<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _____
COMMISSION FILE NUMBER 000-25147
INTERNET AMERICA, INC.
(Exact name of registrant as specified in its charter)
TEXAS 86-0778979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
350 N. ST. PAUL, SUITE 3000, DALLAS, TX 75201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 861-2500
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
OUTSTANDING AT MAY 14, 1999
--------------------------------
Common Stock at $.01 par value 6,893,530 Shares
--------------------------------
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTERNET AMERICA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 16,661,431 $ 618,290
Trade receivables, net 781,643 494,961
Prepaid expenses and other current assets 120,153 30,824
------------ ------------
Total current assets 17,563,227 1,144,075
PROPERTY AND EQUIPMENT, net 2,084,572 2,132,131
OTHER ASSETS, net 479,498 785,634
------------ ------------
$ 20,127,297 $ 4,061,840
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable $ 1,450,322 $ 1,153,728
Accrued liabilities 1,298,481 1,322,356
Advances under line of credit -- 225,000
Deferred revenue 4,055,448 3,660,006
Current maturities of long-term debt 272,328 686,302
Current maturities of capital lease obligations 212,482 358,645
Notes payable to shareholders -- 2,017,713
------------ ------------
Total current liabilities 7,289,061 9,423,750
LONG-TERM DEBT, net of current portion 297,162 1,182,273
CAPITAL LEASE OBLIGATIONS, net of current portion 32,328 143,915
------------ ------------
Total liabilities 7,618,551 10,749,938
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock, $.01 par value; 400,000 shares
authorized, 379,672 issued and outstanding at June 30, 1998 -- 3,796
Series B convertible preferred stock, $.01 par value; 300,000 shares
authorized, 73,667 issued and outstanding at June 30, 1998 -- 737
Common stock, $.01 par value; 40,000,000 shares authorized,
6,892,818 and 3,914,856 issued and outstanding at
March 31, 1999, and June 30, 1998, respectively 68,928 39,148
Additional paid-in capital 24,217,070 3,480,288
Accumulated deficit (11,777,252) (10,212,067)
------------ ------------
Total shareholders' equity (deficit) 12,508,746 (6,688,098)
------------ ------------
$ 20,127,297 $ 4,061,840
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 3
Financial Statements - Continued
INTERNET AMERICA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Access $ 4,221,499 $ 3,274,873 $ 11,435,757 $ 8,905,034
Business services 499,848 545,081 1,620,498 1,454,085
Other 34,931 25,334 79,773 54,282
------------ ------------ ------------ ------------
Total 4,756,278 3,845,288 13,136,028 10,413,401
------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Connectivity and operations 2,036,262 2,057,698 6,283,527 5,411,223
Sales and marketing 2,140,563 627,515 4,203,665 1,119,799
General and administrative 1,057,182 820,114 2,824,363 2,103,610
Depreciation and amortization 427,705 468,750 1,405,340 1,305,173
------------ ------------ ------------ ------------
Total 5,661,712 3,974,077 14,716,895 9,939,805
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (905,434) (128,789) (1,580,867) 473,596
INTEREST INCOME (EXPENSE), NET 196,596 (191,149) 25,682 (524,461)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX (708,838) (319,938) (1,555,185) (50,865)
INCOME TAX EXPENSE -- (6,000) (10,000) (18,000)
------------ ------------ ------------ ------------
NET LOSS $ (708,838) $ (325,938) $ (1,565,185) $ (68,865)
============ ============ ============ ============
NET LOSS PER COMMON
SHARE:
BASIC $ (0.10) $ (0.08) $ (0.31) $ (0.02)
============ ============ ============ ============
DILUTED $ (0.10) $ (0.08) $ (0.31) $ (0.02)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 6,762,294 3,914,856 5,081,299 3,914,856
DILUTED 6,762,294 3,914,856 5,081,299 3,914,856
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 4
Financial Statements - Continued
INTERNET AMERICA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,565,185) $ (68,865)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,405,340 1,305,173
Changes in operating assets and liabilities:
Accounts receivable (286,682) (218,277)
Prepaid expenses and other current assets (89,330) 24,849
Other assets (139,085) (291,165)
Accounts payable and accrued liabilities 272,719 (864,442)
Deferred revenue 395,442 1,601,110
------------ ------------
