<PAGE> 1
PROSPECTUS SUPPLEMENT RULE 424(B)(3)
(TO PROSPECTUS DATED JUNE 7, 1999) FILE NO. 333-78615
382,635 SHARES
[LOGO]
INTERNET AMERICA, INC.
COMMON STOCK
---------------------
This Prospectus Supplement supplements and amends the Prospectus dated June 7,
1999 (as supplemented or amended, the "Prospectus") relating to 382,635 shares
of Internet America Common Stock being offered by certain of our shareholders
named in the Prospectus who have acquired such securities from us in connection
with certain acquisitions of businesses by us. All capitalized terms used but
not defined in this Prospectus Supplement have the meanings given to them in the
Prospectus.
Trading Symbol for Common Stock
on the Nasdaq National Market -- GEEK
Closing Price on September 10, 1999 -- $13.25
SEE "RISK FACTORS" ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF
CERTAIN RISK FACTORS THAT YOU SHOULD CONSIDER BEFORE ACQUIRING THE COMMON STOCK
OFFERED HEREBY.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the Prospectus. Any representation to the contrary is a
criminal offense.
---------------------
The date of this Prospectus Supplement is September 13, 1999.
<PAGE> 2
RECENT DEVELOPMENTS
On June 30, 1999, Internet America, Inc., a Texas corporation (the
"Company"), acquired all the issued and outstanding securities of NeoSoft, Inc.,
a Texas corporation ("NeoSoft"), for $8,000,000. As a result of the purchase,
NeoSoft became a wholly owned subsidiary of the Company. The Company became the
indirect owner of all of the assets of NeoSoft, which include approximately
9,500 individual and corporate Internet access accounts and the computer
equipment used to service those accounts. The Company intends to continue to use
these assets to provide Internet access to customers. The acquisition was
effected pursuant to an Agreement and Plan of Merger dated June 30, 1999, by and
among NeoSoft, certain of its shareholders ("Shareholders") and the Company. The
acquisition will be accounted for as a purchase.
To the best knowledge of the Company, at the time of the acquisition
there was no material relationship between (i) NeoSoft and the Shareholders on
the one hand and (ii) the Company, or any of its affiliates, any director or
officer of the Company, or any associate of such director or officer on the
other hand.
The consideration paid by the Company was $8,000,000 consisting of
$7,300,000 paid to the Shareholders and $700,000 due to employees. The
consideration was determined by arms-length negotiations between the parties to
the Agreement and Plan of Merger.
The Prospectus, together with this Prospectus Supplement, constitutes
the prospectus required to be delivered by Section 5(b) of the Securities Act of
1933, as amended, with respect to offers and sales of the common stock.
The Prospectus accompanying this Prospectus Supplement incorporates
important business and financial information about the Company that is not
included in or delivered with this Prospectus Supplement or with the Prospectus.
This information is available without charge to shareholders upon written
request by contacting the company at One Dallas Center, 350 North St. Paul
Street, Suite 3000, Dallas, Texas 75201 or upon oral request by calling (214)
861-2500, attn. Investor Relations. In order to obtain timely delivery,
shareholders must request the information no later than five business days
before the date on which you select to make your investment decision.
FINANCIAL STATEMENTS
Set forth below is certain information included in the Current Report
on Form 8-K filed by the Company on July 15, 1999 and Amendment No. 1 to Form
8-K filed by the Company on September 3, 1999 (as amended, the "Form 8-K"):
(a) Financial statements of the business acquired.
(i) Independent Auditors' Report
(ii) Balance Sheets as of June 30, 1999 and 1998
(iii) Statements of Operations for the years ended June 30, 1999 and
1998
(iv) Statements of Shareholders' Deficit for the years ended June
30, 1999 and 1998
(v) Statements of Cash Flows for the years ended June 30, 1999 and
1998
(vi) Notes to Financial Statements
S-2
<PAGE> 3
(b) Pro forma financial information (unaudited).
(i) Pro Forma Balance Sheet at March 31, 1999
(ii) Pro Forma Statement of Operations for the year ended June 30,
1998
(iii) Pro Forma Statement of Operations for the nine months ended
March 31, 1999
(iv) Notes to Pro Forma Financial Statements
(c) Exhibits.
