10-Q

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 DECEMBER 31, 2003

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 incorporation or organization)	(I.R.S. Employer Identification Number)
350 N. ST. PAUL, SUITE 3000, DALLAS, TX	75201
(Address of principal executive offices)	(Zip Code)
(214) 861-2500
(Registrant’s telephone number, including area code)

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

OUTSTANDING AT FEBRUARY 12, 2004

Common Stock at $.01 par value: 10,426,641 shares

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

INTERNET AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2003			June 30, 2003
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,802,896		$	1,968,091
Accounts receivable, net of allowance for uncollectible accounts of $1,032,388 and $1,133,944 as of December 31, 2003 and June 30, 2003, respectively		271,907			347,674
Prepaid expenses and other current assets		153,115			166,557
Total current assets		2,227,918			2,482,322
Property and equipment, net		233,036			411,926
Other assets, net		4,360,838			4,380,393
	$	6,821,792		$	7,274,641
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade accounts payable	$	528,964		$	795,714
Accrued liabilities		937,784			1,472,827
Deferred revenue		1,781,992			2,068,404
Current maturities of capital lease obligations		—			14,096
Total current liabilities		3,248,740			4,351,041
SHAREHOLDERS’ EQUITY:
Common stock, $.01 par value; 40,000,000 shares authorized, 10,398,063 and 10,337,476 issued and outstanding at December 31, 2003 and June 30, 2003, respectively		103,981			103,375
Additional paid-in capital		55,605,652			55,733,257
Note receivable from a shareholder		(82,000	)		(82,000	)
Accumulated deficit		(52,054,581	)		(52,831,032	)
Total shareholders’ equity		3,573,052			2,923,600
	$	6,821,792		$	7,274,641

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 Ended December 31,					Six Months Ended December 31,
	2003			2002		2003			2002
REVENUES:
Internet services	$	3,105,737		$	4,617,326	$	6,538,825		$	9,601,225
Other		8,852			9,263		11,288			11,393
Total		3,114,589			4,626,589		6,550,113			9,612,618
OPERATING COSTS AND EXPENSES:
Connectivity and operations		1,729,235			2,077,282		3,575,254			4,679,569
Sales and marketing		93,736			137,131		133,230			287,098
General and administrative		750,324			1,212,701		1,760,201			2,351,621
Provision for bad debt expense		26,819			153,826		129,443			299,789
Depreciation		84,131			199,185		193,685			432,528
Total		2,684,245			3,780,125		5,791,813			8,050,605
OPERATING INCOME		430,344			846,464		758,300			1,562,013
INTEREST (INCOME) EXPENSE, NET		(9,361	)		142,933		(18,151	)		286,092
NET INCOME	$	439,705		$	703,531	$	776,451		$	1,275,921
NET INCOME PER COMMON SHARE:
BASIC	$	0.04		$	0.07	$	0.07		$	0.13
DILUTED	$	0.04		$	0.07	$	0.07		$	0.12
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC		10,396,410			10,228,203		10,388,391			10,198,011
DILUTED		10,426,685			10,279,906		10,416,486			10,247,684

See accompanying notes to condensed consolidated financial statements.

3

Financial Statements - Continued

INTERNET AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended December 31,
	2003			2002
OPERATING ACTIVITIES:
Net income	$	776,451		$	1,275,921
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		193,685			432,528
Provision for bad debt expense		129,443			299,789
Non-cash compensation expense		4,000			20,000
Changes in operating assets and liabilities:
Restricted cash		—			(332,053	)
Accounts receivable		(53,676	)		(208,735	)
Prepaid expenses and other current assets		13,442			(54,161	)
Other assets		19,555			52,074
Accounts payable and accrued liabilities		(801,796	)		16,315
Deferred revenue		(286,412	)		(383,153	)
Net cash (used in) provided by operating activities		(5,308	)		1,118,525
INVESTING ACTIVITIES
Purchases of property and equipment		(14,792	)		(88,215	)
FINANCING ACTIVITIES:
Proceeds from issuance of common equity		19,001			30,411
Principal payments of capital lease obligations		(14,096	)		(44,290	)
Principal payments of long-term debt		—			(6,746	)
Purchase of outstanding Company stock option		(150,000	)		—
Net cash used in financing activities		(145,095	)		(20,625	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(165,195	)		1,009,685
CASH AND CASH EQUIVALENTS, beginning of period		1,968,091			2,901,545
CASH AND CASH EQUIVALENTS, end of period	$	1,802,896		$	3,911,230
SUPPLEMENTAL INFORMATION:
Cash paid for interest	$	19		$	68,178

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 financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to Article 10 of Regulation S-X of the Securities and Exchange Commission. The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary to achieve a fair statement of the Company’s financial position and results of operations for the interim periods presented. All such adjustments are of a normal and recurring nature. These condensed financial statements should be read in conjunction with the financial statements for the year ended June 30, 2003, included in the Company’s Annual Report on Form 10-K (File No 000-25147).

2. Basic and Diluted Net Income Per Share

There are no adjustments required to be made to net income for the purpose of computing basic and diluted earnings per share (“EPS”) for the three and six months ended December 31, 2003. During the three and six months ended December 31, 2003, options to purchase 38,000 shares of common stock were included in the computation of diluted EPS because the options were “in the money” as of December 31, 2003 and it resulted in 30,275 and 28,095 common stock equivalents to be added to the weighted average shares for the three and six months ended December 31, 2003, respectively. During the three and six months ended December 31, 2003 and 2002, options to purchase 690,037 and 1,059,557 shares of common stock were not included in the computation of diluted EPS because the options were not “in the money” as of December 31, 2003 and 2002, respectively. There were no options exercised to purchase shares of common stock during the three and six months ended December 31, 2003 and 2002 except for 5,000 options to purchase shares of common stock that were exercised during the three months ended September 30, 2003.

3. Other Assets

The carrying value of other assets at December 31, 2003 is as follows:

	Goodwill			Deposits and other		Total
Original Cost	$	26,023,407		$	65,361	$	26,088,768
Less accumulated Amortization		(21,727,930	)	$	—		(21,727,930	)
Other assets, net	$	4,295,477		$	65,361	$	4,360,838

4. Employee Stock Option Plans

The Company applies APB No. 25 and related Interpretations in accounting for its employee stock option plans. The estimated fair value of each option grant was determined by reference to quoted market price or recent private, arm’s length sales of common and preferred stock prior to the company’s initial public offering. In cases where there were no arm’s length transactions on or around the date of an option grant, the Board of Directors determined the value. No compensation expense has been charged against operations for the three and six months ended December 31, 2003 and 2002 related to stock option plans.

5

Had compensation cost for the Company’s stock options been determined based on the fair value at the grant dates for awards consistent with the method of SFAS No. 123, the Company’s net income and income per share for the three and six months ended December 31, 2003 and 2002 would have been as indicated below:

	Three Months Ended December 31, 2003			Three Months Ended December 31, 2002			Six Months Ended December 31, 2003			Six Months Ended December 31, 2002
Reported net income	$	439,705		$	703,531		$	776,451		$	1,275,921
Less: SFAS No. 123 compensation expense		(87,733	)		(199,645	)		(206,763	)		(399,290	)
Pro forma net income	$	351,972		$	503,886		$	569,688		$	876,631
Reported basic income per share	$	0.04		$	0.07		$	0.07		$	0.13
Reported diluted income per share	$	0.04		$	0.07		$	0.07		$	0.12
Less: SFAS No. 123 compensation expense		(0.01	)		(0.02	)		(0.02	)		(0.04	)
Pro forma basic income per share	$	0.03		$	0.05		$	0.05		$	0.09
Pro forma diluted income per share	$	0.03		$	0.05		$	0.05		$	0.08

5. Income Taxes

During the three and six months ended December 31, 2003 and 2002, the Company generated net income. No provision for income taxes has been recorded as the Company has reduced the valuation allowance on its net operating losses generated in prior periods. As of December 31, 2003, the Company continues to maintain a full valuation allowance for its net deferred tax assets of $11.7 million. Given its limited history of generating net income, the Company does not consider the future recoverability of the net deferred tax assets to be more likely than not at this time.

6. Related Parties

The Company entered into a consulting agreement for a one year term beginning October 1, 2003 with the former Chairman and CEO of the Company. The agreement states that a consulting fee is to be paid at a rate of $10,000 per month. During the six months ended December 31, 2003, the Company paid a total of $40,000 in consulting fees to the former Chairman and CEO of which $10,000 was recorded as a prepaid expense as of December 31, 2003.

