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, 2010





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 12, 2010, registrant had 16,729,562 shares of Common Stock at $0.01 par
value, outstanding.










INTERNET
AMERICA, INC.





TABLE OF
CONTENTS





FORM
10-Q





QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2010





PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements
                3Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                9Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                14Item
      4.
                Controls
      and Procedures
                14PART
      II - OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                15Item 1A.
                Risk
      Factors
                15Item
      2.
                Unregistered
      Sales of Equity Securitites and Use of Proceeds
                15Item
      3.
                Defaults
      Upon Senior Securities
                15Item
      4.
                (Removed
      and reserved)
                15Item
      5.
                Other
      Information
                15Item
      6.
                Exhibits
                15




2




PART
I - FINANCIAL INFORMATION
 
 ITEM
1. FINANCIAL STATEMENTS
 
 INTERNET
AMERICA, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE
SHEETS
 
 September 30,
                  
                  
                  June 30,2010
                  
                  
                  2010(unaudited)
                  
                  
                  (audited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                  
                  $
                  1,334,687
                  
                  
                  $
                  1,209,915Restricted
      cash
                  
                  
                  6,432
                  
                  
                  
                  6,432Accounts
      receivable, net of allowance for uncollectible accounts of $3,636 and
      $4,438 as of September 30, 2010 and June 30, 2010,
      respectively
                  
                  
                  61,043
                  
                  
                  
                  113,936Inventory
                  
                  
                  264,867
                  
                  
                  
                  274,954Prepaid
      expenses and other current assets
                  
                  
                  354,465
                  
                  
                  
                  411,510Total
      current assets
                  
                  
                  2,021,494
                  
                  
                  
                  2,016,747Property
      and equipment—net
                  
                  
                  1,684,749
                  
                  
                  
                  1,791,459Goodwill—net
                  
                  
                  2,413,127
                  
                  
                  
                  2,413,127Subscriber
      acquisition costs—net
                  
                  
                  245,665
                  
                  
                  
                  327,435Other
      assets—net
                  
                  
                  33,832
                  
                  
                  
                  37,879TOTAL
      ASSETS
                  
                  $
                  6,398,867
                  
                  
                  $
                  6,586,647LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Trade
      accounts payable
                  
                  $
                  208,282
                  
                  
                  $
                  175,505Accrued
      liabilities
                  
                  
                  311,711
                  
                  
                  
                  409,911Deferred
      revenue
                  
                  
                  823,793
                  
                  
                  
                  855,675Current
      portion of long-term debt
                  
                  
                  417,751
                  
                  
                  
                  425,971Current
      portion of capital lease obligations
                  
                  
                  23,997
                  
                  
                  
                  28,315Total
      current liabilities
                  
                  
                  1,785,534
                  
                  
                  
                  1,895,377Long-term
      debt, net of current portion
                  
                  
                  781,145
                  
                  
                  
                  884,052Long-term
      capital lease obligations, net of current portion
                  
                  
                  -
                  
                  
                  
                  2,250Total
      liabilities
                  
                  
                  2,566,679
                  
                  
                  
                  2,781,679COMMITMENTS
      AND CONTINGENCIES
                  
                  
                  -
                  
                  
                  
                  -SHAREHOLDERS'
      EQUITY:Preferred
      stock, $0.01 par value: 5,000,000 shares authorized, 2,889,076 issued and
      outstanding as of September 30, 2010 and June 30, 2010
                  
                  
                  28,891
                  
                  
                  
                  28,891Common
      stock, $0.01 par value: 40,000,000 shares authorized, 16,558,914 issued
      and outstanding as of  September 30, 2010 and June 30,
      2010
                  
                  
                  165,590
                  
                  
                  
                  165,590Additional
      paid-in capital
                  
                  
                  62,990,447
                  
                  
                  
                  62,989,094Accumulated
      deficit
                  
                  
                  (59,352,740
                  )
                  
                  
                  (59,377,806
                  )Total
      Internet America, Inc. shareholders' equity
                  
                  
                  3,832,188
                  
                  
                  
                  3,805,769Noncontrolling
      interest in subsidiary
                  
                  
                  -
                  
                  
                  
                  (801
                  )Total
      shareholders' equity
                  
                  
                  3,832,188
                  
                  
                  
                  3,804,968TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                  
                  $
                  6,398,867
                  
                  
                  $
                  6,586,647
 
 See
accompanying notes to condensed consolidated financial statements.
 