Net cash provided by (used in) operating activities (6,781) 1,488,383
------------ ------------
INVESTING ACTIVITIES
Purchases of property and equipment (912,560) (472,700)
Purchases of subscribers -- (50,000)
------------ ------------
Net cash used in investing activities (912,560) (522,700)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common equity 20,450,844 --
Purchases of stock options -- (92,000)
Principal payments of capital lease obligations (1,257,750) (612,573)
Principal payments of notes payable to shareholders (1,456,539) --
Principal payments of long-term debt (549,073) --
Payments on line of credit (225,000) --
------------ ------------
Net cash provided by (used in) financing activities 16,962,482 (704,573)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,043,141 261,110
CASH AND CASH EQUIVALENTS, beginning of period 618,290 21,574
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 16,661,431 $ 282,684
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 234,733 $ 738,698
Cash paid for income taxes $ 31,500 $ --
Purchase of subscriber base by assumption of service obligation $ -- $ 412,422
Contribution of capital in exchange for note payable $ 311,186 $ --
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 5
INTERNET AMERICA, INC.
NOTES TO CONDENSED 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 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,
1998, included in the Company's Current Report on Form 8-K/A (File No.
000-25147) filed on May 5, 1999 and the Registration Statement on Form
SB-2 (File No. 333-59527) filed on December 9, 1998.
2. Earnings Per Share
There are no adjustments required to be made to net loss for the purpose
of computing basic and diluted earnings per share ("EPS"). During the
quarter ended March 31, 1999, options to purchase 1,117,468 shares of
common stock were not included in the computation of diluted EPS because
the Company incurred a net loss for the period and the effect of such
instruments is antidilutive. As of March 31, 1999, options to purchase
224,300 shares of common stock had been exercised.
3. Business Combinations
On January 29, 1999, the Company exchanged 16,910 shares of its common
stock, par $0.01 per share, for substantially all of the net assets of
CompuNet. On February 18, 1999, the Company exchanged 365,725 shares of
its common stock of Internet America, Inc. for all the members' interest
in CyberRamp. These combinations were accounted for as poolings of
interests. Accordingly, the financial statements included herein have
been restated to include CompuNet and CyberRamp as of the beginning of
the earliest period presented. There were no intercompany transactions
prior to their combination. No significant adjustments were required to
adopt the same accounting practices. The following summarizes the results
of operations for each of the combining companies prior to the
combinations:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED DECEMBER 31,
------------------------------ ------------------
1997 1998 1998
------------ ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Internet America $ 9,470,922 $ 10,643,272 $ 6,367,821
CompuNet 643,440 1,271,534 558,539
CyberRamp 1,188,560 2,163,419 1,453,539
------------ ------------ ------------
Total $ 11,302,922 $ 14,078,225 $ 8,379,899
============ ============ ============
Net loss:
Internet America $ (3,823,529) $ 1,006,002 $ 176,819
CompuNet (507,668) (684,251) (322,536)
CyberRamp (268,264) (967,689) (710,572)
------------ ------------ ------------
Total $ (4,599,461) $ (645,938) $ (856,289)
============ ============ ============
</TABLE>
<PAGE> 6
ITEM 2-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Internet America, Inc. is a leading Internet service provider ("ISP") in
the southwestern United States. The Company provides a wide array of Internet
services tailored to meet the needs of individual and business customers. As of
March 31, 1999, the Company had approximately 79,000 subscribers.
The Company's strategy of achieving a high concentration of users in
targeted markets enables substantial marketing, network and operating
efficiencies. The Company's most popular service package includes unlimited
dial-up Internet access for $19.95 a month. The Company also offers value-added
services for additional fees, including multiple e-mail boxes and personal Web
sites, as well as business services, including dedicated high-speed access and
server co-location.