During the three months ended December 31, 2003, the Company paid $15,450 in consulting fees related to marketing and advertising for the Company to Marc Ladin Consulting. Marc Ladin is the son of William E. Ladin, the Chairman and CEO of the Company.

The Company engages Gary Corona, a non-employee board of director of the Company, as a consultant to the Company at a rate of $6,000 per month. Per this agreement, Mr. Corona has been paid $14,000 during the six months ended December 31, 2003.

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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, 2003 and other publicly filed reports discuss some additional important factors that could cause our actual results to differ materially from those in any forward-looking statements.

Overview

Internet America is an Internet service provider (“ISP”) offering a wide array of Internet services tailored to meet the needs of individual and business subscribers. We provide a high quality Internet experience with fast, reliable service and responsive customer care. As of December 31, 2003, we served approximately 69,000 subscribers in the southwestern United States, primarily in Dallas and Houston, Texas.

High user density is the cornerstone of our business strategy. We will pursue a growth strategy based on the introduction of new products and services, focusing on the Dallas and Houston markets, where we have established branding, rather than new markets. Our goal is to create high user density in specific markets to maintain operating efficiencies and achieve positive operating results.

We have had positive EBITDA (earnings before interest (income) expense, taxes, depreciation and amortization) for the past twelve quarters and net income for the past six quarters, primarily due to the consolidation of operations and reduction of expenses, including sales and marketing efforts. Our revenues and subscriber base, however, have suffered a steady decline, the result of a number of factors including increased competition and decreased marketing efforts. Continued decline of revenues and subscriber base will negatively affect the Company’s ability to generate net income.

The growth of the Internet and new technologies has resulted in increased competition for existing services and increased demand for new products and services. We believe we can successfully deal with these competitive forces through the introduction of new products and services and can efficiently market and deploy our products due to the high density of our subscriber base. Given the high level of competition in the industry for new subscribers, we have increased and plan to continue to increase our marketing efforts but will remain selective with investing in advertising. We plan to concentrate our advertising more heavily in markets where we have established branding than in new markets.

The adoption of broadband access via DSL, cable, wireless and other mechanisms has increased, and we believe, particularly with the emergence of low-cost high-speed solutions, that broadband will continue to grow as the preferred method of connectivity by businesses and consumers. High-speed connectivity is essential to the commercially viable deployment of new, value-added services such as Internet telephony, particularly Voice Over Internet Protocol (VoIP), video and audio programming distribution and other high bandwidth applications.

We believe this will significantly impact the ability of many ISPs, including us, to compete. At this time, our broadband offerings consist of DSL services and business oriented dedicated connectivity such as T-1 access, but we do not offer a cable or wireless service. We are, however, committed to being a leader in offering cost effective broadband solutions to individuals and businesses, and we will continue to pursue alternative methods of low-cost high-speed connectivity.

Additionally, because all of our DSL services include a local loop sold to us at wholesale prices by either SBC Communications, Inc. (“SBC”) or Verizon Communication, Inc. (“Verizon”) pricing and availability of our

7

DSL services are subject to the competitive pressures of those local exchange carriers, both of which also sell their own DSL services on a retail basis. Thus, pressures from SBC or Verizon may cause us to decrease the price of our DSL services, resulting in a decrease in revenue per subscriber, or may cause us to make fewer new sales of DSL services.

We have an accumulated deficit of $52.1 million at December 31, 2003 and have had annual operating losses since inception until the prior fiscal year ended June 30, 2003 as a result of building network infrastructure and rapidly increasing market share.

Statement of Operations

Internet services revenue is derived from individual dial-up Internet access, including analog and ISDN access, DSL access, dedicated connectivity, bulk dial-up access, Web hosting services, and value-added services, such as multiple e-mail boxes and personalized e-mail addresses.

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, 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 and (ii) fees paid to backbone providers for connections from our network to the Internet.

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 business expenses.

Provision for bad debt expenses consist primarily of customer accounts that have been deemed uncollectible and will potentially be written off in future periods. 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. Data communications equipment, computers, data servers and office equipment are depreciated over three years. We depreciate furniture, fixtures and leasehold improvements over five years. For fiscal years prior and ended June 30, 2002, purchased subscriber bases and related goodwill were amortized over 30 to 36 months.

Our business is not subject to any significant seasonal influences.

8

Results of Operations

Three Months Ended December 31, 2003 Compared to Three Months Ended December 31, 2002

The following table sets forth certain unaudited financial data for the three months ended December 31, 2003 and 2002. Operating results for any period are not indicative of results for any future period. Dollar amounts are shown in thousands (except per share data and subscriber counts).

	Three Months Ended December 31, 2003					Three Months Ended December 31, 2002
	(000’s)			% of Revenues		(000’s)			% of Revenues
STATEMENT OF OPERATIONS DATA:
REVENUES:
Internet services	$	3,106		99.7	%	$	4,617		99.8	%
Other		9		0.3	%		9		0.2	%
Total		3,115		100.0	%		4,626		100.0	%
OPERATING COSTS AND EXPENSES:
Connectivity and operations		1,729		55.5	%		2,077		44.9	%
Sales and marketing		94		3.0	%		137		3.0	%
General and administrative		750		24.1	%		1,212		26.2	%
Provision for bad debt expense		27		0.9	%		154		3.3	%
Depreciation		84		2.7	%		199		4.3	%
Total		2,684		86.2	%		3,779		81.7	%
OPERATING INCOME		431		13.8	%		847		18.3	%
INTEREST (INCOME) EXPENSE, NET		(9	)	(0.3	)%		143		3.1	%
NET INCOME	$	440		14.1	%	$	704		15.2	%
NET INCOME PER COMMON SHARE:
BASIC	$	0.04				$	0.07
DILUTED	$	0.04				$	0.07
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC		10,396					10,228
DILUTED		10,427					10,280
OTHER DATA:
Subscribers at end of period		69,000					106,000
EBITDA(1)		515					1,046
EBITDA margin (2)		16.5	%				22.6	%
Reconciliation of net income to EBITDA:
Net income	$	440				$	704
Add:
Depreciation		84					199
Interest (income) expense, net		(9	)				143
EBITDA (1)		515					1,046

(1) EBITDA (earnings before interest (income) expense, 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 because it is commonly used in the industry and we believe it is useful information for investors.

(2) EBITDA margin represents EBITDA as a percentage of total revenue.

9

Total revenue. Total revenue decreased by $1.5 million, or 32.6%, to $3.1 million for the three months ended December 31, 2003, from $4.6 million for the three months ended December 31, 2002. The Company’s subscriber count decreased by 37,000, or 34.9%, to 69,000 as of December 31, 2003 compared to 106,000 as of December 31, 2002. The decrease in the subscriber count is attributable to tightened credit policies and procedures and normal customer attrition exceeding our rate of new sales and the loss of DSL customers due to the bankruptcy of one of our DSL providers.

Connectivity and operations. Connectivity and operations expense decreased by $0.4 million or 19.0%, to $1.7 million for the three months ended December 31, 2003 from $2.1 million for the three months ended December 31, 2002. The decrease is primarily due to the consolidation of internet and telephone connections and circuits which was a result of decreased revenues. As a percentage of total revenue, connectivity and operations expense increased to 55.5% for the three months ended December 31, 2003, from 44.9% for the three months ended December 31, 2002 due primarily to the decrease in revenues.

Sales and marketing. Sales and marketing expense decreased by $43,000, or 31.4%, to $94,000 for the three months ended December 31, 2003, compared to $137,000 for the three months ended December 31, 2002. Personnel costs related to sales decreased by $52,000 or 55.9%, to $41,000 for the three months ended December 31, 2003, compared to $93,000 for the three months ended December 31, 2002. The advertising expense for the three months ended December 31, 2003 was $52,000 which consisted primarily of billboard advertising compared to $44,000 for the three months ended December 31, 2002.

General and administrative. General and administrative expense decreased by $0.4 million, or 33.3%, to $0.8 million for the three months ended December 31, 2003, from $1.2 million for the three months ended December 31, 2002. Personnel costs decreased by $287,000 or 54.6%, to $239,000 for the three months ended December 31, 2003, compared to $526,000 for the three months ended December 31, 2002 which is primarily due to the consolidation of the Houston office. Office rent expense related to the Dallas office decreased $66,000 for the three months ended December 31, 2003 due to an amended lease agreement. General and administrative expense as a percentage of total revenue decreased to 24.1% for the three months ended December 31, 2003, from 26.2% for the three months ended December 31, 2002 due primarily to the decrease in general and administrative expenses.