The following is a list of exhibits filed as part of the Current Report
on Form 8-K:
Exhibit No. Description
2.1 Agreement and Plan of Merger, dated June 30, 1999, among Internet
America Inc., NeoSoft, Inc. and the Shareholders of NeoSoft, Inc.
(1)
23.1 Consent of Deloitte & Touche LLP. (2)
99.1 Press Release of Internet America, Inc. dated June 30, 1999. (1)
- ---------------------
(1) Previously filed as an Exhibit to the Form 8-K on July 15, 1999.
(2) Previously filed as an Exhibit to Amendment No. 1 to the Form 8-K on
September 3, 1999.
S-3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Neosoft, Inc.:
We have audited the accompanying balance sheets of Neosoft, Inc. (the "Company")
as of June 30, 1999 and 1998, and the related statements of operations,
shareholders' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at June 30, 1999 and 1998, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
August 10, 1999
F-1
<PAGE> 5
NEOSOFT, INC.
BALANCE SHEETS
JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 33,566 $ 79,865
Accounts receivable, less allowances of $106,301 and
$15,568 at June 30, 1999 and 1998, respectively 230,567 114,345
Other current assets 10,018 38,104
--------- ---------
Total current assets 274,151 232,314
PROPERTY AND EQUIPMENT - Net (Note 2) 196,150 266,879
OTHER ASSETS 17,908 18,658
--------- ---------
TOTAL $ 488,209 $ 517,851
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Trade accounts payable $ 478,054 $ 136,150
Accrued liabilities 111,711 193,427
Current maturities of long-term debt (Note 3) 49,224 84,224
Notes payable to related parties (Note 4) 53,647 58,882
Deferred revenue 183,457 158,210
--------- ---------
Total current liabilities 876,093 630,893
LONG-TERM DEBT - Net of current portion 30,698
--------- ---------
Total liabilities 876,093 661,591
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' DEFICIT (Note 7):
Common stock (authorized 2,000,000 shares, $.01 par value and 1,000,000
shares at no par value at June 30, 1999 and 1998, respectively); 2,055,368
and 2,000,000 issued in 1999 and
1998, respectively 20,554 20,000
Capital in excess of par 243,354 232,834
Treasury stock (808,393 and 800,000 shares at June 30, 1999 and
1998, respectively) at cost (38,934) (36,000)
Accumulated deficit (612,858) (360,574)
--------- ---------
Total shareholders' deficit (387,884) (143,740)
--------- ---------
TOTAL $ 488,209 $ 517,851
========= =========
</TABLE>
See notes to financial statements.
F-2
<PAGE> 6
NEOSOFT, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
NET REVENUES $ 3,726,840 $ 3,268,600
OPERATING COSTS AND EXPENSES:
Connectivity and operations 2,456,123 1,845,134
Sales and marketing 328,242 291,379
General and administrative 955,174 999,734
Depreciation 182,750 217,923
----------- -----------
Total operating costs and expenses 3,922,289 3,354,170
----------- -----------
LOSS FROM OPERATIONS (195,449) (85,570)
INTEREST EXPENSE 56,835 24,821
----------- -----------
NET LOSS $ (252,284) $ (110,391)
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 7
NEOSOFT, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK CAPITAL
----------------------- ---------------------- IN EXCESS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT OF PAR DEFICIT
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1997 2,000,000 $ 20,000 -- $ -- $ 232,834 $ (250,183)
Repurchase of common stock (800,000) (36,000)
Net loss (110,391)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1998 2,000,000 20,000 (800,000) (36,000) 232,834 (360,574)
Issuance of common stock 55,368 554 10,520
Repurchase of common stock (8,393) (2,934)
Net loss (252,284)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1999 2,055,368 $ 20,554 (808,393) $ (38,934) $ 243,354 $ (612,858)
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 8
NEOSOFT, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(252,284) $(110,391)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 182,750 217,923
Changes in operating assets and liabilities:
Accounts receivable, net (116,222) 47,219
Other current assets 28,086 (33,640)
Other assets 750
Accounts payable 341,904 (39,355)
Accrued liabilities (81,716) 71,314
Deferred revenue 25,247 32,308
--------- ---------
Net cash provided by operating activities 128,515 185,378
--------- ---------
INVESTING ACTIVITIES - Purchase of property, plant and equipment (112,021) (134,662)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 201,000