The Company completed two business combinations during the quarter ended
March 31, 1999, resulting in the addition of approximately 17,700 consumer
dial-up and broadband customers. On January 29, 1999, the Company exchanged
16,910 shares of its common stock for substantially all the net assets of
CompuNet. On February 18, 1999, the Company exchanged 365,725 shares of its
common stock in exchange for all outstanding members' interests of CyberRamp.
Each transaction was accounted for as a pooling of interests.
Subscriber growth during the third quarter of fiscal 1999, excluding
business combinations, was approximately 7,800 customers. The Company expanded
service into four new markets, including San Antonio and Austin, Texas' third
and fourth largest markets.
STATEMENT OF OPERATIONS
The Company's access revenues are derived primarily from individual
dial-up Internet access and revenues derived from value-added services, such as
multiple e-mail boxes and personalized e-mail addresses. The Company derives
business services revenues primarily from dedicated broadband connectivity, bulk
dial-up access, web services and bulk access to newsgroups. Other revenues are
derived primarily from fees associated with advertising banners on the Company's
homepage.
A brief description of each element of the Company's operating expenses follows:
Connectivity and operations expenses consist primarily of setup costs for
new customers, telecommunication costs, and wages of network operations and
customer support personnel. Setup costs include cost of diskettes and other
media, manuals, packaging and delivery costs. The Company does not defer
customer setup costs, but expenses such items as incurred. Connectivity costs
include (i) fees paid to telephone companies for customers' dial-up connections
to the Company's network and (ii) fees paid to backbone providers for
connections from the Company's network to the Internet.
Sales and marketing expenses consist primarily of creative, media and
production costs, and call center employee wages. These expenses include the
cost of the Company's television and billboard campaigns and other advertising.
The Company does not defer any advertising costs, but expenses such items as
incurred.
General and administrative expenses consist primarily of accounting and
administrative wages, professional services, rent and other general business
expenses.
Depreciation is computed using the straight line method over the estimated
useful lives of the assets. The Company's data communications equipment,
computers, data server and office equipment are depreciated over three years.
The Company depreciates its furniture, fixtures and leasehold improvements over
five years. The costs of acquired subscriber bases are amortized over three to
five years.
<PAGE> 7
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THREE MONTHS ENDED MARCH
31, 1998
The following table sets forth certain unaudited financial data for the
three months ended March 31, 1999 and 1998. All amounts have been restated to
reflect the poolings of interests with CompuNet and CyberRamp. Operating results
for any period are not necessarily indicative of results for any future period.
Dollar amounts are shown in thousands (except per share data and subscriber
count).
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
----------------------- -----------------------
% of % of
(000's) Revenues (000's) Revenues
-------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Access $ 4,221 88.8% $ 3,275 85.2%
Business services 500 10.5% 545 14.2%
Other 35 0.7% 25 0.7%
-------- -------- -------- --------
Total 4,756 100.0% 3,845 100.0%
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Connectivity and operations 2,036 42.8% 2,058 53.5%
Sales and marketing 2,141 45.0% 627 16.3%
General and administrative 1,057 22.2% 820 21.3%
Depreciation and amortization 428 9.0% 469 12.2%
-------- -------- -------- --------
Total 5,662 119.0% 3,974 103.4%
-------- -------- -------- --------
OPERATING LOSS (906) (19.0)% (129) (3.4)%
INTEREST INCOME (EXPENSE), NET 197 4.1% (191) (5.0)%
-------- -------- -------- --------
LOSS BEFORE INCOME TAX (709) (14.9)% (320) (8.3)%
INCOME TAX EXPENSE -- 0.0% (6) (0.2)%
-------- -------- -------- --------
NET LOSS $ (709) (14.9)% $ (326) (8.2)%
======== ======== ======== ========
NET LOSS PER COMMON
SHARE:
BASIC $ (0.10) $ (0.08)
======== ========
DILUTED $ (0.10) $ (0.08)
======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 6,762 3,915
DILUTED 6,762 3,915
OTHER DATA:
Subscribers at end of period 79,000 59,100
</TABLE>
<PAGE> 8
Total revenues. Total revenues increased by $911,000, or 23.7%, to $4.8
million for the three months ended March 31, 1999, from $3.8 million for the
three months ended March 31, 1998. Access revenues increased by $947,000, or
28.9%, to $4.2 million for the three months ended March 31, 1999, from $3.3
million for the same period in the prior year. The increase in access revenues
is attributable to an increase in the number of dial-up subscribers from 59,100
at March 31, 1998, to 79,000 at March 31, 1999.