Provision for bad debt expense. Provision for bad debt expense decreased by $127,000, or 82.5%, to $27,000 for the three months ended December 31, 2003, from $154,000 for the three months ended December 31, 2002. The decrease is mainly related to an overall improvement in the Company’s aging of customer accounts that are at least 90 days old and improved billing and collection efforts. Provision for bad debt expense as a percentage of revenue decreased to 0.9% for the three months ended December 31, 2003, from 3.3% for the three months ended December 31, 2002. As of December 31, 2003, the Company continues to be fully reserved for all customer accounts that are at least 90 days old.

Depreciation. Depreciation decreased by $115,000, or 57.8%, to $84,000 for the three months ended December 31, 2003, from $199,000 for the three months ended December 31, 2002. The decrease is due to certain property and equipment becoming fully depreciated.

Interest (income) expense, net. For the three months ended December 31, 2003, the Company recorded no interest expense, but did record approximately $9,000 in interest income which is primarily due to interest earned on the Company’s cash balances. For the three months ended December 31, 2002, the Company recorded interest expense of $66,000 related to a $3.3 million letter of credit agreement with the Company’s former Chairman, William O. Hunt, and $80,000 in interest expense related to post-judgment interest on a lawsuit judgment for the three months ended December 31, 2002.

10

Six Months Ended December 31, 2003 Compared to Six Months Ended December 31, 2002

The following table sets forth certain unaudited financial data for the six months ended December 31, 2003 and 2002. Operating results for any period are not indicative of results for any future period. Dollar amounts are shown in thousands (except per share data and subscriber counts).

	Six Months Ended December 31, 2003					Six Months Ended December 31, 2002
	(000’s)			% of Revenues		(000’s)			% of Revenues
STATEMENT OF OPERATIONS DATA:
REVENUES:
Internet services	$	6,539		99.8	%	$	9,601		99.9	%
Other		11		0.2	%		12		0.1	%
Total		6,550		100.0	%		9,613		100.0	%
OPERATING COSTS AND EXPENSES:
Connectivity and operations		3,575		54.6	%		4,680		48.7	%
Sales and marketing		133		2.0	%		287		3.0	%
General and administrative		1,761		26.9	%		2,351		24.5	%
Provision for bad debt expense		129		2.0	%		300		3.1	%
Depreciation		194		3.0	%		433		4.5	%
Total		5,792		88.4	%		8,051		83.8	%
OPERATING INCOME		758		11.6	%		1,562		16.2	%
INTEREST (INCOME) EXPENSE, NET		(18	)	(0.3	)%		286		3.0	%
NET INCOME	$	776		11.8	%	$	1,276		13.3	%
NET INCOME PER COMMON SHARE:
BASIC	$	0.07				$	0.13
DILUTED	$	0.07				$	0.12
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC		10,388					10,198
DILUTED		10,416					10,248
OTHER DATA:
Subscribers at end of period		69,000					106,000
EBITDA(1)		952					1,995
EBITDA margin (2)		14.5	%				20.8	%
CASH FLOW DATA:
Cash flow (used in) provided by operations		(5	)				1,119
Cash flow used in investing activities		15					88
Cash flow used in financing activities		145					21
Reconciliation of net income to EBITDA:
Net income	$	776				$	1,276
Add:
Depreciation		194					433
Interest (income) expense, net		(18	)				286
EBITDA	$	952				$	1,995

(1) EBITDA (earnings before interest (income) expense, 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 because it is commonly used in the industry and we believe it is useful information for investors.

(2) EBITDA margin represents EBITDA as a percentage of total revenue.

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Total revenue. Total revenue decreased by $3.0 million, or 31.3%, to $6.6 million for the six months ended December 31, 2003, from $9.6 million for the six months ended December 31, 2002. The Company’s subscriber count decreased by 37,000, or 34.9%, to 69,000 as of December 31, 2003 compared to 106,000 as of December 31, 2002. The decrease in the subscriber count is attributable to tightened credit policies and procedures and normal customer attrition exceeding our rate of new sales and the loss of DSL customers due to the bankruptcy of one of our DSL providers.

Connectivity and operations. Connectivity and operations expense decreased by $1.1 million, or 23.4%, to $3.6 million for the six months ended December 31, 2003 from $4.7 million for the six months ended December 31, 2002. The decrease is primarily due to the consolidation of internet and telephone connections and circuits which was a result of decreased revenues. As a percentage of total revenue, connectivity and operations expense increased to 54.6% for the six months ended December 31, 2003, from 48.7% for the six months ended December 31, 2002 due primarily to the decrease in revenues.

Sales and marketing. Sales and marketing expense decreased by $154,000, or 53.7%, to $133,000 for the six months ended December 31, 2003, compared to $287,000 for the six months ended December 31, 2002. Personnel costs related to sales decreased by $136,000 or 63.3%, to $79,000 for the six months ended December 31, 2003, compared to $215,000 for the six months ended December 31, 2002.

General and administrative. General and administrative expense decreased by $0.6 million, or 25.0%, to $1.8 million for the six months ended December 31, 2003, from $2.4 million for the six months ended December 31, 2002. Personnel costs decreased by $0.5 million or 45.5%, to $0.6 million for the six months ended December 31, 2003, compared to $1.1 million for the six months ended December 31, 2002 which is primarily due to the consolidation of the Houston office and reduction in personnel for the Dallas office. Office rent expense related to the Dallas office decreased $78,000 for the six months ended December 31, 2003 due to an amended lease agreement. General and administrative expense as a percentage of total revenue increased to 26.9% for the six months ended December 31, 2003, from 24.5% for the six months ended December 31, 2002 due primarily to the decrease in revenues.

Provision for bad debt expense. Provision for bad debt expense decreased by $171,000, or 57.0%, to $129,000 for the six months ended December 31, 2003, from $300,000 for the six months ended December 31, 2002. The decrease is mainly related to an overall improvement in the Company’s aging of customer accounts that are at least 90 days old and improved billing and collection efforts. Provision for bad debt expense as a percentage of total revenue decreased to 2.0% for the six months ended December 31, 2003, from 3.1% for the six months ended December 31, 2002. As of December 31, 2003, the Company continues to be fully reserved for all customer accounts that are at least 90 days old.

Depreciation. Depreciation decreased by $239,000, or 55.2%, to $194,000 for the six months ended December 31, 2003, from $433,000 for the six months ended December 31, 2002. The decrease is due to certain property and equipment becoming fully depreciated.

Interest (income) expense, net. For the six months ended December 31, 2003, the Company recorded no interest expense, but did record approximately $18,000 in interest income which is primarily due to interest earned on the Company’s cash balances. For the six months ended December 31, 2002, the Company recorded interest expense of $132,000 related to a $3.3 million letter of credit agreement with the Company’s former Chairman, William O. Hunt, and $160,000 in interest expense related to post-judgment interest on a lawsuit judgment for the six months ended December 31, 2002.

Liquidity and Capital Resources

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

Cash (used in) provided by operating activities totaled ($5,000) and $1.1 million for the six months ended December 31, 2003 and 2002, respectively. Cash used in operating activities was the result of $952,000 in EBITDA which was offset by a reduction in accounts payable and accrued liabilities of $802,000 and a reduction in deferred revenues of $286,000. The significant decrease in accounts payable and accrued liabilities is the result of the

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company paying vendors on a more timely basis and the resolution of billing disputes with telecommunications vendors. Cash provided by operating activities for the six months ended December 31, 2002 was the result of $2.0 million in positive EBITDA which was offset by uses of cash for restricted cash, accounts receivable and deferred revenue for a total of $924,000.

Cash used in investing activities totaled $15,000 and $88,000 for the six months ended December 31, 2003 and 2002, respectively, which consisted of routine purchases of property and equipment to expand and upgrade our network.

Cash used in financing activities totaled $145,000 and $21,000 for the six months ended December 31, 2003 and 2002, respectively. Cash used in financing activities for the six months ended December 31, 2003 consisted primarily of $150,000 paid to purchase an outstanding stock option of the Company from William O. Hunt. There was also proceeds of $19,000 from the issuance of common stock related to the employee stock purchase plan which was offset by $14,000 in payments to service capital lease obligations for the six months ended December 31, 2003.