Proceeds from issuance of related party debt 8,500 7,000
Payments of long-term debt (65,698) (171,203)
Payments of related party debt (13,735) (10,250)
Stock purchase (2,934) (36,000)
Issuance of common stock for restricted stock award 11,074
--------- ---------
Net cash provided by (used in) financing activities (62,793) (9,453)
--------- ---------
NET INCREASE (DECREASE) IN CASH (46,299) 41,263
CASH, BEGINNING OF PERIOD 79,865 38,602
--------- ---------
CASH, END OF PERIOD $ 33,566 $ 79,865
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,050 $ 2,922
========= =========
Cash paid for income taxes $ -- $ --
========= =========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 9
EOSOFT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - Neosoft, Inc. (the "Company") was incorporated in Texas on March
4, 1994, and is a provider of Internet access, serving both individual and
corporate customers in the Houston and New Orleans areas. On June 30,
1999, substantially all of the outstanding stock of the Company was sold
to Internet America, Inc. ("Internet America"), a Texas corporation. As a
result of the purchase, the Company became a wholly owned subsidiary of
Internet America, and Internet America became the indirect owner of all of
the assets of the Company, including the customer base and the equipment
used to service such customer base.
The Company has experienced cumulative operating losses, and its
operations are subject to certain risks and uncertainties, including,
among others, risks associated with technology and regulatory trends,
evolving industry standards, dependence on its network infrastructure and
suppliers, growth and acquisitions, actual and prospective competition by
entities with greater financial and other resources, the development of
the Internet market, and the need for additional capital or refinancing of
existing obligations. There can be no assurance that the Company will be
successful in becoming profitable or generating positive cash flow in the
future.
REVENUE RECOGNITION - The Company recognizes revenue as services are
rendered. Services paid inadvance or subject to refund are recorded as
deferred revenue.
CREDIT RISK - The Company's accounts receivable potentially subject the
Company to credit risk, since collateral is generally not required. The
Company's risk of loss is limited to the carrying value of the
receivables.
FINANCIAL INSTRUMENTS - The carrying amounts of cash, accounts receivable,
accounts payable and accrued liabilities approximate fair value because of
the short maturity of these instruments. The fair values for debts, which
have fixed interest rates, do not differ materially from their carrying
values.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, ranging from three to seven years.
OTHER ASSETS - Other assets consist of a security deposit for office space
and credit card processing. At June 30, 1999 and 1998, the balances were
$17,908 and $18,658, respectively.
LONG-LIVED ASSETS - On an annual basis, the Company reviews the values
assigned to long-lived assets to determine if any impairments are other
than temporary. Provisions for asset impairments are based on discounted
cash flow projections in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and such assets are
written down to their estimated fair values. Management believes that the
long-lived assets in the accompanying balance sheets are properly valued.
F-6
<PAGE> 10
ADVERTISING EXPENSES - The Company accounts for advertising costs as
expenses in the period in which they are incurred. Advertising expenses
for the years ended June 30, 1999 and 1998, were $18,410 and $14,464,
respectively.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the carrying
amount of existing assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to reverse.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly
from these estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Computer equipment $ 894,653 $ 796,044
Data communications and office equipment 40,690 37,311
Furniture and fixtures 29,360 23,591
Computer software 73,360 70,253
Leasehold improvements 57,334 56,177
----------- -----------
1,095,397 983,376
Less accumulated depreciation (899,247) (716,497)
----------- -----------
$ 196,150 $ 266,879
=========== ===========
</TABLE>
Depreciation expense charged to operations was $182,750 and $217,923 for
the years ended June 30, 1999 and 1998, respectively.
