TEXAS
|
86-0778979
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(State
or other jurisdiction of
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(I.R.S.
Employer
|
incorporation
or organization)
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Identification
Number)
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10930
W. Sam Houston Pkwy., N., Suite 200
|
77064
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(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
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(Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Page
|
||
PART
I - FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
3
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20
|
Item
4.
|
Controls
and Procedures
|
20
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PART
II - OTHER INFORMATION .
|
||
Item 1.
|
Legal
Proceedings
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21
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Item
1A.
|
Risk
Factors
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21
|
Item
2.
|
Unregistered
Sales of Equity Securitites and Use of Proceeds
|
21
|
Item
3.
|
Defaults
Upon Senior Securities
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21
|
Item
4.
|
(Removed
and reserved)
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21
|
Item
5.
|
Other
Information
|
21
|
Item
6.
|
Exhibits
|
21
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December 31,
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June 30,
|
|||||||
2010
|
2010
|
|||||||
(unaudited)
|
(audited)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 1,438,370 | $ | 1,209,915 | ||||
Restricted
cash
|
6,432 | 6,432 | ||||||
Accounts
receivable, net of allowance for uncollectible accounts of $4,347 and
$4,438 as of December 31, 2010 and June 30, 2010,
respectively
|
50,125 | 113,936 | ||||||
Inventory
|
263,039 | 274,954 | ||||||
Prepaid
expenses and other current assets
|
335,232 | 411,510 | ||||||
Total
current assets
|
2,093,198 | 2,016,747 | ||||||
Property
and equipment—net
|
1,600,331 | 1,791,459 | ||||||
Goodwill—net
|
2,413,127 | 2,413,127 | ||||||
Subscriber
acquisition costs—net
|
163,895 | 327,435 | ||||||
Other
assets
|
27,432 | 37,879 | ||||||
TOTAL
ASSETS
|
$ | 6,297,983 | $ | 6,586,647 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Trade
accounts payable
|
$ | 216,418 | $ | 175,505 | ||||
Accrued
liabilities
|
278,062 | 409,911 | ||||||
Deferred
revenue
|
772,768 | 855,675 | ||||||
Current
portion of long-term debt
|
440,501 | 425,971 | ||||||
Current
portion of capital lease obligations
|
17,054 | 28,315 | ||||||
Total
current liabilities
|
1,724,803 | 1,895,377 | ||||||
Long-term
debt, net of current portion
|
677,101 | 884,052 | ||||||
Long-term
capital lease obligations, net of current portion
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- | 2,250 | ||||||
Total
Liabilities
|
2,401,904 | 2,781,679 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
- | - | ||||||
SHAREHOLDERS'
EQUITY:
|
||||||||
Preferred
stock, $0.01 par value: 5,000,000 shares authorized, 2,718,428 and
2,889,076 issued and outstanding as of December 31, 2010 and June 30,
2010, respectively
|
27,185 | 28,891 | ||||||
Common
stock, $0.01 par value: 40,000,000 shares authorized,16,729,562 and
16,558,914 issued and outstanding as of December 31, 2010 and June 30,
2010, respectively
|
167,296 | 165,590 | ||||||
Additional
paid-in capital
|
62,993,348 | 62,989,094 | ||||||
Accumulated
deficit
|
(59,291,750 | ) | (59,377,806 | ) | ||||
Total
Internet America, Inc. shareholders' equity
|
3,896,079 | 3,805,769 | ||||||
Noncontrolling
interest in subsidiary
|
- | (801 | ) | |||||
Total
shareholders' equity
|
3,896,079 | 3,804,968 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 6,297,983 | $ | 6,586,647 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
December 31,
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December 31,
|
|||||||||||||||
2010