Connectivity and operations. Connectivity and operations expenses
decreased by $21,000, or 1.0%, to $2.0 million for the three months ended March
31, 1999. As a percentage of revenues, connectivity and operations expenses
decreased to 42.8% for the three months ended March 31, 1999, from 53.5% for
the same period in the prior year. The decrease as a percentage of revenues is
due to cost efficiencies achieved for wages and connectivity resulting from
greater user density in existing markets.
Sales and marketing. Sales and marketing expenses increased by $1.5
million, or 241%, to $2.1 million for the three months ended March 31, 1999,
compared to $627,000 for the same period in the prior year. During the three
months ended March 31, 1998, the Company concentrated marketing efforts in its
primary market, the Dallas/Ft. Worth area. For the three months ended March 31,
1999, the Company's marketing campaign included television and billboard
advertisements in a total of nine markets. Total sales and marketing expenses
for the period ended March 31, 1999, of $2.1 million included $1.9 million in
television, print and billboard advertising.
General and administrative. General and administrative expenses increased
by $237,000, or 28.9%, to $1.1 million for the three months ended March 31,
1999, from $820,000 for the three months ended March 31, 1998. As a percentage
of total revenues, general and administrative expenses increased by 0.9% to
22.2% for the three months ended March 31, 1999, from 21.3% for the same period
in the prior year. The percentage increase is primarily due to professional
service fees associated with the combinations with CompuNet and CyberRamp.
Depreciation and amortization. Depreciation and amortization decreased by
$41,000, or 8.8%, to $428,000 for the three months ended March 31, 1999, from
$469,000 for the same period in the prior year. The decrease is due to fully
depreciated assets that are no longer included in depreciation expense for the
quarter ending March 31, 1999.
Interest income and expense. The Company realized $197,000 of interest
income during the three months ended March 31, 1999, compared to interest
expense of $191,000 for the same period in the prior year. The net proceeds from
the initial public offering completed in December 1998 were invested in
investment grade securities resulting in interest income of $197,000 for the
three months ended March 31, 1999. During the three months ended March 31, 1998,
the Company had several notes payable outstanding with interest rates up to 18%,
resulting in interest expense of $191,000 for the period.
<PAGE> 9
NINE MONTHS ENDED MARCH 31, 1999, COMPARED TO NINE MONTHS ENDED MARCH
31, 1998
The following table sets forth certain unaudited financial data for the
nine months ended March 31, 1999 and 1998. All amounts have been restated to
reflect the poolings of interests with CompuNet and CyberRamp. Operating results
for any period are not necessarily indicative of results for any future period.
Dollar amounts are shown in thousands (except per share data and subscribers
count).