 3
 
 INTERNET
AMERICA, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 
 Three Months EndedSeptember 30,2010
                  
                  
                  2009REVENUES:Internet
      services
                  
                  $
                  1,778,776
                  
                  
                  $
                  1,798,417Other
                  
                  
                  -
                  
                  
                  
                  38,406TOTAL
      REVENUES
                  
                  
                  1,778,776
                  
                  
                  
                  1,836,823OPERATING
      COSTS AND EXPENSES:Connectivity
      and operations
                  
                  
                  1,094,954
                  
                  
                  
                  1,319,621Sales
      and marketing
                  
                  
                  55,812
                  
                  
                  
                  78,459General
      and administrative
                  
                  
                  314,663
                  
                  
                  
                  700,684Recovery
      of bad debt
                  
                  
                  (802
                  )
                  
                  
                  (2,658
                  )Depreciation
      and amortization
                  
                  
                  248,975
                  
                  
                  
                  247,421Loss
      on transfer of assets
                  
                  
                  26,004
                  
                  
                  
                  -TOTAL
      OPERATING COSTS AND EXPENSES
                  
                  
                  1,739,606
                  
                  
                  
                  2,343,527INCOME
      (LOSS) FROM OPERATIONS
                  
                  
                  39,170
                  
                  
                  
                  (506,704
                  )INTEREST
      INCOME
                  
                  
                  (1,660
                  )
                  
                  
                  (3,996
                  )INTEREST
      EXPENSE
                  
                  
                  15,764
                  
                  
                  
                  19,326NET
      INCOME (LOSS)
                  
                  $
                  25,066
                  
                  
                  $
                  (522,034
                  )LESS:
      NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
                  
                  $
                  -
                  
                  
                  $
                  (356
                  )NET
      INCOME (LOSS) ATTRIBUTABLE TO INTERNET AMERICA, INC.
                  
                  $
                  25,066
                  
                  
                  $
                  (521,678
                  )NET
      INCOME (LOSS) PER COMMON SHARE:BASIC
      AND DILUTED
                  
                  $
                  0.00
                  
                  
                  $
                  (0.03
                  )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING:BASIC
                  
                  
                  16,558,914
                  
                  
                  
                  16,646,405DILUTED
                  
                  
                  19,447,990
                  
                  
                  
                  16,646,405
  See
accompanying notes to condensed consolidated financial statements.
  4
 
 INTERNET
AMERICA, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Three Months EndedSeptember 30,2010
                    
                    
                    2009OPERATING
      ACTIVITIES:Net
      income (loss)
                    
                    $
                    25,066
                    
                    
                    $
                    (521,678
                    )Adjustments
      to reconcile net income (loss) to net cashprovided
      by (used in) operating activities:Noncontrolling
      interest
                    
                    
                    -
                    
                    
                    
                    (356
                    )Depreciation
      and amortization
                    
                    
                    248,975
                    
                    
                    
                    247,421Loss
      on transfer of assets
                    
                    
                    26,004
                    
                    
                    
                    -Loss
      on disposal of fixed assets
                    
                    
                    -
                    
                    
                    
                    11,935Recovery
      of bad debt
                    
                    
                    (802
                    )
                    
                    
                    (2,658
                    )Non-cash
      stock compensation expense
                    
                    
                    1,353
                    
                    
                    
                    20,893Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    19,562
                    
                    
                    
                    36,706Inventory
                    
                    
                    10,087
                    
                    
                    
                    (12,064
                    )Prepaid
      expenses and other current assets
                    
                    
                    57,044
                    
                    
                    
                    39,107Other
      assets
                    
                    
                    4,047
                    
                    
                    
                    1,058Accounts
      payable and accrued liabilities
                    
                    
                    (56,493
                    )
                    
                    
                    (128,451
                    )Deferred
      revenue
                    
                    
                    (31,882
                    )
                    
                    
                    (63,680
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    302,961
                    
                    
                    
                    (371,767
                    )INVESTING
      ACTIVITIES:Purchases
      of property and equipment
                    
                    
                    (60,495
                    )
                    
                    
                    (139,835
                    )Net
      cash used in investing activities
                    
                    
                    (60,495
                    )
                    
                    
                    (139,835
                    )FINANCING
      ACTIVITIES:Principal
      payments of long-term debt
                    
                    
                    (111,126
                    )
                    
                    
                    (147,834
                    )Principal
      payments of capital leases
                    
                    
                    (6,568
                    )
                    
                    
                    (5,266
                    )Net
      cash used in financing activities
                    
                    
                    (117,694
                    )
                    
                    
                    (153,100
                    )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                    
                    
                    124,772
                    
                    
                    
                    (664,702
                    )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                    
                    
                    1,209,915
                    
                    
                    
                    2,421,264CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                    
                    $
                    1,334,687
                    
                    
                    $
                    1,756,562SUPPLEMENTAL
      INFORMATION:Cash
      paid for interest
                    
                    $
                    15,786
                    
                    
                    $
                    19,076NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Cancellation
      of common stock shares for long term debt inconnection
      with acquisition
                    
                    $
                    -
                    
                    
                    $
                    745,943
 
 See
accompanying notes to condensed consolidated financial
statements.
  5
  INTERNET
AMERICA, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 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 the
consolidated financial position and results of operations of Internet America,
Inc. (the “Company” or “Internet America”) 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 and the notes thereto
included in the Company’s Annual Report on Form 10-K for its fiscal year ended
June 30, 2010.
 