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2009
|
2010
|
2009
|
|||||||||||||
REVENUES:
|
||||||||||||||||
Internet
services
|
$ | 1,722,104 | $ | 1,793,020 | $ | 3,500,880 | $ | 3,591,437 | ||||||||
Other
|
- | 42,629 | - | 81,035 | ||||||||||||
TOTAL
REVENUES
|
1,722,104 | 1,835,649 | 3,500,880 | 3,672,472 | ||||||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Connectivity
and operations
|
1,049,748 | 1,223,064 | 2,144,702 | 2,542,685 | ||||||||||||
Sales
and marketing
|
45,554 | 69,287 | 101,366 | 147,746 | ||||||||||||
General
and administrative
|
298,826 | 527,320 | 613,489 | 1,228,004 | ||||||||||||
Provision
for (recovery of) bad debt
|
711 | 843 | (91 | ) | (1,815 | ) | ||||||||||
Depreciation
and amortization
|
253,822 | 256,679 | 502,797 | 504,100 | ||||||||||||
Loss
on transfer of assets
|
- | - | 26,004 | - | ||||||||||||
TOTAL
OPERATING EXPENSES
|
1,648,661 | 2,077,193 | 3,388,267 | 4,420,720 | ||||||||||||
INCOME
(LOSS) FROM OPERATIONS
|
73,443 | (241,544 | ) | 112,613 | (748,248 | ) | ||||||||||
INTEREST
INCOME
|
(1,755 | ) | (2,625 | ) | (3,415 | ) | (6,621 | ) | ||||||||
INTEREST
EXPENSE
|
14,208 | 26,210 | 29,972 | 45,536 | ||||||||||||
NET
INCOME (LOSS)
|
60,990 | (265,129 | ) | 86,056 | (787,163 | ) | ||||||||||
LESS:
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
- | (177 | ) | - | (533 | ) | ||||||||||
NET
INCOME (LOSS) ATTRIBUTABLE TO INTERNET AMERICA, INC.
|
$ | 60,990 | $ | (264,952 | ) | $ | 86,056 | $ | (786,630 | ) | ||||||
NET
INCOME (LOSS) PER COMMON SHARE:
|
||||||||||||||||
BASIC
|
$ | 0.00 | $ | (0.02 | ) | $ | 0.01 | $ | (0.05 | ) | ||||||
DILUTED
|
$ | 0.00 | $ | (0.02 | ) | $ | 0.00 | $ | (0.05 | ) | ||||||
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING:
|
||||||||||||||||
BASIC
|
16,718,433 | 16,558,914 | 16,638,673 | 16,602,659 | ||||||||||||
DILUTED
|
19,447,990 | 16,558,914 | 19,447,990 | 16,602,659 |
Six Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
OPERATING
ACTIVITIES:
|
||||||||
Net
income (loss)
|
$ | 86,056 | $ | (787,163 | ) | |||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
502,797 | 504,100 | ||||||
Loss
on transfer of assets
|
26,004 | - | ||||||
Loss
on disposal of fixed assets
|
(1,548 | ) | 12,895 | |||||
Recovery
of bad debt
|
(91 | ) | (1,815 | ) | ||||
Non-cash
stock compensation expense
|
4,254 | 41,307 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
29,769 | 38,047 | ||||||
Inventory
|
11,915 | (13,896 | ) | |||||
Prepaid
expenses and other current assets
|
76,278 | 71,828 | ||||||
Other
assets
|
10,447 | 6,007 | ||||||
Accounts
payable and accrued liabilities
|
(82,006 | ) | (190,254 | ) | ||||
Deferred
revenue
|
(82,907 | ) | (126,612 | ) | ||||
Net
cash provided by (used in) operating activities
|
580,968 | (445,556 | ) | |||||
INVESTING
ACTIVITIES:
|
||||||||
Purchases
of property and equipment
|
(150,481 | ) | (161,913 | ) | ||||
Proceeds
from sale of property and equipment
|
3,900 | 5,520 | ||||||
Net
cash used in investing activities
|
(146,581 | ) | (156,393 | ) | ||||
FINANCING
ACTIVITIES:
|
||||||||
Principal
payments of long-term debt
|
(192,421 | ) | (329,325 | ) | ||||
Principal
payments of capital leases
|
(13,511 | ) | (10,832 | ) | ||||
Net
cash used in financing activities
|
(205,932 | ) | (340,157 | ) | ||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
228,455 | (942,106 | ) | |||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
1,209,915 | 2,421,264 | ||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ | 1,438,370 | $ | 1,479,158 | ||||
SUPPLEMENTAL
INFORMATION:
|
||||||||
Cash
paid for interest
|
$ | 30,178 | $ | 41,494 | ||||
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Cancellation
of common stock shares for long term debt in connection with
acquisition
|
$ | - | $ | 745,943 | ||||
Debt
issued in connection with canceled common stock, net
|
$ | - | $ | 685,773 | ||||
Non
cash adjustment to intangible assets related to imputed interest on long
term debt issued for cancellation of common stock
|
$ | - | $ | 60,170 |
1.