We estimate that cash on hand of $1.8 million at December 31, 2003 along with anticipated cash flow from operations will be sufficient for meeting our working capital needs for fiscal 2004 with regard to continuing operations in existing markets. Additional financing will be required to fund acquisitions or expansion into new markets. Continued decreases in revenues and subscriber count may ultimately affect the liquidity of the Company. The Company has started to advertise in Dallas and Houston with billboards and in newspapers and will continue to advertise for future periods to stabilize and potentially increase revenues. The Company currently has no long term advertising commitments.

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

“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 retain or grow our subscriber base, including DSL and commercial services customers, (2) we will not improve EBITDA, profitability or product margins, (3) we will not continue to achieve operating efficiencies, (4) we will not be competitive with existing or new competitors, (5) we will not keep up with industry pricing or technological developments impacting the Internet, (6) needed financing will not be available to us if and as needed, and (7) we will be adversely affected by dependence on network infrastructure, telecommunications providers and other vendors, by regulatory changes and by general economic and business conditions. This list is intended to identify certain of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere herein. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements included in our other publicly filed reports and documents.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

No material changes have occurred to the Company’s previously reported risk profile for market-risk sensitive instruments.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) in effect as of December 31, 2003. Based upon that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that, as of December 31, 2003, the design and operation of these disclosure controls

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and procedures were effective in timely alerting them to the material information relating to the Company required to be included in its periodic filings with the Securities and Exchange Commission. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the conclusion of their evaluation.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On January 30, 2004, the Company filed a lawsuit against Gary Corona (“Corona”), one of its two directors, alleging that the Company had learned that Corona had disseminated confidential information about Internet America to certain selected shareholders and seeking a temporary restraining order (“TRO”), temporary injunction and permanent injunction which, among other matters, would 1) enjoin Corona from disseminating confidential corporate information to Internet America shareholders, stockbrokers or any third party, 2) enjoin Corona from taking certain actions with regard to the management rights or obligations of Internet America without board authorization and 3) order Corona to return certain corporate documents to Internet America.

The lawsuit was filed in the District Court of Dallas County, Texas, 298^th Judicial District. The court entered the TRO on January 30, 2004, which order shall remain in place, pursuant to an agreement between the parties, until February 23, 2004. The court set Internet America’s application for temporary injunction for a hearing to be held on February 23, 2004.

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

On November 12, 2003, the Company held its 2003 annual meeting of shareholders, at which the shareholders voted as follows:

MATTER VOTED ON	SHARES VOTED FOR	AUTHORITY WITHHELD
The election of William E. Ladin to the board of directors	7,802,858	78,921
The election of Gary Corona to the board of directors	7,813,558	68,221

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Seventh Amendment to Office Lease Agreement dated December 5, 2003 by and between Internet America, Inc. and One Dallas Centre Associates L.P. *

31.1 Rule 13a-14(a)/15d-14(a) Certification of William E. Ladin, Jr.*

31.2 Rule 13a-14(a)/15d-14(a) Certification of Mark Novy*

32.1 Section 1350 Certification of William E. Ladin, Jr.*

32.2 Section 1350 Certification of Mark Novy*

* Filed herewith

(b) Reports on Form 8-K

The Company filed the following reports on Form 8-K during the quarter ended December 31, 2003: (1) Form 8-K filed on November 12, 2003 disclosing its results of operations for the quarter ended September 30, 2003.

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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: 02/17/04	By: /s/ William E. Ladin, Jr.
	William E. Ladin
	President and Chief Executive Officer
Date: 02/17/04	By: /s/ Mark Novy
	Mark Novy
	Controller and Chief Accounting Officer

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INDEX TO EXHIBITS

Exhibit No.	Description
10.1	Seventh Amendment to Office Lease dated December 5, 2003 by and between Internet America, Inc. and One Dallas Centre Associates L.P. *
31.1	Rule 13a-14(a)/15d-14(a) Certification of William E. Ladin, Jr.*
31.2	Rule 13a-14(a)/15d-14(a) Certification of Mark Novy*
32.1	Section 1350 Certification of William E. Ladin, Jr.*
32.2	Section 1350 Certification of Mark Novy*

* Filed herewith

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EX-10.1

Exhibit 10.1

SEVENTH AMENDMENT TO OFFICE LEASE

This SEVENTH AMENDMENT TO OFFICE LEASE (this “Amendment”) is entered into on this the 5^th day of December, 2003, to be effective as of November 1, 2003, by and between ONE DALLAS CENTRE ASSOCIATES L.P., a Delaware limited partnership (“Landlord”), as successor-in-interest to The Equitable Life Assurance Society of the United States, a New York corporation (“Original Landlord”) and INTERNET AMERICA, INC., a Texas corporation, as successor-in-interest to Internet America, Inc., an Arizona corporation (“Tenant”).

RECITALS:

A. Original Landlord and Tenant entered into that certain Office Lease dated May 17, 1995 (the “Lease Agreement”), covering approximately 4,199 square feet of rentable area located on Floor 2 of the Building (as defined in Paragraph 1 .F. of the Lease Agreement) (collectively, the “Original Leased Premises”).

B. The Lease Agreement was amended by (i) that certain First Amendment of Lease dated effective as of August 1, 1995 (the “First Amendment”), executed by and between Original Landlord and Tenant, (ii) that certain Second Amendment of Lease dated effective as of September 1, 1995 (the “Second Amendment”), executed by and between Original Landlord and Tenant, (iii) that certain Third Amendment of Lease dated effective as of September 12, 1995 (the “Third Amendment”), executed by and between Original Landlord and Tenant, (iv) that certain Fourth Amendment of Lease dated April 24, 1996 (the “Fourth Amendment”), executed by and between Original Landlord and Tenant, (v) that certain Fifth Amendment to Lease Agreement dated July 5, 1996 (the “Fifth Amendment”), executed by and between Original Landlord and Tenant, and (vi) that certain Sixth Amendment to Office Lease dated January 22, 2002, to be effective as of November 1, 2001 (the “Sixth Amendment”), executed by and between Landlord and Tenant (the Lease Agreement, as so amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment, is sometimes referred to hereinafter as the “Lease”).

C. As of the date of this Amendment, the Leased Premises being leased by Tenant from Landlord pursuant to the Lease contains a total of 29,019 square feet of rentable area and is comprised of (i) 19,218 square feet of rentable area designated as Suite 3000 located on Floor 30 of the Building (“Suite 3000”), (ii) 8,341 square feet of rentable area designated as Suite 200 located on Floor 2 of the Building (“Suite 200”) and (iii) 1,460 square feet of rentable area designated as Suite 150 located on Floor 1 of the Building (“Suite 150”) (Suite 3000, Suite 200 and Suite 150 are referred to herein collectively as the “Leased Premises”).

D. Landlord and Tenant desire to modify the Lease to, among other things, (i) reduce the size of the Leased Premises, and (ii) extend the Term of the Lease for a period of sixty (60) calendar months commencing November 1, 2003, and ending October 31, 2008, pursuant to the terms and provisions set forth below in this Amendment.

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AGREEMENTS:

NOW THEREFORE, for an in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration paid by each party hereto to the other, the receipt and sufficiency of which is hereby mutually acknowledged, Landlord and Tenant hereby agree as follows:

1. Renewal of Lease; Extension of Term of Lease. Landlord and Tenant hereby acknowledge and agree that the Term of the Lease (as last extended pursuant to Paragraph 1 of the Sixth Amendment), which is currently scheduled to expire on October 31, 2003, is hereby extended by adding to the Term sixty (60) full calendar months, so that the Term of the Lease shall expire on October 31, 2008 (the “Expiration Date”), unless sooner terminated as provided in the Lease. Landlord and Tenant hereby acknowledge and agree that except as set forth in Paragraph 2 of this Amendment below, Tenant shall have no option(s) to extend the Term of the Lease, whether pursuant to any such rights or options contained in the Lease (if any) or otherwise, and any and all such options or rights contained in the Lease (including, without limitation, pursuant to Paragraph 2 of the Sixth Amendment) are hereby deleted in their entirety, are null and void and shall be of no further force or effect.