 2.
                Liquidity
  The
Company is subject to risks including the risks associated with its recurring
losses and negative cash flow, among others. Although the Company recognized net
income and positive cash flows from operations during the three months ended
September 30, 2010, the Company is dependent on continuing to reverse the trend
of declining revenues and/or expense reductions to provide financing to support
its operations and for any capital expenditures. If efforts to increase
operating profits do not continue to be successful or other negative factors
arise, this could adversely affect future profits and the Company’s ability to
achieve intended business objectives.
  3.
                Basic
      and Diluted Net Loss Per
Share
 
 There are
no adjustments required to be made to net income (loss) for the purpose of
computing basic and diluted earnings per share (“EPS”) for the three months
ended September 30, 2010 and 2009.  During the three months ended
September 30, 2010 and 2009, options to purchase 1,028,444 and 753,639 shares of
the Company’s common stock, par value $0.01 per share (“Common Stock”),
respectively, and warrants to acquire 394,922 and 394,922 shares of Common
Stock, respectively, were not included in the computation of diluted EPS because
the options and warrants were not “in the money” during the three months ended
September 30, 2010 and 2009, respectively.  There were no options or
warrants exercised to purchase shares of Common Stock during the three months
ended September 30, 2010 or 2009.
 
 For the
three months ended September 30, 2010, 2,889,076 shares of common stock
equivalents have been added to the diluted weighted average common shares
outstanding assuming the 2,889,076 shares of Preferred Stock were converted into
shares of Common Stock as of July 1, 2010.
 
 4.
                Useof
      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.
              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.  During the year ended June 30, 2010,
the Company recorded no impairment of goodwill related to potential reduction in
future cash flows. The Company also concluded that no impairment of goodwill
occurred during the quarter ended September 30, 2010.
  6
 
 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 $245,665 and $327,435, as of September 30, 2010 and June 30, 2010,
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, 2010 and 2009 was $81,770 and $96,298, respectively.  As of
September 30, 2010, amortization expense for the fiscal years ended June 30,
2011 and 2012 is expected to be approximately $323,000 and $4,000,
respectively.
  6.
              Long-Term
      Debt
 
 As of September
30, 2010 and June 30, 2010, long term debt consisted of:
 
 September 30,
                          
                          
                          June 30,2010
                          
                          
                          2010Note
      payable due July 19, 2010, payable in quarterly payments of $7,751
      with interest imputed at 9% (net of unamortized discount of $0 and $234,
      respectively)
                          
                          $
                          -
                          
                          
                          $
                          7,517Note
      payable due January 23, 2011 payable in bi-annual installments of
      $13,917 with interest imputed at 8% (net of unamortized discount of $343
      and $601, respectively)
                          
                          
                          12,886
                          
                          
                          
                          12,886Note
      payable due August 08, 2010, payable in monthly installments of $1,033
      beginning October 2008 with interest imputed at 5% (net of unamortized
      discount of $0 and $13, respectively)
                          
                          
                          -
                          
                          
                          
                          2,054Note
      payable due June 20, 2012, payable in monthly installments of $2,088 with
      interest imputed at 9% (net of unamortized discount of $3,418 and $4,407,
      respectively)
                          
                          
                          40,427
                          
                          
                          
                          45,701Note
      payable due July 20, 2010, payable in monthly installments of $1,818 with
      interest imputed at 6.5% (net of unamortized discount of $0 and $10,
      respectively)
                          
                          
                          -
                          
                          
                          
                          1,808Note
      payable due July 20, 2010, payable in monthly installments of $1,409 with
      interest imputed at 6.5% (net of unamortized discount of $0 and $8,
      respectively)
                          
                          
                          -
                          
                          
                          
                          1,401Note
      payable due  February 15, 2015, payable in monthly payments of
      $4,346 with fixed interest 4.5%
                          
                          
                          208,549
                          
                          
                          
                          219,162Note
      payable due  February 15, 2015, payable in monthly payments of
      $11,189 with interest imputed at 3.25% (net of unamortized discount of
      $41,291 and $45,931, respectively)
                          
                          
                          551,733
                          
                          
                          
                          580,661Loan
      and Security Agreement with United States Department of Agriculture Rural
      Utilities Service
                          
                          
                          385,301
                          
                          
                          
                          438,8331,198,896
                          
                          
                          
                          1,310,023Less
      current portion
                          
                          
                          (417,751
                          )
                          