F-7
<PAGE> 11
3. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Note payable, due May 15, 2000, monthly principal payments
of $5,000, non-interest bearing (less unamortized
discount based on imputed interest of 8%, of $5,776 and
$12,078 as of June 30, 1999 and 1998, respectively) $ 49,224 $ 102,922
Note payable, due October 15, 1998, monthly principal payments
of $3,000, non-interest bearing 12,000
--------- ---------
49,224 114,922
Less current portion of long-term debt (49,224) (84,224)
--------- ---------
Total debt $ -- $ 30,698
========= =========
</TABLE>
4. NOTES PAYABLE TO RELATED PARTIES
At June 30, 1999 and 1998, the Company had a note payable to a related
corporation with the same shareholders totaling $40,500 and $32,000,
respectively. Interest has been accrued and paid at the prime rate (7.75%
and 6.8% at June 30, 1999 and 1998, respectively). Accrued interest
payable was $3,883 and $1,500 at June 30, 1999 and 1998, respectively.
At June 30, 1999 and 1998, the Company had a note payable to a related
party for $13,147. Interest has been accrued and paid at the prime rate
(7.75% and 6.8% at June 30, 1999 and 1998, respectively). Accrued interest
payable was $1,620 at June 30, 1999.
5. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities under operating leases.
Rental expense under these leases was approximately $235,827 and $246,189
for the years ended June 30, 1999 and 1998, respectively. At June 30,
1999, future minimum lease payments related to the operating leases are as
follows:
<TABLE>
<S> <C>
Year ending June 30:
2000 $ 81,368
2001 58,859
2002 4,080
--------
Total minimum lease payments $144,307
========
</TABLE>
F-8
<PAGE> 12
6. INCOME TAXES
No provision for income taxes has been recognized for the years ended June
30, 1999 and 1998, since the Company has incurred net operating losses for
tax purposes. The Company has provided a valuation allowance for net
deferred tax assets, since it is more likely than not that these assets
will not be realized.
Deferred tax assets and liabilities as of June 30, 1999 and 1998, consist
of:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 208,000 $ 122,600
Depreciation 73,000 87,000
--------- ---------
Total deferred tax assets 281,000 209,600
Valuation allowance (281,000) (209,600)
--------- ---------
Total deferred tax assets $ -- $ --
========= =========
</TABLE>
At June 30, 1999, the Company has net operating loss carryforwards of
approximately $612,000 for federal income tax purposes.
7. SHAREHOLDERS' DEFICIT
The Company was incorporated on March 4, 1994, with 1,000,000 shares
authorized with no par value. In December 1998, the Company amended its
charter so that 2,000,000 shares were authorized with $.01 par value.
Additionally, the Company approved and effected a 1,000-to-1 stock split
in the form of a stock dividend; thus, 2,000,000 shares of $.01 par value
common stock are authorized. Prior-period financial statements have been
restated to reflect the stock split.
In September 1997, the Company repurchased 800,000 shares from a former
employee for $36,000. The Company paid monthly installments of $3,000
through October 1998 for the purchase of the shares (see Note 3).
During the year ended June 30, 1999, the Company issued 55,368 shares to
its employees. The Company has an exclusive right to repurchase all shares
from the employees at the fair value stated at the grant date. The Company
recognized $11,074 in compensation expense during 1999 related to the
issuance of these shares. During the year ended June 30, 1999, the Company
repurchased 8,393 shares from employees for $2,934. At June 30, 1999, all
outstanding securities of the Company were sold to Internet America, and
all shareholders were paid in cash amounting to $7,300,000.
******
F-9
<PAGE> 13
INTERNET AMERICA, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(unaudited)
The following unaudited condensed pro forma balance sheet as of March 31, 1999
and the unaudited condensed pro forma statements of operations for the nine
months ended March 31, 1999 and the year ended June 30, 1998 reflect the
acquisition of NeoSoft, Inc. by Internet America, Inc. (the "Company"). The
combination has been accounted for as a purchase under the provisions of
Accounting Principles Board Opinion No. 16, "Business Combinations." The results
of operations for the periods presented include the results of operations of the
acquired business assuming the transaction was consummated at the beginning of
the earliest periods presented. Also, net assets of the company acquired are
recorded at their fair value to the Company as of March 31, 1999.