2. Option to Renew Term of Lease. Landlord and Tenant hereby acknowledge and agree that Tenant shall have one (I) option to extend the Term of the Lease pursuant to the following terms and conditions:

(a) If Tenant is not in default under the Lease at the time of the exercise of this Extension Option (herein so called), Tenant may extend the Term of the Lease (as same is extended pursuant to Paragraph I of this Amendment above) for one (1) extension term of three (3) years (the “Extension Term”) commencing on the next day after the Expiration Date by giving Landlord a written extension notice (the “Extension Notice”) at least nine (9) months, but not more than twelve (12) months, prior to the Expiration Date (the “Extension Notice Period”), time being of the essence. If Tenant gives an Extension Notice during the Extension Notice Period, then the Term of the Lease is extended for three (3) years upon the same terms and conditions as are contained in the Lease (as modified by this Amendment), except that rental and other applicable terms adjust based on the Market Rate (as defined below), and Tenant has no further option to extend the Term of the Lease after the Extension Option is exercised. If Tenant does not give the Extension Notice during the Extension Notice Period (time being of the essence), then this Extension Option shall expire automatically on the next day after the last day of the Extension Notice Period, Landlord shall not be required to give Tenant notice of the beginning or end of the Extension Notice Period.

(b) Within thirty (30) days after Landlord receives Tenant’s Extension Notice, Landlord shall deliver a notice to Tenant specifying the Market Rate (as defined below), If Tenant does not approve Landlord’s designation of Market Rate, then Tenant, as its sole and exclusive remedy, may revoke its Extension Notice by delivering a written notice of revocation to Landlord within thirty (30) days after

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receipt by Tenant of Landlord’s notice specifying the Market Rate (time being of the essence), but otherwise Tenant may not revoke its Extension Notice. If Tenant timely gives a notice of revocation of its Extension Notice to Landlord (time being of the essence), then the Term of the Lease shall expire on the Expiration Date, and Tenant shall have no further rights under this Paragraph 2.

(c) The term “Market Rate” shall mean the minimum rent or base rental (and expense stop or base year, as applicable) that Landlord is then quoting for space similar to the Premises in the Building for a three (3) year term commencing on the same date as the Extension Term, as determined by Landlord in its sole discretion; except that the rental components of the Market Rate shall not be less than the rental being paid under the Lease at the end of the Term of the Lease.

(d) Tenant may not assign this Extension Option to any assignee of the Lease, nor may any sublessee or assignee exercise this Extension Option; provided, however, that an Affiliate of Tenant which assumes the Lease shall be permitted to exercise this Extension Option. For purposes of this Paragraph 2(d), an “Affiliate” means any entity that acquires all or part of Tenant, or that is acquired in whole or in part by Tenant, or which entity controls, directly or indirectly, Tenant. For purposes of this Paragraph 2(d), “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management arid policies of an entity, whether through the ownership of voting securities or by contract or otherwise.

(e) If the Term of the Lease is extended under this Paragraph 2, Landlord shall prepare, and Landlord and Tenant shall execute and deliver, an amendment to the Lease extending the Term of the Lease for the Extension Term pursuant to the terms of this Paragraph 2 of this Amendment, and otherwise in form and content reasonably satisfactory to Landlord (the “Extension Amendment”). Tenant shall execute and deliver the Extension Amendment to Landlord within thirty (30) days after Tenant’s receipt of the Extension Amendment.

3. Reduction in Size of Leased Premises; Tenant’s Proportionate Share. Landlord and Tenant hereby acknowledge and agree that commencing on and effective as of November 1, 2003, (a) the Leased Premises shall be reduced in size by excluding therefrom Suites 200 and 150, (b) the rentable area for the Leased Premises shall be reduced from 29,019 square feet of rentable area to 19,218 square feet of rentable area designated as Suite 3000, (c) Tenant’s proportionate share under the Lease for purposes of the Common Area Electrical Service and the Leased Premises Electrical Expense Percentage (and otherwise) shall decrease proportionately, and (d) all references to the “Leased Premises” contained in the Lease and hereafter in this Amendment (unless specifically provided otherwise) shall be deemed to refer to Suite 3000.

4. Base Rental. Landlord and Tenant hereby acknowledge and agree that commencing on and effective as of November 1, 2003, and continuing until the termination of the Lease on the Expiration Date (unless sooner terminated as provided in the Lease), the Base Rental payable by Tenant with respect to the Leased Premises shall be $12.00 per square foot of

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rentable area contained in the Leased Premises on an annual basis (i.e., $230,6l6.00.00), payable to Landlord in equal monthly installments in advance of $19,218.00, in accordance with the terms of Paragraph l.L. of the Lease Agreement (as amended); provided, however, that all rental is payable by Tenant in accordance with the Lease at the following address or to any other person or at any other address as Landlord may from time to time designate by notice to Tenant:

One Dallas Centre Associates L.P.

c/o Colonnade Properties

c/o Bank of America

P. O. Box 844892

Dallas, Texas 75284-4892

Landlord acknowledges and agrees that Tenant has overpaid Base Rental and certain other amounts owed by Tenant for the calendar month of November, 2003, and Landlord hereby agrees to refund to Tenant an amount equal to $48,902.60 within thirty (30) days following the date of this Amendment.

5. Occupancy and Acceptance of Leased Premises. Tenant acknowledges and agrees that as of the date of this Amendment, Tenant is occupying the Leased Premises (i.e., Suite 3000) and shall continue to lease and occupy the Leased Premises in its “AS IS, WHERE IS” condition, WITH ALL FAULTS (except to the extent of any items which Landlord is specifically obligated to repair or maintain pursuant to the terms of the Lease). Tenant’s continued occupancy of the Leased Premises shall be conclusive evidence that Tenant: (A) accepts the Leased Premises as suitable for the purposes for which they are leased; (B) accepts the Leased Premises and the Building as being in a good and satisfactory condition; (C) waives any defects in the Leased Premises and the Building; and (D) agrees that the rentable square feet numbers specified in this Amendment are binding and conclusive for all purposes under this Amendment and the Lease. Tenant acknowledges that neither Landlord nor any other Landlord Party has made, and Tenant waives, any representation or warranty with respect to the Leased Premises or any other portion of the Building including, without limitation, any representation or warranty with respect to the suitability or fitness of the Leased Premises or any other portion of the Building for the conduct of Tenant’s business.). Notwithstanding the foregoing, Landlord hereby acknowledges and agrees that (a) Landlord will provide Tenant a Work Allowance (as defined in Exhibit “B” attached hereto and made a part hereof for all purposes) for the Leased Premises (i.e., only Suite 3000) for the purpose of construction of the Tenant Finish Work (as defined in Exhibit “B” attached hereto and made a part hereof for all purposes) for the Leased Premises, to be performed in accordance with the terms, conditions and provisions set forth on Exhibit “B” attached hereto and made a part hereof for all purposes, and otherwise in full compliance with the terms of the Lease (including, without limitation, Paragraphs 9 and 11 of the Lease Agreement), and (b) Landlord shall, at Landlord’s sole cost and expense, within one hundred eighty (180) days following the date of this Amendment (subject to any delays due to strikes, acts of God, shortages of labor or materials, war, governmental laws, regulations, restrictions, or any other cause of any kind that is beyond the control of Landlord (“Force Majeure”), (i) perform the necessary work in order to ensure that both the men’s and women’s restrooms located on the 30th floor of the Building are in compliance with the provisions of the Americans With Disabilities Act of 1990 (as amended), the Texas Architectural Barriers Act (as

4

amended) [Tex. Rev. Civ. Stat. Ann. Art. 9102], and any similar existing or future law, rule or regulation relating to access by disabled persons to the Leased Premises (the “Access Laws”), and (ii) modify the men’s restroom located on the 30th floor of the Building so that there are two (2) sinks, two (2) urinals, and two (2) toilet stalls with commodes. Landlord hereby agrees to commence the work described in the immediately preceding sentence within forty-five (45) days following the date of this Amendment (subject to Force Majeure).

6. Base Operating Expenses Rate. Landlord and Tenant hereby acknowledge and agree that effective as of November 1, 2003, Paragraph l.T. of the Original Lease (as last amended by Paragraph 5 of the Sixth Amendment) is hereby deleted in its entirety and is hereby amended to read as follows:

T. “Base Operating Expenses Rate”: The 2003 Actual Operating Expenses per square foot of rentable area contained in the Leased Premises.

7. Notices. Landlord and Tenant hereby acknowledge and agree that commencing on and effective as of the date of this Amendment, Paragraphs l.C. and l.E. of the Lease Agreement, respectively, are hereby deleted in their entirety and are hereby amended to read as follows:

C. Address of Landlord:

One Dallas Centre Associates L.P.

c/o Colonnade Properties

350 North St. Paul Street, Suite 2880

Dallas, Texas 75201

Attention: Property Manager

Fax: (214)871-2841

with a copy to:

Colonnade Properties LLC

One Rockefeller Plaza, Suite 2300

New York, New York 10020          

Attention: Asset Manager            

with an additional copy to:

Colonnade Properties LLC

One Rockefeller Plaza, Suite 2300

New York, New York 10020

Attention: Jeffrey B. Feldman, Esq.