                          
                          (425,971
                          )Total
      long-term debt, less current portion
                          
                          $
                          781,145
                          
                          
                          $
                          884,052
 
 As of
September 30, 2010, the Company’s long-term debt which is secured by certain
inventory and equipment and certificates of deposit totaled approximately
$426,000.
  7.
              Noncontrolling
      Interest and Transfer of Assets
 
 During
July 2009, Mark and Cynthia Ocker (the “Owners”) surrendered 298,119 escrowed
shares of Common Stock in exchange for a promissory note issued by the Company
(the “Exchange Note”).  In March 2010, the Company modified the terms
of the Exchange Note and the original promissory note issued to the Owners in
connection with the Company’s acquisition of TeleShare.  In
consideration for such note modifications, the Company granted the Owners an
option to exchange their noncontrolling interest in TeleShare, then a majority
owned subsidiary of the Company, for certain assets and customer lists owned by
TeleShare.
  During
July 2010, the Owners exercised this option and exchanged their noncontrolling
interest in TeleShare for certain assets of TeleShare and the assumption of
certain liabilities of TeleShare, with a net book value of $25,203. The Company
recognized a loss of $26,004 on the transfer of these assets.  As a
result of this transaction, TeleShare became a wholly owned subsidiary of the
Company.  The surrender of the noncontrolling interest resulted in an
increase to additional paid in capital and elimination of the noncontrolling
interest.
  7
  8.  Stock
Options
  On
September 7, 2010, the Company granted to certain employees of the Company a
total of 190,000 stock options to purchase shares of Common Stock at an exercise
price of $.30 per share.  These options will vest on the later to occur of
(i) six months following the date of grant and (ii) the date that the closing
price of the Common Stock for a period of 30 consecutive trading days averages
$1.00 per share or more, and will expire ten years after date of grant, pursuant
to the terms set forth in the written option agreements executed and delivered
to the recipients of such options.  The Company valued these options at
$0.05 per stock option.  As of September 30, 2010, 971,556 stock options
were available for future issuance under the Company’s current stock option
plan.
  9.
                Income
      Taxes
 
 During
the three months ended September 30, 2010 and 2009, the Company generated income
(loss) of $25,066 and ($521,678), respectively.  No provision for
income taxes has been recorded for the three months ended September 30, 2010 and
2009 as the Company has net operating losses generated in the current and prior
periods.  As of September 30, 2010, the Company continues to maintain
a full valuation allowance for its net deferred tax assets.  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 2006, 2007, 2008 and 2009 tax
periods remain subject to examination by various federal and state tax
jurisdictions.
 
 10.
              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, 2010 and 2009:
 Three Months EndedSeptember 30,2010
                    
                    
                    2009Troy
      LeMaile-Stovall
                    
                    $
                    4,375
                    
                    
                    $
                    3,750Justin
      McClure
                    
                    
                    4,375
                    
                    
                    
                    3,750John
      Palmer
                    
                    
                    3,375
                    
                    
                    
                    4,250Steven
      Mihaylo
                    
                    
                    3,875
                    
                    
                    
                    4,250Cynthia
      Ocker
                    
                    
                    5,090
                    
                    
                    
                    35,241$
                    21,090
                    
                    
                    $
                    51,241
  On
September 14, 2009, Internet America issued a warrant to purchase 197,461 shares
of Common Stock to each of Mr. Mihaylo and Ambassador Palmer, both directors of
the Company. The warrants are exercisable at $0.38 per share and expire five
years after the date of grant.
  8
  On
October 23, 2009 Internet America issued options to purchase 50,000 shares of
Common Stock exercisable at $.50 per share to each of the Company’s directors.
In addition, on October 27, 2009, Internet America issued options to purchase
30,000 shares of Common Stock exercisable at $.50 per share to Messrs.
LeMaile-Stovall and McClure, both directors of the Company.   All
of these options expire ten years after the date of grant.
 
 11.
              Recent
      Accounting Pronouncements
 
 The
Company has reviewed recently issued accounting standards, none of which are
expected to have a material impact on the Company’s financial positions or
results of operations.
 
 12.
                Subsequent
      Events
 
 On
October 6, 2010, a holder of the Company’s Series A preferred stock, par value
$0.01 per share (“Preferred Stock”), elected to convert 170,648 shares of
Preferred Stock, with a book value of $100,000, into 170,648 shares of the
Common Stock.
 
 On
      October 18, 2010, the Company received notice that its lease on 9 of its
      current 238 towers will be terminated effective January 13,
      2011.  While the Company believes that it has various other
      towers potentially available to service its customers, no assurance can be
      given that such will be the case.  Should the Company be unable
      to replace all or at least some of these 9 towers, it could possibly
      interrupt service and therefore jeopardize up to $33,000 per month in
      gross revenues from the customers serviced from these
    towers.
 