The condensed pro forma financial statements are not necessarily indicative of
the Company's results of operations that might have occurred had the acquisition
been completed at the beginning of the periods presented, or indicative of the
Company's consolidated financial position or results of operations for any
future date or period.
These unaudited pro forma financial statements should be read in conjunction
with the historical financial statements and notes thereto of NeoSoft, Inc.
included elsewhere in this document and the financial statements of Internet
America, Inc. as filed on May 17, 1999 under Form SB-2.
<PAGE> 14
INTERNET AMERICA, INC.
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1999
(unaudited)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------------------------- ----------- -------------
INTERNET NEOSOFT, INTERNET
AMERICA, INC. INC. AMERICA, INC.
------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,661,431 $ -- $ (8,252,864)(1) $ 8,408,567
Trade receivables, net 781,643 191,787 973,430
Prepaid expenses and other current assets 120,153 18,558 138,711
------------ ------------ ------------
Total current assets 17,563,227 210,345 9,520,708
PROPERTY AND EQUIPMENT, net 2,084,572 213,832 (71,230)(2) 2,227,174
OTHER ASSETS, net 479,498 20,796 4,049,425 (3) 4,549,719
------------ ------------ ------------
$ 20,127,297 $ 444,973 $ 16,297,601
============ ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Trade accounts payable $ 1,450,322 $ 477,347 $ 1,927,669
Accrued liabilities 1,298,481 74,146 1,372,627
Deferred revenue 4,055,448 177,145 4,232,593
Current maturities of long-term debt 272,328 84,200 356,528
Current maturities of capital lease obligations 212,482 -- 212,482
------------ ------------ ------------
Total current liabilities 7,289,061 812,838 8,101,899
CAPITAL LEASE OBLIGATIONS, net of current
portion 32,328 -- 32,328
LONG-TERM DEBT, net of current portion 297,162 32,000 329,162
------------ ------------ ------------
Total liabilities 7,618,551 844,838 8,463,389
------------ ------------ ------------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 68,928 20,554 (20,554)(4) 68,928
Additional paid-in capital 24,217,070 243,354 (243,354)(4) 24,217,070
Treasury stock -- (38,934) 38,934 (4)
Accumulated deficit (11,777,252) (624,839) (4,049,695)(4) (16,451,786)
------------ ------------ ------------
Total shareholders' equity (deficit) 12,508,746 (399,865) 7,834,212
------------ ------------ ------------
$ 20,127,297 $ 444,973 $ 16,297,601
============ ============ ============
</TABLE>
P-1
<PAGE> 15
INTERNET AMERICA, INC.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------------------------- ----------- -------------
INTERNET NEOSOFT, INTERNET
AMERICA, INC. INC. AMERICA, INC.
------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Access $ 12,117,587 $3,126,473 $ 15,244,060
Business services 1,919,326 -- 1,919,326
Other 41,312 142,127 183,439
------------ ------------ ------------
Total 14,078,225 3,268,600 17,346,825
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Connectivity and operations 7,417,819 1,845,134 9,262,953
Sales and marketing 1,925,180 291,379 2,216,559
General and administrative 2,947,828 999,734 3,947,562
Depreciation and amortization 1,739,301 217,923 2,666,667(5) 4,623,891
------------ ------------ ------------
Total 14,030,128 3,354,170 20,050,965
------------ ------------ ------------
OPERATING INCOME (LOSS) 48,097 (85,570) (2,704,140)
INTEREST EXPENSE, NET 670,035 24,821 694,856
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX (621,938) (110,391) (3,398,996)
INCOME TAX EXPENSE 24,000 -- 24,000
------------ ------------ ------------
NET INCOME (LOSS) $ (645,938) $ (110,391) $ (3,422,996)
============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
BASIC $ (0.16) $ (0.87)
============ ============
DILUTED $ (0.16) $ (0.87)
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 3,914,856 3,914,856
DILUTED 3,914,856 3,914,856
</TABLE>
P-2
<PAGE> 16
INTERNET AMERICA, INC.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------------------------- ----------- -------------
INTERNET NEOSOFT, INTERNET
AMERICA, INC. INC. AMERICA, INC.