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with an additional copy to:

David, Goodman & Madole

Two Lincoln Centre

5420 LBJ Freeway, Suite 1200

Dallas, Texas 75240

Attention: Christopher I. Clark, Esq.

E. Address of Tenant:

Internet America, Inc.

350 North St. Paul Street, Suite 3000

Dallas, Texas 75201

8. Supplemental Cooling Units. Landlord hereby acknowledges and agrees that within one hundred eighty (180) days following the date of this Amendment (unless otherwise mutually agreed by Landlord and Tenant, and subject to Force Majeure), Landlord shall, at its sole cost and expense, install supplemental air conditioning or cooling units sufficient for up to 3,500 square feet of floor area (as applicable, the “Cooling Units”) in the portion of the Leased Premises designated for use as a call center (as shown on Exhibit “C” attached hereto and made a part hereof for all purposes) (the “Call Center”) to provide after-hours temperature control in the Call Center, subject to strict compliance with the terms and provisions of this Paragraph 8 and the Lease (as amended by this Amendment). Landlord shall also install (or cause to be installed), at Landlord’s sole cost and expense, a submeter(s) (the “Submeters”) measuring the electricity usage and consumption of the Cooling Units. The Submeters shall be installed at locations approved by Landlord and/or Landlord’s engineer and in accordance with plans and specifications prepared and approved by Landlord and/or Landlord’s engineer. Front and after the installation of the Submeters, Tenant shall pay to Landlord, as additional rental, (i) the full cost of electrical service for the Cooling Units, and (ii) Tenants proportionate share of the cost of all other electrical service to the Building pursuant to and in accordance with the terms and provisions of the Lease. Following installation of the Cooling Units, Tenant shall be solely responsible (and shall promptly and timely pay) all costs of maintenance, operation, use, repair, and replacement of the Cooling Units; provided, that Landlord shall (to the extent possible) assign to Tenant any and all manufacturers warranty(ies) with respect to the Cooling Units. In addition, the parties agree that the Cooling Units must satisfy all of the following requirements: (a) the Cooling Units must be equipped with (i) emergency drip pans and (ii) emergency alarms and shut-off devices in case of failure of the condensation pumps of the Cooling Units or in the event of smoke or fire; and (b) all mechanical, electrical and plumbing work in connection with and for the Cooling Units must be approved by Landlord and/or Landlord’s engineer, and must comply with all Applicable Laws (as hereinafter defined). Tenant acknowledges that neither Landlord, nor Landlord’s representatives and their respective officers, directors, shareholders, partners, trustees, members, agents, employees, property manager, contractors and all persons and entities through any of these persons or entities (collectively, including Landlord, “Landlord Parties”) shall have any responsibility whatsoever in connection with the Cooling Units following their initial installation, Tenant being solely responsible therefor and for any damage caused thereby to any of Tenant’s property, or any other property (unless caused by the gross negligence or willful misconduct of any Landlord Parties). Furthermore, Tenant shall indemnify, defend, and hold harmless all Landlord Parties for all claims, fines, suits, losses, costs, liabilities, demands, expenses, actions, and judgments against Landlord Parties caused by or arising out of, either directly or indirectly, the Cooling Units, following their initial installation.

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9. Brokerage; Indemnity. Tenant warrants that it has had no dealings with any broker or agent in connection with the negotiation or execution of this Amendment other than Colonnade Properties and The Billingsley Company (collectively, “Brokers”). Tenant shall indemnify, defend, and hold Landlord harmless against all costs, expenses, attorneys’ fees, or other liability for commissions or other compensation or charges claimed by any broker or agent other than Brokers claiming by, through, or under Tenant with respect to this Amendment or any renewal or extension or with respect to any expansion of the Leased Premises. Any brokerage commissions payable to Brokers are payable by Landlord pursuant to the terms of separate agreements between Landlord and Brokers. A copy of the commission agreement by and between Landlord and The Billingsley Company is attached hereto as Exhibit “A” and is incorporated herein by reference.

10. Miscellaneous.

(a) Tenant hereby acknowledges that Landlord is not in default under the Lease and no event or condition exists which, with the giving of notice or the passing of time or both, would constitute a default or event of default by Landlord under the Lease, and that Tenant has no charge, lien, defense or claim of offset under the Lease against rent or other charges due or to become due thereunder. Landlord hereby acknowledges that Tenant is not in default under the Lease and no event or condition exists which, with the giving of notice or the passing of time or both would constitute a default or event of default by Tenant under the Lease.

(b) This Amendment may be executed in multiple counterparts, each of which shall constitute an original instrument, but all of which shall constitute one and the same Amendment.

(c) Any capitalized term or phrase used in this Amendment shall have the same meaning as the meaning ascribed to such term or phrase in the Lease unless expressly otherwise defined in this Amendment.

(d) Except as amended by this Amendment, the terms of the Lease remain in full force and effect. All obligations of Tenant under the Lease are hereby ratified and reaffirmed.

(e) In the event that the terms of the Lease conflict or are inconsistent with those of this Amendment, the terms of this Amendment shall govern.

(f) This Amendment shall become effective only upon execution and delivery by both Landlord and Tenant.

(g) Time is of the essence in the performance of all covenants and obligations set forth in this Amendment.

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written above, to be effective as of November 1, 2003.

LANDLORD:
ONE DALLAS CENTRE ASSOCIATES L.P., a Delaware limited partnership
By:	One Dallas Centre Associates Members LLC,
	its general partner
	By:	Mezz Borrower I, LLC, its Sole Member
		By:	Mezzanine Investors Partners, a New York general partnership, its Sole Member
			By:	Taylor Simpson Capital Management, L.P., a Delaware limited partnership, a General Partner
				By:	TSGP Inc., a Delaware corporation, its General Partner
						By:  /s/ H. R. Taylor
						Name:  H. R. Taylor
						Title:    Vice President

TENANT:

INTERNET AMERICA, INC.,

a Texas corporation

By:  /s/ Elizabeth Palmer Daane

Name:  Elizabeth Palmer Daane

Title:    Vice President

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EXHIBIT “A”

Commission Agreement with The Billingsley Company

[attached following this page]

9

November 17, 2003

Mr. Calvin 1. Hull, Jr.

Ms. Tia DeFelise

Billingsley Company

4100 International Parkway

Suite 1100

Carrollton, Texas 75005

Re: Proposed lease (the ‘Lease”) between the undersigned as Landlord (hereinafter referred to as “Landlord”), and Internet America (hereinafter referred to as “Tenant’), covering approximately 19,218 rentable square feet in the development known as One Dallas Centre, located at 350 North St. Paul, Dallas, Texas 75251, (such structure(s) hereinafter referred to as the “Building”.)

Dear Calvin and Tia:

This letter (“Agreement”) will confirm our agreement concerning the payment of a commission by Landlord to Billingsley Company (“Broker”) or “you” in consideration of your brokerage services to be rendered in connection with the Lease. By your acceptance of this Agreement, you acknowledge and confirm that (i) Landlord shall have the sole, exclusive and absolute right to decline to entertain or to reject the terms of any proposed Lease for any reason whatsoever without incurring any liability to you, notwithstanding the extent to which negotiations may commence or continue and notwithstanding that Landlord or Tenant may be arbitrary in refusing to execute or deliver the Lease; (ii) in the event the Lease is not fully executed within one-hundred and twenty (120) days from the date hereof, this Agreement shall be deemed terminated, and of no further force or effect unless Landlord, in its sole discretion, elects to extend the term hereon; (iii) prior to the full execution of the Lease, Tenant has not

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appointed in writing any other broker to represent the Tenant in the negotiation or consummation of the Lease; and (iv) Broker is duly licensed pursuant to the Real Estate License Act of the State of Texas.