 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, 2010 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. Some of these factors
are also discussed under the heading “Safe Harbor Statement and Risk Factors”
later in this Item 2.
 
 Overview
 
 Internet
America is an Internet service provider (“ISP”) that is focused on providing
wireless high-speed broadband Internet in rural markets, and presently serves
approximately 8,100 wireless broadband Internet subscribers and 25,500 total
subscribers in Texas as of September 30, 2010. 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. The Company derives substantially all revenues from Internet access
services and related fees. 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.
 
  Because
of our efforts to improve the quality and efficiency of our operations over the
last few years, we believe that we are well positioned today to withstand the
economic slowdown and/or to capitalize on growth possibilities through internal
growth and potential acquisitions. We believe that we have sufficient capital
resources and cash on hand to withstand either a short or prolonged economic
downturn.  While we expect to see continuing earnings in the near
term, we have now turned our major focus to increasing revenues through internal
growth of wireless operations, commercial services, and possible acquisitions,
although not at the expense of continued positive adjusted
EBITDA.  During calendar 2010, we have experienced slower residential
rural customer increases and we have seen a modest increase in
cancellations.  We believe that this is primarily a result of economic
uncertainty.  We are moving cautiously on acquisition opportunities in
order to be comfortable that any acquisitions that we make will be accretive and
cash flow positive in this uncertain environment.
  9
  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.  However, effective July 1,
2010, the telex messaging business was transferred to the former TeleShare
owners.
 
 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 or double declining 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, 2010 Compared to Three Months Ended September 30,
2009
 
 The following table sets forth
certain unaudited financial data for the three months ended September 30, 2010
and 2009.  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 30,2010
                          
                          
                          % of
                            Revenues
                          
                          
                          2009
                          
                          
                          % of
                            RevenuesSTATEMENT
      OF OPERATIONS DATA:REVENUES:Internet
      services
                          
                          $
                          1,779
                          
                          
                          
                          100.0
                          %
                          
                          $
                          1,798
                          
                          
                          
                          98.0
                          %Other
                          
                          
                          -
                          
                          
                          
                          0.0
                          %
                          
                          
                          38
                          
                          
                          
                          2.0
                          %TOTAL
      REVENUES
                          
                          
                          1,779
                          
                          
                          
                          100.0
                          %
                          
                          
                          1,836
                          
                          
                          
                          100.0
                          %OPERATING
      COSTS AND EXPENSES:Connectivity
      and operations
                          
                          
                          1,095
                          
                          
                          
                          61.6
                          %
                          
                          
                          1,320
                          
                          
                          
                          71.9
                          %Sales
      and marketing
                          
                          
                          56
                          
                          
                          
                          3.1
                          %
                          
                          
                          78
                          
                          
                          
                          4.2
                          %General
      and administrative
                          
                          
                          315
                          
                          
                          
                          17.7
                          %
                          
                          
                          701
                          
                          
                          
                          38.2
                          %Recovery
      of bad debt expense
                          
                          
                          (1
                          )
                          
                          
                          (0.1
                          )%
                          
                          
                          (3
                          )
                          
                          
                          (0.2
                          )%Depreciation
      and amortization
                          
                          
                          249
                          
                          
                          
                          14.0
                          %
                          
                          
                          247
                          
                          
                          
                          13.5
                          %Loss
      from transfer of assets
                          
                          
                          26
                          
                          
                          
                          1.5
                          %
                          
                          
                          -
                          
                          
                          
                          0.0
                          %TOTAL
      OPERATING COSTS AND EXPENSES
                          
                          
                          1,740
                          
                          
                          
                          97.8
                          %
                          
                          
                          2,343
                          
                          
                          
                          127.6
                          %OPERATING
      INCOME (LOSS)
                          
                          
                          39
                          
                          
                          
                          2.2
                          %
                          
                          
                          (507
                          )
                          
                          
                          (27.6
                          )%INTEREST
      INCOME
                          
                          
                          (2
                          )
                          
                          
                          (0.1
                          )%
                          
                          
                          (4
                          )
                          
                          
                          (0.2
                          )%INTEREST
      EXPENSE
                          
                          
                          16
                          
                          
                          
                          0.9
                          %
                          
                          
                          19
                          
                          
                          
                          (1.1
                          )%NET
      INCOME (LOSS)
                          
                          $
                          25
                          
                          
                          
                          1.4
                          %
                          
                          $
                          (522
                          )
                          
                          
                          (28.5
                          )%LESS:
      NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
                          
                          $
                          -
                          
                          
                          
                          0.0
                          %
                          
                          $
                          -
                          
                          
                          
                          0.0
                          %NET
      INCOME (LOSS) ATTRIBUTABLE TO INTERNET AMERICA, INC.
                          