|
Basis
of Presentation
|
2.
|
Liquidity
|
3.
|
Basic
and Diluted Net Income (Loss) Per
Share
|
4.
|
Use
of Estimates
|
5.
|
Goodwill
and Subscriber Acquisition Costs
|
6.
|
Long-Term
Debt
|
December 31,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
Note
payable due July 19, 2010, payable in quarterly payments of $7,751
with interest imputed at 9% (net of unamortized discount of $0 and $234,
respectively)
|
$ | - | $ | 7,517 | ||||
Note
payable due January 23, 2011 payable in bi-annual installments of
$13,917 with interest imputed at 8% (net of unamortized discount of $86
and $601, respectively)
|
12,886 | 12,886 | ||||||
Note
payable due August 08, 2010, payable in monthly installments of $1,033
beginning October 08, 2008 with interest imputed at 5% (net of unamortized
discount of $0 and $13, respectively)
|
- | 2,054 | ||||||
Note
payable due June 20, 2012, payable in monthly installments of $2,088 with
interest imputed at 9% (net of unamortized discount of $2,549 and $4,407,
respectively)
|
35,032 | 45,701 | ||||||
Note
payable due July 20, 2010, payable in monthly installments of $1,818 with
interest imputed at 6.5% (net of unamortized discount of $0 and $10,
respectively)
|
- | 1,808 | ||||||
Note
payable due July 20, 2010, payable in monthly installments of $1,409 with
interest imputed at 6.5% (net of unamortized discount of $0 and $8,
respectively)
|
- | 1,401 | ||||||
Note
payable due February 15, 2015, payable in monthly payments of
$4,346 with fixed interest at 4.5%
|
197,817 | 219,162 | ||||||
Note
payable due February 15, 2015, payable in monthly payments of
$11,189.14 with interest imputed at 3.25% (net of unamortized discount of
$36,887 and $45,931, respectively)
|
522,570 | 580,661 | ||||||
Loan
and Security Agreement with United States Department of Agriculture Rural
Utilities Service
|
349,297 | 438,833 | ||||||
1,117,602 | 1,310,023 | |||||||
Less
current portion
|
(440,501 | ) | (425,971 | ) | ||||
Total
long-term debt, less current portion
|
$ | 677,101 | $ | 884,052 |
7.
|
Noncontrolling
Interest and Transfer of Assets
|
8.
|
Shareholders’
Equity
|
9.
|
Income
Taxes
|
10.
|
Related
Parties
|
Three Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Troy
LeMaile Stovall
|
$ | 3,875 | $ | 4,000 | ||||
Justin
McClure
|
3,875 | 4,000 | ||||||
John
Palmer
|
3,375 | 3,500 | ||||||
Steven
Mihaylo
|
3,875 | 4,000 | ||||||
Cindy
Ocker
|
- | 33,254 | ||||||
$ | 15,000 | $ | 48,754 |
Six Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Troy
LeMaile Stovall
|
$ | 8,250 | $ | 7,750 | ||||
Justin
McClure
|
8,250 | 7,750 | ||||||
John
Palmer
|
6,750 | 7,750 | ||||||
Steven
Mihaylo
|
7,750 | 8,250 | ||||||
Cindy
Ocker
|
5,090 | 68,495 | ||||||
$ | 36,090 | $ | 99,995 |
11.