In addition, if a Lease is executed, you agree that you will have earned no commission if the Lease contains any conditions to its effectiveness or any rights exist on the part of the Tenant to terminate the Lease prior to the commencement of the term, until all conditions are satisfied or until the time to exercise such options has expired, in the event that all conditions are not satisfied or any option is exercised so that the Lease is terminated prior to the commencement of the term, then no commission or other compensation shall be payable to you. Notwithstanding the extent to which negotiations may heretofore or hereafter commence or continue, you agree that no commission or other compensation shall be payable to you if any of the conditions of the foregoing paragraph are not fulfilled for any reason whatsoever including, without limitation, Tenant’s or Landlord’s arbitrary refusal or inability to execute and unconditionally deliver the Lease, and in such an event you agree that you shall not have any right to and shall not assert any claim against the Landlord for a commission other compensation rendered in connection with the Lease or otherwise.

In the event that a commission (“Commission”) is payable to you, Landlord agrees to pay and you agree to accept as your full and only compensation for your services rendered in connection with the Lease, a Commission computed as follows:

Subject to the satisfaction of the terms and conditions of this agreement and the continuing truthfulness and accuracy of all representations made herein by the Broker the total Commission payable by Landlord to the Broker shall be equal to four and one-hall percent (4 ¹/2%) of the gross base rentals (as hereinafter defined) payable by Tenant during the initial term of the subject lease on (a) the initial increment of space leased by Tenant, plus (b) during the period after the commencement date, any additional increments of space Tenant has an absolute and binding obligation to acquire under the terms of the Lease.

As used herein, “gross base rental” means the basic minimum rental to be paid by Tenant under the Lease for the use and occupancy of its demised space, minus (i) any rental waived during any designated rental abatement period, (ii) any increment of rental attributable to the amortization of any tenant finish costs which are the responsibility of Tenant but are financed by or through Landlord, (iii) any escalation of such rental measured by, based on, or indexed to inflation, (iv) any increase above the base year or expense stop to be paid by Tenant as reimbursements for costs and expenses incurred or arising out of the ownership,

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operation, or use of the Building, including, but not limited to, costs and expenses of maintenance, taxes, cleaning, repairs, insurance, utilities, security services, and labor with respect to the Building (i.e. escalations), and (vi) the amount of any costs and expenses incurred or to be incurred by Landlord in connection with Landlord’s assumptions of, Tenant’s obligations under any existing lease or Landlord’s indemnification of Tenant for any of Tenant’s obligations under any existing lease, or any other reimbursements, termination payments or other takeover obligations to be paid or assumed by Landlord with respect to, Tenant’s obligation under any existing lease.

Subject to the foregoing provisions of this Agreement, the Commission shall be paid in the following installments.

(i) One half (1/2)of the Commission shall be paid within thirty (30) days after receipt by the Landlord of a fully executed lease agreement and an invoice from Broker, with respect to the Lease, such invoice to be delivered to the Landlord after the Commission is earned as previously described herein, and

(ii) The remaining one half (1/2) of the Commission shall be paid within thirty (30) days after receipt by Landlord of a subsequent invoice from Broker, with respect to the Lease, such subsequent invoice to be delivered to the Landlord after Tenant commences paying rent pursuant to the Lease or occupies the initial increment of demised space, whichever occurs first.

If the lease provides for any renewal options, then, upon the exercise of such options by Tenant (and the execution of any necessary lease or addendum), if Broker is the only authorized broker representing Tenant in such regard, Broker shall be entitled to an additional Commission equal to four and one-half percent (4.5%) of the gross base rental, utilizing the applicable term of said elected renewal option in determination of same.

Subject to the foregoing provisions of this Agreement the renewal option Commission shall be paid within thirty (30) days after (i) receipt by Landlord of a fully executed renewal agreement and, (ii) receipt by Landlord of an invoice from Broker with respect to the renewal.

If the Lease provides for any expansion options or rights of first refusal, then, upon the exercise of such rights or options by Tenant (and the execution of any necessary lease or addendum), if Broker is the only authorized broker representing Tenant in such regard, Broker shall be entitled to an additional Commission equal to four and one-half percent (4.5%) of the gross base rental, utilizing the applicable term of said elected expansion option or right of first refusal in the determination of same.

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Subject to the foregoing provisions of this Agreement the expansion option or right of first refusal commission shall be paid in the following installments:

(i) One half (1/2) of the Commission shall be paid within thirty (30) days after receipt by the Landlord of a fully executed amendment with respect to the expansion option or right of first refusal and an invoice, to be delivered to the Landlord after the Commission is earned as previously described herein, and

ii) The remaining one half (1/2) of the Commission shall be paid within thirty (30) days after receipt by Landlord of a subsequent invoice from Broker with respect to the expansion option or right of first refusal, such subsequent invoice to be delivered after Tenant actually takes occupancy of the premises covered by the expansion option or right of first refusal, accepts the condition of and commences rental payments upon the premises covered by the expansion option or right of first refusal, whichever occurs first.

In no event, notwithstanding the actual term of the Lease or the existence or exercise of any renewal options, expansion options or rights of first refusal, will any Commission be payable for any gross base rental or other charges payable by Tenant for any year of the Lease term subsequent to the tenth (10th) lease year of the term of the Lease.

Notwithstanding the above, if there shall be any other claim or claims for a Commission or other compensations by a claimant purporting to represent Tenant with respect to the Lease, any renewal or extension thereof, or for any expansion or exercise of a right of first refusal, Landlord shall not be required to pay Broker any Commission until and unless all such parties claiming a Commission or other compensation release Landlord from such, claims or a court orders Landlord to pay the commission or other compensation. If Landlord is in doubt as to whom a Commission or other compensation is payable, Landlord shall have the right to pay the Commission to a court of competent jurisdiction and in such event Landlord shall be released from all liability.

In no event shall Landlord be required to pay any Commission or other compensation in excess of the amount set forth herein with respect to the Lease.

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Broker will not advertise nor permit to be advertised the lease transaction, nor place nor permit to be placed any notice thereof in any newspaper or other publication without first obtaining the prior written approval of Landlord as to the contents thereof.

Notwithstanding anything herein contained to the contrary, in the event Landlord sells or otherwise transfers ownership of the Building to a third party, Landlord shall be relieved of all obligation hereunder provided, however, Landlord shall make reasonable efforts to cause: said thirty party to assume Landlord’s obligations hereunder. In the event of a sale of the Building by Landlord after the full execution of the Lease but prior to the payment of the first and/or second halves of the commission for the initial term of the Lease, Landlord shall remain obligated to pay such commission.

This agreement shall not be binding unless executed by both parties. When executed by both parties, this agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns. The provisions of this Agreement supersede all previous oral and written understandings and agreements by the parties.

If the foregoing accurately sets forth our entire agreement concerning the matters discussed herein, please sign and return the enclosed copies.

Sincerely,

One Dallas Centre Associates, LP

Tom G. Cruikshank

Vice President

ACCEPTED AND AGREED TO THIS 1^st day of December 2003.

Broker:  Calvin T. Hull, Jr.	Tax I.D.  75-1798617
By:  /s/ Calvin T. Hull, Jr.
Name:  Calvin T. Hull, Jr.
Title:  Partner

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EXHIBIT “B”

Tenant Finish Work

1. PLANS AND SPECIFICATIONS: Tenant shall submit to Landlord within fifteen business days after the date of this Amendment space plan(s) and other information (collectively the “Space Plan”) necessary or required by Landlord to complete the initial plans and specifications (the “Initial Construction Documents”) for the construction of the tenant finish in the Leased Premises (i.e., only Suite 3000). Landlord shall prepare and submit the Initial Construction Documents to Tenant for Tenant’s approval as soon as practical after receiving the Space Plan.

Within ten (10) days after receipt of the Initial Construction Documents, Tenant shall deliver to Landlord a notice either approving or disapproving them. Any disapproval must specify in reasonable detail the reasons for the disapproval. If Tenant requests any changes in the Initial Construction Documents that vary from the Space Plan, any redrawing is at Tenant’s expense. If Landlord does not receive a notice from Tenant disapproving the Initial Construction Documents within the 10-day period, Tenant is deemed to approve the Initial Construction Documents. Any redrawing of or changes in the Initial Construction Documents requested by Tenant after Tenant’s initial approval is at Tenant’s expense.

The approved Initial Construction Documents are referred to as the “Construction Documents” and all work to be performed by Landlord pursuant to the Construction Documents is referred to as the “Tenant Finish Work.” Landlord shall not be deemed to represent and warrant that the Construction Documents comply with any laws, ordinances, orders, rules, and regulations of all governmental bodies (state, federal, and municipal) applicable to or having jurisdiction over the use, occupancy, operation, and maintenance of the Leased Premises, including without limitations all applicable existing and future environmental laws and the Access Laws (as hereinafter defined) (those laws, ordinances, orders, rules, decisions, and regulations being called “Applicable Laws”) and Tenant, at its sole cost and expense, is responsible for the Construction Documents and Tenant’s business operations at the Leased Premises complying with Applicable Laws, including, without limitation, the Access Laws.