                          $
                          25
                          
                          
                          
                          1.4
                          %
                          
                          $
                          (522
                          )
                          
                          
                          (28.5
                          )%NET
      INCOME (LOSS) PER COMMON SHARE:BASIC
      AND DILUTED
                          
                          $
                          0.00
                          
                          
                          
                          
                          
                          
                          $
                          (0.03
                          )WEIGHTED
      AVERAGE COMMONSHARES
      OUTSTANDING:BASIC
                          
                          
                          16,558,914
                          
                          
                          
                          
                          
                          
                          
                          16,646,405DILUTED
                          
                          
                          19,447,990
                          
                          
                          
                          
                          
                          
                          
                          16,646,405OTHER
      DATA:Subscribers
      at end of period (1)
                          
                          
                          25,500
                          
                          
                          
                          
                          
                          
                          
                          26,400Adjusted
      EBITDA(loss)(2)
                          
                          $
                          315
                          
                          
                          
                          
                          
                          
                          $
                          (239
                          )Adjusted
      EBITDA margin(3)
                          
                          
                          17.8
                          %
                          
                          
                          
                          
                          
                          
                          (13.0
                          )%CASH
      FLOW DATA:Cash
      flow provided by (used in) operations
                          
                          $
                          303
                          
                          
                          
                          
                          
                          
                          $
                          (372
                          )Cash
      flow used in investing activities
                          
                          $
                          (60
                          )
                          
                          
                          
                          
                          
                          $
                          (140
                          )Cash
      flow used in financing activities
                          
                          $
                          (118
                          )
                          
                          
                          
                          
                          
                          $
                          (153
                          )Reconciliation
      of net  income (loss) to Adjusted EBITDA (loss):Net
      Income (loss)
                          
                          $
                          25
                          
                          
                          
                          
                          
                          
                          $
                          (522
                          )Add:Depreciation
      and amortization
                          
                          
                          249
                          
                          
                          
                          
                          
                          
                          
                          247Stock
      compensation
                          
                          
                          1
                          
                          
                          
                          
                          
                          
                          
                          21Interest
      expense
                          
                          
                          16
                          
                          
                          
                          
                          
                          
                          
                          19Loss
      from transfer of assets
                          
                          
                          26
                          
                          
                          
                          
                          
                          
                          
                          -Less:
      Interest income
                          
                          
                          (2
                          )
                          
                          
                          
                          
                          
                          
                          (4
                          )Adjusted
      EBITDA (loss)(2)
                          
                          $
                          315
                          
                          
                          
                          
                          
                          
                          $
                          (239
                          )
  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)   Adjusted
EBITDA, which as used herein means earnings before the effect of interest,
taxes, depreciation, amortization , stock based compensation and transfer of
assets, 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
adjusted EBITDA on a historical basis as a measurement of the Company’s current
operating cash income.
 
 (3)   Adjusted
EBITDA margin represents Adjusted EBITDA as a percentage of total
revenue.
 
 Total
revenue.Total revenue decreased by $57,000, or 3.1%, to
$1,779,000 for the three months ended September 30, 2010, from $1,836,000 for
the three months ended September 30, 2009.  The Company’s total
subscriber count decreased by 900, or 3.4%, to 25,500 as of September 30, 2010
compared to 26,400 as of September 30, 2009.  The Company’s wireless
broadband Internet subscriber count remained unchanged at 8,100 as of September
30, 2010. Wireless broadband Internet revenue increased by $102,000 to
$1,218,000 as of September 30, 2010 compared to $1,116,000 as of September 30,
2009. This increase was primarily due to the stability of the subscriber base
and customers migrating to upgraded service levels and purchasing additional
services during the quarter ended September 30, 2010. Presently stable revenues
derived from wireless broadband Internet subscribers were offset by the decrease
in other types of Internet service revenues of $121,000. This is attributed to
the expected decline of dial-up customers who may move to other providers’
broadband service.  Effective July 1, 2010, Internet America
transferred its messaging business assets to Cynthia and Mark Ocker and
management believes that the loss of the messaging revenue, which totaled
$38,000 during the three months ended September 30, 2009, will not have a
significant impact on the operations of the Company.
 