|
Recent
Accounting Pronouncements
|
Three Months Ended December 31,
|
||||||||||||||||
2010
|
% of
Revenues
|
2009
|
% of
Revenues
|
|||||||||||||
STATEMENT
OF OPERATIONS DATA:
|
||||||||||||||||
REVENUES:
|
||||||||||||||||
Internet
services
|
$ | 1,722 | 100.0 | % | $ | 1,793 | 97.7 | % | ||||||||
Other
|
- | 0.0 | % | 43 | 2.3 | % | ||||||||||
TOTAL
REVENUES
|
1,722 | 100.0 | % | 1,836 | 100.0 | % | ||||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Connectivity
and operations
|
1,050 | 61.0 | % | 1,223 | 66.6 | % | ||||||||||
Sales
and marketing
|
45 | 2.6 | % | 69 | 3.7 | % | ||||||||||
General
and administrative
|
299 | 17.4 | % | 528 | 28.7 | % | ||||||||||
Provision
for bad debt expense
|
1 | 0.1 | % | 1 | 0.1 | % | ||||||||||
Depreciation
and amortization
|
254 | 14.7 | % | 257 | 14.0 | % | ||||||||||
TOTAL
OPERATING EXPENSES
|
1,649 | 95.8 | % | 2,078 | 113.1 | % | ||||||||||
OPERATING
INCOME (LOSS)
|
73 | 4.2 | % | (242 | ) | (13.1 | )% | |||||||||
INTEREST
INCOME
|
(2 | ) | (0.1 | )% | (3 | ) | (0.1 | )% | ||||||||
INTEREST
EXPENSE
|
14 | 0.8 | % | 26 | (1.4 | )% | ||||||||||
NET
INCOME (LOSS)
|
61 | 3.5 | % | (265 | ) | (14.4 | )% | |||||||||
LESS:
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
- | 0.0 | % | - | (0.0 | )% | ||||||||||
NET
INCOME (LOSS) ATTRIBUTABLE TO INTERNET AMERICA, INC.
|
$ | 61 | 3.5 | % | $ | (265 | ) | (14.4 | )% | |||||||
NET
INCOME (LOSS) PER COMMON SHARE:
|
||||||||||||||||
BASIC
AND DILUTED
|
$ | 0.00 | $ | (0.02 | ) | |||||||||||
WEIGHTED
AVERAGE COMMON
|
||||||||||||||||
SHARES
OUTSTANDING:
|
||||||||||||||||
BASIC
|
16,718,433 | 16,558,914 | ||||||||||||||
DILUTED
|
19,447,990 | 16,558,914 | ||||||||||||||
OTHER
DATA:
|
||||||||||||||||
Subscribers
at end of period (1)
|
25,100 | 26,400 | ||||||||||||||
Adjusted
EBITDA(2)
|
$ | 330 | $ | 35 | ||||||||||||
Adjusted
EBITDA margin(3)
|
19.2 | % | 1.9 | % | ||||||||||||
Reconciliation
of net income (loss) to Adjusted EBITDA:
|
||||||||||||||||
Net
Income (Loss)
|
$ | 61 | $ | (265 | ) | |||||||||||
Add:
|
||||||||||||||||
Depreciation
and amortization
|
254 | 257 | ||||||||||||||
Stock
compensation
|
3 | 20 | ||||||||||||||
Interest
expense
|
14 | 26 | ||||||||||||||
Less:
Interest income
|
(2 | ) | (3 | ) | ||||||||||||
Adjusted
EBITDA (2)
|
$ | 330 | $ | 35 |
Six Months Ended December 31,
|
||||||||||||||||
2010
|
% of
Revenues
|
2009
|
% of
Revenues
|
|||||||||||||
STATEMENT
OF OPERATIONS DATA:
|
||||||||||||||||
REVENUES:
|
||||||||||||||||
Internet
services
|
$ | 3,501 | 100.0 | % | $ | 3,591 | 97.8 | % | ||||||||
Other
|
- | 0.0 | % | 81 | 2.2 | % | ||||||||||
TOTAL
REVENUES
|
3,501 | 100.0 | % | 3,672 | 100.0 | % | ||||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Connectivity
and operations
|
2,145 | 61.3 | % | 2,543 | 69.2 | % | ||||||||||
Sales
and marketing
|
101 | 2.9 | % | 148 | 4.0 | % | ||||||||||
General
and administrative
|
613 | 17.5 | % | 1,228 | 33.3 | % | ||||||||||
Recovery
of bad debt expense
|
- | 0.0 | % | (2 | ) | (0.1 | )% | |||||||||
Depreciation
and amortization
|
503 | 14.4 | % | 504 | 13.7 | % | ||||||||||
Loss
from transfer of assets
|
26 | 0.8 | % | - | 0.0 | % | ||||||||||
TOTAL
OPERATING EXPENSES
|
3,388 | 96.8 | % | 4,421 | 120.3 | % | ||||||||||
OPERATING
INCOME (LOSS)
|
113 | 3.2 | % | (749 | ) | (20.3 | )% | |||||||||
INTEREST
INCOME
|
(3 | ) | (0.1 | )% | (7 | ) | (0.2 | )% | ||||||||
INTEREST
EXPENSE
|
30 | 0.9 | % | 46 | (1.2 | )% | ||||||||||
NET
INCOME (LOSS)
|
86 | 2.4 | % | (788 | ) | (21.7 | )% | |||||||||
LESS:
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
- | 0.0 | % | (1 | ) | 0.0 | % | |||||||||
NET
INCOME (LOSS) ATTRIBUTABLE TO INTERNET AMERICA, INC.