2. TENANT FINISH WORK. Landlord shall construct or cause to be constructed the Tenant Finish Work in substantial accordance with the Construction Documents, subject to the Building Service Fee specified below. Landlord shall bid the Tenant Finish Work to at least three (3) qualified and approved (by Landlord) general contractors, and Landlord hereby acknowledges and agrees that Landlord will bid the Tenant Finish Work to Precept Builders and David Dennehy and Associates, so long as such general contractors, respectively, satisfy Landlord’s contractor insurance requirements, as set forth on Exhibit “D”

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attached hereto and made a part hereof for all purposes. Tenant shall pay the Actual Cost (defined below) of all Tenant Finish Work in excess of $7.00 per rentable square foot, for a total of $134,526.00 (the “Work Allowance”). The Work Allowance includes the cost of preparing the Construction Documents.

The term “Actual Cost” means the cost of all labor and materials and all hard and soft costs, together with the Building Service Fee of three (3%) of all hard costs, incurred by Landlord in performing the Tenant Finish Work or the Additional Work (defined below), as applicable.

If prior to commencement of the Tenant Finish Work Landlord determines, based on construction bids received by Landlord, that the Actual Cost of the Tenant Finish Work will exceed the Work Allowance, Tenant shall pay the excess to Landlord. Landlord is not obligated to commence the Tenant Finish Work until it receives the excess payment from Tenant.

If during construction the Actual Cost of the Tenant Finish Work exceeds the Work Allowance and all amounts previously paid by Tenant to Landlord prior to the commencement of construction, Landlord shall submit interim statements covering any excess costs incurred by Landlord under this Paragraph and Tenant shall pay the amount of the excess costs to Landlord. If following completion of the Tenant Finish Work and any Additional Work, the Actual Cost of all such work is less than the Work Allowance, Tenant shall be permitted to utilize the remaining balance of the Work Allowance towards the Actual Cost of additional improvements to the Leased Premises to be performed in accordance with terms set forth in Paragraph 11 .A. of the Lease Agreement (the “Final Work”); provided, however, in the event that any and all such Final Work is not completed on or before that date which is one (1) year following the date of this Amendment (time being of the essence), Tenant’s rights to utilize any remaining balance of the Work Allowance shall automatically terminate and be null and void and of no further force or effect, and Tenant shall have forfeited same.

3. ADDITIONAL WORK. If Landlord performs, at Tenant’s request and upon submission by Tenant and approval by Landlord of necessary plans and specifications (as approved, the “Additional Work Plans”), any work over and above the Tenant Finish Work (“Additional Work”), including any Additional Work approved by change order or work order, the Additional Work is at Tenant’s expense, regardless of any remaining balance of the Work Allowance. Landlord is not obligated to perform any Additional Work until Tenant pays Landlord the Actual Cost of the Additional Work, as estimated by Landlord. If the Actual Cost of the Additional Work exceeds the estimated amount paid by Tenant, Tenant shall pay the excess to Landlord.

The Additional Work is not part of the Tenant Finish Work. If Landlord agrees to perform any Additional Work, Landlord shall request that its contractor estimate the additional amount of time that will be added to the completion of the Tenant Finish Work because of the Additional Work (the “Additional Work Period”).

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The Ready for Occupancy Date is fixed and will not be delayed as a result of the Additional Work Period.

4. BUILDING ENGINEER: Tenant must use the fire alarm, mechanical, electrical, and plumbing engineer(s) of record for the Building in connection with any Tenant Finish Work or Additional Work affecting the Building’s fire alarm, mechanical, electrical, or plumbing systems. Landlord shall designate from time to time (i) the mechanical, electrical and plumbing engineer of record for the Building, and (ii) the fire alarm contractor of record for the Building.

5. PAYMENTS BY TENANT: All amounts payable by Tenant under this Exhibit F are payable to Landlord as additional Rent within ten (10) days after Tenant’s receipt of Landlord’s demand.

6. STANDARD IMPROVEMENTS; TENANT IMPROVEMENTS: For purposes of allocating repair obligations, the Standard Improvements are those improvements Landlord establishes as such from time to time.

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EXHIBIT “C”

Site Plan of the Call Center

[to be attached following preparation and submission of same and agreement upon same by Landlord and Tenant]

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EXHIBIT “D”

Contractor Insurance Requirements

All contractors, subcontractors, suppliers, service providers, moving companies, and others performing work of any type for Tenant in the Project shall:

• carry the insurance listed below with companies acceptable to Landlord; and

• furnish Certificates of Insurance, together with a copy of the endorsement(s) to such policies of insurance evidencing that Landlord and Landlord’s property manager (together with any other parties required under Paragraph 6 below, if applicable) have been included as additional insureds, to Landlord evidencing required coverages at least ten (10) days prior to entry in the Project and annually thereafter.

Certificates of Insurance must provide for thirty (30) days’ prior written notice of cancellation, non-renewal or material reduction in coverage to Landlord, do Colonnade Properties (Manager), 350 North St. Paul Street, Suite 2880, Dallas, Texas 75201, Attention: Property Manager.

1. Workers Compensation: Statutory coverage in compliance with Workers Compensation Laws of the state in which the Project is located.

2. Employers’ Liability: With the following minimum limits of liability:

$100,000	Each Accident
$500,000	Disease-Policy Limit
$100,000	Disease-Each Employee

3. Commercial General Liability: (1986 ISO Form or its equivalent): This Insurance must provide contractual liability and a general aggregate limit on a per location or per project basis. The minimum limits must be $2,000,000 general aggregate and $1,000,000 per occurrence, and shall name Landlord and its manager as an additional insureds.

4. Automobile Liability: Insurance for claims arising out of ownership, maintenance, or use of owned, non-owned, loading and unloading and hired motor vehicles at, upon, or away from the Project with the following minimum limits:

$1,000,000 Each Accident Single Limit Bodily Injury and Property Damage combined

5. Umbrella: At least Following Form liability insurance, in excess of the Commercial General Liability, Employers Liability, and Automobile Insurance above, with the following minimum limits:

$3,000,000	Each Occurrence
$3,000,000	Aggregate - Where Applicable

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6. General Requirements: All policies must be:

• written on an occurrence basis and not on a claims-made basis;

• except for the workers compensation insurance, endorsed to name as additional insureds Landlord, Landlord’s property manager, Landlord’s mortgagees, any ground, primary, or master lessor, and their respective officers, directors, employees, agents, partners, and assigns; and

• endorsed to cause each insurance carrier to waive any and every claim for recovery from any and all loss or damage to the Building or Leased Premises or to the contents thereof, whether such loss or damage is due to the negligence of Landlord, its officers, partners, directors agents or servants; such waiver shall also include Landlord’s property manager, mortgagees, any ground, primary, or master lessor and their respective officers, directors, employees, agents, partners and assignees.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF WILLIAM E. LADIN

I, William E. Ladin, certify that:

I have reviewed this quarterly report on Form 10-Q of Internet America, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 17, 2004

/s/ William E. Ladin, Jr.

William E. Ladin, Jr.

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF MARK NOVY

I, Mark Novy, certify that:

I have reviewed this quarterly report on Form 10-Q of Internet America, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 17, 2004

/s/ Mark Novy

Mark Novy

Controller and Chief Accounting Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION IN ACCORDANCE WITH

18 U.S.C. SECTION 1350

AS ADOPTED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Internet America, Inc. (the “Company”) for the period ending December 31, 2003 as filed with the Securities and Exchange commission on the date hereof (the “Report”), I, William E. Ladin, Jr., Chief Executive Officer of the Company, certify in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William E. Ladin, Jr.

William E. Ladin, Jr.

Chief Executive Officer

Date: February 17, 2004

EX-32.2

EXHIBIT 32.2

CERTIFICATION IN ACCORDANCE WITH

18 U.S.C. SECTION 1350

AS ADOPTED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Internet America, Inc. (the “Company”) for the period ending December 31, 2003 as filed with the Securities and Exchange commission on the date hereof (the “Report”), I, Mark Novy, Controller and Chief Accounting Officer of the Company, certify in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mark Novy

Mark Novy

Controller and Chief Accounting Officer

Date: February 17, 2004