 Connectivity and operations.Connectivity and operations expense decreased by $225,000, or 17.0%, to
$1,095,000 for the three months ended September 30, 2010, from $1,320,000 for
the three months ended September 30, 2009.  Salaries, wages and
related personnel expense decreased by approximately $94,000 to $520,000 as of
September 30, 2009 compared to $614,000 as of September 30, 2009 which is
attributed mainly to the reduction in headcount to streamline our efficiencies
gained from quality process initiatives. Expensed assets decreased by $67,000 to
$81,000 as of September 30, 2010 compared to $148,000 as of September 30, 2009
due to a decrease in supplies, installation costs and
repairs.   Data and telecommunications expense decreased by
$33,000 to $337,000 as of September 30, 2010 compared to $370,000 as of
September 30, 2009 due to our renegotiating more favorable terms with
telecommunications service providers.  Other expenses decreased by
$33,000 due to a one time conversion cost related to transfer email services to
a hosted outsource service provider in the quarter ended September 30,
2009.   The remaining decrease in connectivity and operating
expense primarily relates to a decrease in merchant fees of
$1,000.   The decreases in previously discussed expenses were
offset slightly by an increase in tower leases costs of $3,000 to $118,000 as of
September 30, 2010 compared to $115,000 as of September 30, 2009.
 
 Sales and marketing.Sales
and marketing expense decreased by $22,000, or 28.2%, to $56,000 for the three
months ended September 30, 2010, compared to $78,000 for the three months ended
September 30, 2009.  Salaries, wages and related personnel costs
decreased by approximately $13,000 to $44,000 as of September 30, 2010 compared
to $57,000 as of September 30, 2009 which is attributed mainly to the reduction
in headcount to streamline our efficiencies gained from quality process
initiatives. Advertising expense decreased by $9,000 to $6,000 as of September
30, 2010 compared to $15,000 as of September 30, 2009 due to the Company
lessening its focusing on direct advertising in all improved or enhanced network
areas.
 
 General and
administrative.General and administrative expense decreased
by $386,000, or 55.0%, to $315,000 for the three months ended September 30,
2010, from $701,000 for the three months ended September 30,
2009.  Personnel costs decreased by $153,000 to $75,000 for September
30, 2010 compared to $228,000 as of September 30, 2009, due to a reduction in
the number of employees, including consolidation of the roles and functions of
the COO, CFO and the Vice President of Marketing and Sales.  The
decrease is also primarily due to non-recurring expenses totaling $120,000 in
connection with our application for a grant under the ARRA to expand access to
broadband into areas in Southeast Texas adjacent to existing operations in
fiscal quarter of 2010.  Other general and administrative costs
decreased by $39,000 to $45,000 as of September 30, 2010 compared to $84,000 as
of September 30, 2009.  Professional fees decreased by $27,000 as of
September 30, 2010 to $60,000 compared to $87,000 in September 30, 2009
primarily due to the disposal of the telex messaging services
business.  Stock compensation expense and directors’ fees decreased by
$20,000 to $17,000 as of September 30, 2010 due to the continued vesting of
stock options and termination of employment of some
grantees.  Facilities costs decreased by $17,000 as of September 30,
2010, to $49,000 at September 30, 2010 from $66,000 at September 30, 2009, due
to the renegotiation of our phone system lease contract and the closing of
storage facilities.  Telecommunications expense decreased by $9,000 to
$46,000 as of September 30, 2010 from $55,000 as of September 30, 2009, due to
cancelling the Company’s cell phone plan and providing a monthly allowance to
our employees.  Travel expenses decreased by $3,000 to $1,000 as of
September 30, 2010 compared to $4,000 as of September 30, 2009.
  12
 
 The
above decreases were offset slightly by the increase in our insurance expense by
$2,000 to $22,000 as of September 30, 2010 compared to $20,000 as of September
30, 2009.
 
 Provision for bad debt expense
(recovery).Net recovery of bad debt expense decreased by
$2,000 to a $1,000 recovery for the three months ended September 30, 2010, from
a $3,000 recovery for the three months ended September 30, 2009. As of September
30, 2010, the Company is fully reserved for all customer accounts that are at
least 90 days old.
 
 Depreciation and
amortization.  Depreciation and amortization increased by
$2,000, or 0.8%, to $249,000 for the three months ended September 30, 2010, from
$247,000 for the three months ended September 30, 2009.  This increase
is due to a $16,000 increase in depreciation relating to the improvements in
existing wireless broadband Internet infrastructure offset by a $14,000 decrease
in amortization expense relating to acquired subscriber costs resulting from the
Company’s prior wireless acquisitions in fiscal 2005 and 2006 becoming fully
amortized.
 
 Loss from transfer of
assets.During July 2010, former owners of TeleShare
surrendered their noncontrolling interest in exchange for $25,000 of certain
assets and liabilities of TeleShare. The Company recognized a loss of $26,000 on
the transfer of these assets.
  Interest (expense) income, net.Interest expense decreased by $3,000 or 15.8% to $16,000 from $19,000 for
the three months ended September 30, 2010 and 2009, which is related to
acquisition debt and the RUS loan outstanding.  Interest income
decreased by $2,000, or 50.0%, to $2,000 due to changes in cash on hand and
declining interest rates.
 