------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Access $ 11,435,757 $ 2,660,312 $ 14,096,069
Business services 1,620,498 -- 1,620,498
Other 79,773 134,819 214,592
------------- ------------ -------------
Total 13,136,028 2,795,130 15,931,158
------------- ------------ -------------
OPERATING COSTS AND EXPENSES:
Connectivity and operations 6,283,527 1,842,092 8,125,619
Sales and marketing 4,203,665 246,182 4,449,847
General and administrative 2,824,363 716,381 3,540,744
Depreciation and amortization 1,405,340 137,063 2,000,000(5) 3,542,403
------------- ------------ -------------
Total 14,716,895 2,941,717 19,658,612
------------- ------------ -------------
OPERATING INCOME (LOSS) (1,580,867) (146,587) (3,727,454)
INTEREST EXPENSE, NET (25,682) 42,626 16,944
------------- ------------ -------------
INCOME (LOSS) BEFORE INCOME TAX (1,555,185) (189,213) (3,744,398)
INCOME TAX EXPENSE 10,000 -- 10,000
------------- ------------ -------------
NET INCOME (LOSS) $ (1,565,185) $ (189,213) $ (3,754,398)
============= ============ =============
NET INCOME (LOSS) PER COMMON SHARE:
BASIC $ (0.31) $ (0.74)
============= =============
DILUTED $ (0.31) $ (0.74)
============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 5,081,299 5,081,299
DILUTED 5,081,299 5,081,299
</TABLE>
P-3
<PAGE> 17
INTERNET AMERICA, INC.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
(1) Represents cash paid for the purchase of NeoSoft, Inc.
(2) Reflects the write-down of fixed assets to fair value under the provisions
of Accounting Principles Board Opinion 16, "Accounting for Business
Combinations."
(3) Represents subscriber acquisition costs and goodwill associated with the
purchase of NeoSoft, Inc.
(4) Represents eliminating entries made to consolidate NeoSoft balance sheet
items into Internet America's consolidated balance sheet as of March 31,
1999.
(5) Represents amortization of goodwill and subscriber acquisition costs for
the periods presented.
P-4
<PAGE> 18
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH THEY RELATE OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN
ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
STATE. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Recent Developments...................................................................................S-2
Financial Statements..................................................................................S-2
PROSPECTUS
Prospectus Summary......................................................................................2
Risk Factors............................................................................................6
Use of Proceeds........................................................................................15
Dividend Policy........................................................................................15
Capitalization.........................................................................................15
Selected Financial and Operating Data..................................................................17
Management's Discussion and Analysis of Financial Condition and Results of Operations..................19
Business...............................................................................................25
Management.............................................................................................33
Certain Transactions...................................................................................39
Principal and Selling Shareholders.....................................................................41
Description of Securities..............................................................................43
Shares Eligible for Future Sale........................................................................46
Plan of Distribution...................................................................................47
Legal Matters..........................................................................................48
Experts................................................................................................48
Available Information..................................................................................48
Glossary of Technical Terms............................................................................49
Financial Statements..................................................................................F-1
</TABLE>
THE AVAILABLE INFORMATION DESCRIBED ON P. 48 OF THE PROSPECTUS ACCOMPANYING THIS
PROSPECTUS SUPPLEMENT THAT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC") MAY BE READ AND COPIED AT THE SEC'S PUBLIC REFERENCE ROOM AT
450 FIFTH STREET, N.W., WASHINGTON, D.C. 20549. YOU MAY OBTAIN INFORMATION ON
THE OPERATION OF THE PUBLIC REFERENCE ROOM BY CALLING THE SEC AT 1-800-SEC-0330.
THE SEC MAINTAINS AN INTERNET SITE THAT CONTAINS REPORTS, PROXY AND INFORMATION
STATEMENTS, AND OTHER INFORMATION REGARDING ISSUERS THAT FILE ELECTRONICALLY
WITH THE SEC AND THE ADDRESS OF THAT SITE IS (http://www.sec.gov).
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