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
March 31, 1999 March 31, 1998
------------------------ ------------------------
% of % of
(000's) Revenues (000's) Revenues
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Access $ 11,436 87.1% $ 8,905 85.5%
Business services 1,620 12.3% 1,454 14.0%
Other 80 0.6% 54 0.5%
-------- ---------- -------- ----------
Total 13,136 100.0% 10,413 100.0%
-------- ---------- -------- ----------
OPERATING COSTS AND EXPENSES:
Connectivity and operations 6,284 47.8% 5,411 52.0%
Sales and marketing 4,204 32.0% 1,120 10.8%
General and administrative 2,824 21.5% 2,104 20.2%
Depreciation and amortization 1,405 10.7% 1,305 12.5%
-------- ---------- -------- ----------
Total 14,717 112.0% 9,940 95.5%
-------- ---------- -------- ----------
OPERATING LOSS (1,581) (12.0)% 473 4.5%
INTEREST INCOME (EXPENSE), NET 26 0.2% (524) (5.0)%
-------- ---------- -------- ----------
LOSS BEFORE INCOME TAX (1,555) (11.8)% (51) (0.5)%
INCOME TAX EXPENSE (10) (0.1)% (18) (0.2)%
-------- ---------- -------- ----------
NET LOSS $ (1,565) (11.8)% $ (69) (0.3)%
======== ========== ======== ==========
NET LOSS PER COMMON SHARE:
BASIC $ (0.31) $ (0.02)
======== ========
DILUTED $ (0.31) $ (0.02)
======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 5,081 3,915
DILUTED 5,081 3,915
OTHER DATA:
Subscribers at end of period 79,000 59,100
</TABLE>
<PAGE> 10
Total revenues. Total revenues increased by $2.7 million, or 26.1%, to
$13.1 million for the nine months ended March 31, 1999, from $10.4 million for
the same period in the prior year. Access revenues increased by $2.5 million, or
28.4%, to $11.4 million for the nine months ended March 31, 1999, primarily due
to the increase in the number of subscribers from the same period in the prior
year. As of March 31, 1999, the Company had 79,000 subscribers compared to
59,100 as of March 31, 1998, representing an increase of 33.7%. Business
services revenues increased by $166,000, or 11.4%, to $1.6 million for the nine
months ended March 31, 1999, from $1.5 million for the same period in the prior
year. This increase is primarily attributable to revenue associated with the
Company's web hosting service, a product that was introduced during fiscal 1999.
Connectivity and operations. Connectivity and operations expenses
increased by $872,000, or 16.1%, to $6.3 million for the nine months ended March
31, 1999, from $5.4 million for the same period in the prior year. Connectivity
and operations expenses as a percentage of total revenues decreased to 47.8% for
the nine months ended March 31, 1999 from 52.0% for the nine months ended March
31, 1998. The decrease as a percentage of revenues is due to cost efficiencies
achieved for wages and connectivity resulting from greater user density in
existing markets.
Sales and marketing. Sales and marketing expenses increased by $3.1
million, or 275%, to $4.2 million for the nine months ended March 31, 1999,
compared to the same period in the prior year. The increase is primarily due to
the Company's continued marketing efforts in its existing markets in North Texas
and the entry into nine new markets during the second and third quarters of
fiscal 1999. Total sales and marketing expenses of $4.2 million for the nine
months ended March 31, 1999, included $3.2 million in television, print and
billboard advertising.
General and administrative. General and administrative expenses increased
by $720,000, or 34.3%, to $2.8 million for the nine months ended March 31, 1999,
from $2.1 million for the same period in the prior year. As a percentage of
revenues, general and administrative expenses increased to 21.5% for the nine
months ended March 31, 1999, from 20.2% for the same period in the prior year,
primarily due to professional service fees associated with the combinations with
CompuNet and CyberRamp.
Depreciation and amortization. Depreciation and amortization increased by
$100,000, or 7.7%, to $1.4 million for the nine months ended March 31, 1999,
from $1.3 million for the same period in the prior year. The increase is due to
additional depreciation expense resulting from routine purchases of property and
equipment.
Interest income/expense. The Company realized $26,000 of interest income
for the nine months ended March 31, 1999, compared to interest expense of
$524,000 for the same period in the prior year. During the nine months ended
March 31, 1998, the Company had several notes payable to shareholders bearing
interest up to 18% resulting in interest expense of $524,000. The Company has
invested the net proceeds from the Company's initial public offering in December
1998 in investment grade securities which generated net interest income for the
period of $26,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through (i)
public and private sales of equity securities, (ii) loans from shareholders and
third parties and (iii) cash flows from operations. The Company completed an
initial public offering in December 1998 and received net proceeds from the
offering of approximately $20.0 million. Subsequent to the offering, the Company
repaid certain indebtedness of $2.1 million. As of March 31, 1999, cash and cash
equivalents on hand totaled $16.7 million, which represents the Company's
principal source of liquidity.
Cash used in operating activities totaled $7,000 for the nine months
ended March 31, 1999, compared to cash provided by operating activities of $1.5
million for the same period in the prior year. Payments for advertising costs of
$3.2 million were included in the nine months ended March 31, 1999, versus
$570,000 for the same period in the prior year.