 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
provided by (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, 2010, cash provided by operations was $303,000
compared to cash used in operations of $372,000 for the three months ended
September 30, 2009. For the three months ended September 30, 2010, net income
plus non-cash items contributed cash of $301,000.  Material decreases
in accounts payable and accrued expenses and deferred revenue were offset by
decreases in accounts receivable, inventory, prepaid expenses and other assets.
For the three months ended September 30, 2009, net loss plus non-cash items used
$244,000 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 $60,000 for the three months ended September 30,
2010, which relates primarily to the improvements in existing wireless broadband
Internet infrastructure. 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 financing activities, which totaled $118,000 for the three months ended
September 30, 2010, 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 $153,000 for the three months ended
September 30, 2009, consisted of principal payments on long term-debt and
capital leases.
 
 Cash on
hand increased by $125,000 during the quarter ended September 30,
2010.  At September 30, 2010, cash on hand was $1,335,000 compared to
$1,210,000 at June 30, 2010.  Anticipated cash flow from operations in
the near future is expected to be sufficient to meet our working capital needs
in fiscal 2011 for continuing operations.
   13
  However, in the near term the Company
will continue to reduce 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. 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 continue to 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.
 
 Off
Balance Sheet Arrangements
 
 None.
  “Safe
Harbor” Statement and Risk Factors
 
 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) 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, (4) financing will not be available
to us if and as needed, (5) we will not be competitive with existing or new
competitors, (6) we will not keep up with industry pricing or technological
developments impacting the Internet, (7) we will be adversely affected by
dependence on network infrastructure, telecommunications providers and other
vendors or by regulatory changes, (8) service interruptions or impediments could
harm our business, (9) 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, (10) government regulations
could force us to change our business practices, (11) we may be unable to hire
and retain qualified personnel, including our key executive officers, (12)
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, (13) provisions
in our certificate of incorporation, bylaws and shareholder rights plan could
limit our share price and delay a change of management, (14) our stock price has
been volatile historically and may continue to be volatile, and (15) we will be
unable to replace the towers that will be coming off contract as discussed in
Note 12 to the financial statements contained in Item 1 hereof. 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
4.        CONTROLS AND
PROCEDURES
 
 (a) Evaluation of disclosure controls
and procedures.We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our reports
pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange
Act, is recorded, processed, summarized and reported within the time periods
specified in the rules and forms, and that such information is accumulated and
communicated to us, including our Chief Executive Officer, who also performs the
functions of the principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
 As
required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as
of September 30, 2010 was conducted under the supervision and with the
participation of our management, including our Chief Executive Officer, who also
serves as our principal financial officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act). Based on this evaluation, our Chief Executive Officer,
also performing function of the principal financial officer, concluded that our
disclosure controls and procedures, as of September 30, 2010, were
effective.
 
 (b) Changes in internal control over
financial reporting.There were no changes in our internal control over
financial reporting that occurred during the fiscal quarter ended September 30,
2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
  14
  PART
II - OTHER INFORMATION
 
 ITEM
1.         LEGAL PROCEEDINGS
 
 None.
 
 ITEM
1A.      RISK FACTORS
 
 Not applicable.
 
 ITEM
2.         UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
 
 On September 7, 2010, the Company
granted to certain employees of the Company a total of 190,000 stock options to
purchase shares of Common Stock at an exercise price of $.30 per share. 
These options will vest on the later to occur of (i) six months following the
date of grant and (ii) the date that the closing price of the Common Stock for a
period of 30 consecutive trading days averages $1.00 per share or more, and will
expire ten years after date of grant, pursuant to the terms set forth in the
written option agreements executed and delivered to the recipients of such
options.   These stock options were issued under the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended, in that the issuance of the stock options was a transaction by the
Company not involving a public offering.  Facts supporting the
applicability of this exemption include that (i) the recipients of the stock
options are Company insiders and are sophisticated, knowledgeable and
experienced investors and (ii) the stock options were issued through direct
negotiations and did not involve general solicitation.
 
 ITEM
3.         DEFAULTS UPON SENIOR
SECURITIES
 
 None.
  ITEM
4.         (REMOVED AND
RESERVED)
 
 ITEM
5.         OTHER INFORMATION
 
 None.
 
 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 Willian E. Ladin,
  Jr.32.1*
                  
                  Section
      1350 Certification of William E. Ladin,
Jr.
 
 
 *Filed
herewith.
  15
  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:  November 15,
      2010By:  /s/ William E. Ladin,
      Jr.William
      E. Ladin, Jr.Chairman
      and Chief Executive OfficerDate:  November 15,
      2010By:  /s/ William E. Ladin,
      Jr.William
      E. Ladin, Jr.Acting
      Chief Financial and Chief Accounting Officer
  16
  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 William E. Ladin,
  Jr.32.1*
                  
                  Section
      1350 Certification of William E. Ladin,
Jr.
 
 *Filed
herewith
  17