|
$ | 86 | 2.4 | % | $ | (787 | ) | (21.7 | )% | |||||||
NET
INCOME (LOSS) PER COMMON SHARE:
|
||||||||||||||||
BASIC
|
$ | 0.01 | $ | (0.05 | ) | |||||||||||
DILUTED
|
$ | 0.00 | $ | (0.05 | ) | |||||||||||
WEIGHTED
AVERAGE COMMON
|
||||||||||||||||
SHARES
OUTSTANDING:
|
||||||||||||||||
BASIC
|
16,638,673 | 16,602,659 | ||||||||||||||
DILUTED
|
19,447,990 | 16,602,659 | ||||||||||||||
OTHER
DATA:
|
||||||||||||||||
Subscribers
at end of period (1)
|
25,100 | 26,400 | ||||||||||||||
Adjusted
EBITDA(loss)(2)
|
$ | 646 | $ | (203 | ) | |||||||||||
Adjusted
EBITDA margin(3)
|
18.5 | % | (5.5 | )% | ||||||||||||
CASH
FLOW DATA:
|
||||||||||||||||
Cash
flow provided by (used in) operations
|
$ | 581 | $ | (446 | ) | |||||||||||
Cash
flow used in investing activities
|
(147 | ) | (156 | ) | ||||||||||||
Cash
flow used in financing activities
|
(206 | ) | (340 | ) | ||||||||||||
Reconciliation
of net income (loss) to Adjusted EBITDA (loss):
|
||||||||||||||||
Net
Income (loss)
|
$ | 86 | $ | (787 | ) | |||||||||||
Add:
|
||||||||||||||||
Depreciation
and amortization
|
503 | 504 | ||||||||||||||
Stock
compensation
|
4 | 41 | ||||||||||||||
Interest
expense
|
30 | 46 | ||||||||||||||
Loss
from transfer of assets
|
26 | - | ||||||||||||||
Less:
Interest income
|
(3 | ) | (7 | ) | ||||||||||||
Adjusted
EBITDA (loss)(2)
|
$ | 646 | $ | (203 | ) |
ITEM 1.
|
LEGAL
PROCEEDINGS
|
ITEM 1A.
|
RISK
FACTORS
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF
PROCEEDS
|
ITEM 3.
|
DEFAULTS UPON SENIOR
SECURITIES
|
ITEM
4.
|
(REMOVED
AND RESERVED)
|
ITEM 5.
|
OTHER
INFORMATION
|
Exhibit
|
Description
|
|
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 William E. Ladin,
Jr.
|
|
32.1*
|
Section
1350 Certification of William E. Ladin,
Jr.
|
Date:
February 10, 2011
|
By:
/s/ William E. Ladin, Jr.
|
William
E. Ladin, Jr.
|
Chairman
and Chief Executive
Officer
|
By:
/s/ William E. Ladin, Jr.
|
Acting
Chief Financial and Chief Accounting
Officer
|