
to $3,000 recovery for the three months ended September 30, 2009, from $1,000
expense for the three months ended September 30, 2008. As of September 30, 2009,
we are fully reserved for all customer accounts that are at least 90 days
old.





Depreciation and
amortization.  Depreciation and amortization decreased by
$49,000, or 16.6%, to $247,000 for the three months ended September 30, 2009,
from $296,000 for the three months ended September 30, 2008.  The
decrease in depreciation totaling $16,000 relates to the increase in fully
depreciated assets still in use, offset by the improvement of the Company’s
wireless broadband Internet network. The decrease in amortization expense
totaling $33,000 for acquired subscriber costs is the result of early wireless
acquisitions in fiscal 2005 and 2006 becoming fully amortized.





Interest (expense) income, net.Interest expense decreased by $6,000 or 24.0% to $19,000 from $25,000 for
the three months ended September 30, 2009 and 2008, which is related to
acquisition debt and the RUS loan outstanding.  Interest income
decreased by $11,000, or 73.3%, to $4,000 due to changes in cash on hand,
declining interest rates, and closing of our interest bearing accounts. As a
precautionary measure, in February 2009, the Company transferred all funds from
interest bearing accounts during this economic crisis to ensure all funds were
covered by the Temporary Guaranty Liquidity Program initiated by the Federal
Reserve Board.





Liquidity
and Capital Resources





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





Cash used
in operating activities is net income (loss) adjusted for certain non-cash
items and changes in assets and liabilities.  For the three months
ended September 30, 2009, cash used in operations was $372,000 compared to cash
used in operations of $267,000 for the three months ended September 30, 2008.
For the three months ended September 30, 2009, net loss plus non-cash items used
cash of $244,000.  Material decreases in accounts payable and accrued
expenses and deferred revenue and purchases of inventory were offset by
decreases in accounts receivable and prepaid and other assets. For the three
months ended September 30, 2008, net loss plus non-cash items contributed
$15,000 in cash which was then used primarily for purchases of inventory,
payments of accounts payable and accrued expenses and a decrease in deferred
revenue.





Cash used
in investing activities totaled $140,000 for the three months ended September
30, 2009, which relates primarily to the improvements in existing wireless
broadband Internet infrastructure. Cash used in investing activities totaled
$34,000 for the three months ended September 30, 2008, which relates primarily
to the improvements in existing wireless broadband Internet
infrastructure.





Cash used
in financing activities, which totaled $153,000 for the three months ended
September 30, 2009, consisted of principal payments on long term debt including
notes related to acquisitions, the RUS loan and capital leases.  Cash
used in financing activities, which totaled $141,000 for the three months ended
September 30, 2008, consisted of principal payments on long
term-debt.





Cash on
hand declined by $665,000 during the quarter ended September 30,
2009.  At September 30, 2009, cash on hand was $1,756,000 compared to
$2,421,000 at June 30, 2009.  Anticipated cash flow from operations in
the near future may not be sufficient for meeting our working capital needs in
fiscal 2010 for continuing operations as well as the addition of value-added
services to both new and existing subscribers.   In addition to
our proposed growth detailed in our ARRA application, we believe our continued
efforts to improve the quality and efficiency of our operations over the last
few years, as well as additional service offerings such as desktop video
conferencing and VoIP may lead to a more rapid rate of growth and revenue per
subscriber and result in improved cash flow from operations.





However, in the near term the Company
will be dependent on reducing certain discretionary spending to provide
financing to support its operations and for any capital expenditure in both
existing and new markets. Management believes that the Company will be able to
meet the service obligations related to the deferral of revenue. Continued
decreases in revenues and subscriber count may adversely affect the liquidity of
the Company.  We can provide no assurance that we will be successful
in achieving any or all of our initiatives, or that the achievement or existence
of such initiatives will result in positive cash flow.  Additional
capital financing arrangements, including public or private sales of debt or
equity securities, or additional borrowings from commercial banks, shareholders
and third parties, may be insufficient or unavailable.




14


Off
Balance Sheet Arrangements





None.





“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 increase our rural customer
base at the expected rate, (2) we will not improve EBITDA, profitability or
product margins, (3) we will not receive grant funding sought after in our
application to the Broadband Technology Opportunity Program  to expand
our wireless infrastructure to additional unserved and underserved areas
available under The American Recovery and Reinvestment Act, (4) we will not
expand our coverage in public-private partnerships with state or local
governments, utility providers, or other entities seeking to participate in
grant programs or those partnerships may not be successful, (5) Internet revenue
in high-speed broadband will continue to increase at a slower pace than the
decrease in other Internet services resulting in greater operating losses in
future periods,  (6) financing will not be available to us if and as
needed, (7) we will not be competitive with existing or new competitors, (8) we
will not keep up with industry pricing or technological developments impacting
the Internet, (9) we will be adversely affected by dependence on network
infrastructure, telecommunications providers and other vendors or by regulatory
changes, (10) service interruptions or impediments could harm our business, (11)
we may be accused of infringing upon the  intellectual property rights
of third parties, which is costly to defend and could limit our ability to use
certain technologies in the future, (12) government regulations could force us
to change our business practices, (13) we may be unable to hire and retain
qualified personnel, including our key executive officers, (14) future
acquisitions of wireless broadband Internet customers and infrastructure may not
be available on attractive terms and if available we may not successfully
integrate those acquisitions into our operations, (15) provisions in our
certificate of incorporation, bylaws and shareholder rights plan could limit our
share price and delay a change of management, and (16) our stock price has been
volatile historically and may continue to be volatile.   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 risk factors
included in our other publicly filed reports.





ITEM 3.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK





Not
applicable





ITEM
    4T.
            CONTROLS AND
      PROCEDURES





Our Chief
Executive Officer and Chief Financial Officer performed an evaluation of our
disclosure controls and procedures, which have been designed to provide
reasonable assurance that the information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is accumulated
and communicated to the Company’s management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.  They concluded that the controls and procedures
were effective as of September 30, 2009 to provide reasonable assurance that the
information required to be disclosed by the Company in reports it files under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC.  While our
disclosure controls and procedures provide reasonable assurance that the
appropriate information will be available on a timely basis, this assurance is
subject to limitations inherent in any control system, no matter how well it may
be designed or administered. There were no changes in our internal control over
financial reporting during the three months ended September 30, 2009 that
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.


15


PART
II - OTHER INFORMATION




ITEM
      6.
            EXHIBITS




Exhibit
                
                Description31.1
                
                Rule
      13a-14(a)/15d-14(a) Certification of William E. Ladin,
  Jr.31.2
                
                Rule
      13a-14(a)/15d-14(a) Certification of Jennifer S.
LeBlanc32.1
                
                Section
      1350 Certification of William E. Ladin, Jr.32.2
                
                Section
      1350 Certification of Jennifer S.
LeBlanc









16









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: 
      11/16/09By: 
      /s/ William E. Ladin, Jr.William
      E. Ladin, Jr.Chairman
      and Chief Executive OfficerDate: 
      11/16/09By: 
      /s/ Jennifer S. LeBlancJennifer
      S. LeBlancChief
      Financial and Accounting
Officer




17




INDEX
TO EXHIBITS




Exhibit No.
                        
                        Description31.1
                        
                        Rule
      13a-14(a)/15d-14(a) Certification of William E. Ladin,
  Jr.31.2
                        
                        Rule
      13a-14(a)/15d-14(a) Certification of Jennifer S.
LeBlanc32.1
                        
                        Section
      1350 Certification of William E. Ladin, Jr.32.2
                        
                        Section
      1350 Certification of Jennifer S.
LeBlanc




18