Cash used in investing activities was $913,000 for the nine months ended
March 31, 1999, and consisted of routine purchases of property and equipment to
maintain network reliability.
<PAGE> 11
For the nine months ended March 31, 1999, cash provided by financing
activities totaled $17.0 million, which consisted of proceeds from the Offering
of $19.8 million and proceeds from the exercise of stock options by option
holders less payments of $3.5 million to service and retire shareholder notes
and long-term obligations.
The Company estimates that cash on hand of $16.7 million will meet its
operating needs for the next twelve months. Depending on its financial
condition, results of operations and the level of acquisition activity, the
Company may require additional equity or debt financing. There can be no
assurance that additional financing will be available when required. The Company
is currently in discussions with various lenders concerning a possible credit
facility, but there can be no assurance that the Company will enter into any
facility, and if so, on what terms.
YEAR 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations, causing disruptions of
operations, including, among others, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
State of Readiness
In order to address Year 2000 issues, the Company has developed and is
implementing a plan for the Company to become Year 2000 ready (the "Year 2000
Plan"). The Year 2000 Plan covers: (i) software products which are supplied by
the Company to its customers and (ii) the Company's information and other
systems technology. In addition, the Year 2000 Plan calls for the Company to
identify and assess the systems and services of the Company's major vendors,
third party network service providers and other material service providers
("Third Party Systems"), and take appropriate remedial actions and develop
contingency plans where appropriate in connection with such Third Party Systems.
The Company supplies its customers with a software package that, among
other things, allows its customers to access the Company's services. The
software package consists of internally developed software which is bundled with
third party software (collectively, the "Installation Package"). The Company
believes that the current shipping version of its software package is Year 2000
ready. In addition, the Company believes that substantially all of its customer
base is presently using a version of the Installation Package that is Year 2000
ready.
The Company continues to evaluate its information and other systems
technology to identify and eliminate Year 2000 issues in order to achieve Year
2000 readiness. The Company has performed a review of its more critical Third
Party Systems and has surveyed the publicly available statements issued by
vendors of such systems. Most of the Company's critical third-party providers
have made representations to the effect that they are, or will be, Year 2000
compliant. The Company, however, has not undertaken an in-depth evaluation of
its critical or other third-party providers in relation to the Year 2000 issue,
and furthermore the Company has no control over whether its third-party
providers are, or will be, Year 2000 compliant.
Costs
There are no significant historical costs associated with the Company's
Year 2000 readiness efforts and the magnitude of any future costs will depend
upon the nature and extent of any problems that are identified. These costs are
not expected to exceed $100,000.
<PAGE> 12
Risks
The failure by the Company to correct a material Year 2000 problem could
result in a complete failure or degradation of the performance of the Company's
network or other systems, including the disruption of operations, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. Presently, however, the Company believes that its most
reasonably likely worst case scenario related to the Year 2000 is associated
with potential concerns with third-party services or products. Specifically, the
Company is heavily dependent on a significant number of third-party vendors to
provide both network services or equipment. A significant Year 2000-related
disruption of the network services or equipment provided to the Company by
third-party vendors could cause customers to consider seeking alternate
providers or cause an unmanageable burden on customer service and technical
support, which in turn could materially and adversely affect the Company's
results of operations, liquidity and financial condition. The Company is not
presently aware of any vendor-related Year 2000 issue that is likely to result
in such a disruption. Although there is inherent uncertainty in the Year 2000
issue, the Company expects that as it progresses with its Year 2000 Plan, the
level of uncertainty about the impact of the Year 2000 issue on the Company will
be reduced and the Company should be better positioned to identify the nature
and extent of material risk to the Company as a result of any Year 2000
disruptions.
Contingency Plans
Due to the current stage of the Company's Year 2000 Plan, the Company is
currently unable to fully assess its risks and determine what contingency plans,
if any, need to be implemented. As the Company progresses with its Year 2000
Plan and identifies specific risk areas, the Company intends to timely implement
appropriate remedial actions and contingency plans.
The estimates and conclusions herein contain forward-looking statements
and are based on management's best estimates of future events. The Company's
expectations about risks, future costs, and the timely completion of its Year
2000 efforts are subject to uncertainties that could cause actual results to
differ materially from what has been discussed above. Factors that could
influence risks, amount of future costs and the effective timing of remediation
efforts include the Company's success in identifying and correcting potential
Year 2000 issues and the ability of third parties to appropriately address their
Year 2000 issues.
"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, the Company seeks
the protections afforded by the Private Securities Litigation Reform Act of
1995. These risks include, without limitation, (1) that the Company will not
retain or grow its subscriber base, (2) that the Company will fail to be
competitive with existing and new competitors, (3) that the Company will not be
able to sustain its current growth, (4) that the Company will not adequately
respond to technological developments impacting the Internet, and (5) that
needed financing will not be available to the Company if and as needed. 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 the
Company's business, and should be read in conjunction with the more detailed
cautionary statements included in the Company's other publicly filed reports and
documents.
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation, as amended, incorporated by
reference to Exhibit Nos. 3.1 and 3.2 on Form SB-2, as amended,
initially filed with the Securities and Exchange Commission on
July 21, 1998 (File No. 333-59527).
3.2 By-Laws, as amended, incorporated by reference to Exhibit Nos.
3.3 and 3.4 of the Company's Registration Statement on Form
SB-2, as amended, initially filed with the Securities and
Exchange Commission on July 21, 1998 (File No. 333-59527).
11. Computation of earnings per share (1)
27. Financial Data Schedule (2)
(b) Reports on Form 8-K
On February 16, 1999, the Company filed a Current Report on Form
8-K to report that, on January 29, 1999, the Company acquired
substantially all of the net assets of CompuNet, Inc., a Texas
corporation ("CompuNet") pursuant to the terms of an Asset Purchase
Agreement by and among CompuNet, certain securityholders of
CompuNet, the Company and GEEK Assets, Inc., a Texas corporation
and wholly owned subsidiary of the Company.
On March 1, 1999, the Company filed a Current Report on Form 8-K to
report that, on February 18, 1999, the Company acquired all the
issued and outstanding membership interests in CyberRamp, L.L.C., a
Texas limited liability company ("CyberRamp"), pursuant to a
Securities Purchase Agreement by and among the members of CyberRamp
and the Company.
(1) See note 2 to condensed financial statements
(2) Filed herewith
<PAGE> 14
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: May 17, 1999 By: /s/ Michael T. Maples
--------------- ----------------------------------------
Michael T. Maples
President and Chief Executive Officer
Date: May 17, 1999 By: /s/ James T. Chaney
--------------- ----------------------------------------
James T. Chaney
Vice President and Chief Financial Officer
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTERNET AMERICA, INC. FOR THE NINE MONTHS ENDED MARCH
31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR YEAR
<FISCAL-YEAR-END> JUN-01-1999 JUN-30-1997 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1996 JUL-01-1997
<PERIOD-END> MAR-31-1999 JUN-30-1997 JUN-30-1998
<CASH> 16,661 22 618
<SECURITIES> 0 0 0
<RECEIVABLES> 882 469 693
<ALLOWANCES> 100 127 198
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 17,563 427 1,144
<PP&E> 6,450 4 5,538
<DEPRECIATION> 4,366 4,691 3,405
<TOTAL-ASSETS> 20,127 1,800 4,062
<CURRENT-LIABILITIES> 7,289 3,954 9,424
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 69 39 39
<OTHER-SE> 12,440 5,911 6,649
<TOTAL-LIABILITY-AND-EQUITY> 20,127 3,954 4,062
<SALES> 0 0 0
<TOTAL-REVENUES> 13,136 11,303 14,078
<CGS> 6,284 7,432 7,418
<TOTAL-COSTS> 14,717 15,385 14,030
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 26 517 670
<INCOME-PRETAX> (1,555) (4,609) (670)
<INCOME-TAX> 10 10 24
<INCOME-CONTINUING> (1,565) (4,599) (646)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,565) (4,599) (646)
<EPS-PRIMARY> (0.31) (1.21) (0.16)
<EPS-DILUTED> (0.31) (1.21) (0.16)
</TABLE>
