1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________ TO _____
COMMISSION FILE NUMBER 000-25147
INTERNET AMERICA, INC.
(Exact name of small business issuer 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)
(214) 861-2500
(Issuer's telephone number)
---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
OUTSTANDING AT FEBRUARY 13, 2001
---------
Common Stock at $.01 par value 9,951,429 Shares
=========
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTERNET AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2000 2000
-------------- --------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,154,588 $ 1,373,786
Accounts receivable, net 2,065,571 2,162,252
Prepaid expenses and other current assets 391,799 148,772
-------------- --------------
Total current assets 3,611,958 3,684,810
PROPERTY AND EQUIPMENT, net 2,285,652 2,717,715
INTANGIBLE AND OTHER ASSETS, net 25,731,020 32,884,893
-------------- --------------
$ 31,628,630 $ 39,287,418
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 5,607,337 $ 2,573,700
Accrued liabilities 1,773,358 1,850,088
Deferred revenue 5,045,715 4,839,824
Current maturities of long-term debt 67,056 176,267
Current maturities of capital lease obligations 179,006 247,146
-------------- --------------
Total current liabilities 12,672,472 9,687,025
LONG-TERM DEBT, net of current portion 41,291 53,932
CAPITAL LEASE OBLIGATIONS, net of current portion 144,169 206,894
-------------- --------------
Total liabilities 12,857,932 9,947,851
-------------- --------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 40,000,000 shares authorized,
9,927,072 and 9,705,798 issued and outstanding at
December 31, 2000, and June 30, 2000, respectively 99,271 97,059
Additional paid-in capital 55,350,264 54,743,828
Accumulated deficit (36,678,837) (25,501,320)
-------------- --------------
Total shareholders' equity 18,770,698 29,339,567
-------------- --------------
$ 31,628,630 $ 39,287,418
============== ==============
See accompanying notes to condensed financial statements.
3
Financial Statements - Continued
INTERNET AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUES:
Internet services $ 8,659,499 $ 6,621,039 $ 17,598,883 $ 12,006,630
Other 82,844 90,940 110,346 297,548
------------ ------------ ------------ ------------
Total 8,742,343 6,711,979 17,709,229 12,304,178
------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Connectivity and operations 6,354,156 3,932,250 12,139,942 7,082,445
Sales and marketing 1,074,478 1,546,921 2,811,405 3,045,391
General and administrative 3,466,339 1,796,993 5,955,990 3,184,193
Depreciation and amortization 3,988,659 2,473,149 7,976,836 3,889,161
------------ ------------ ------------ ------------
Total 14,883,632 9,749,313 28,884,173 17,201,190
------------ ------------ ------------ ------------
OPERATING LOSS (6,141,289) (3,037,334) (11,174,944) (4,897,012)
INTEREST INCOME (EXPENSE), NET 2,195 13,115 (2,575) 49,897
------------ ------------ ------------ ------------
NET LOSS $ (6,139,094) $ (3,024,219) $(11,177,519) $ (4,847,115)
============ ============ ============ ============
NET LOSS PER COMMON
SHARE:
BASIC $ (0.62) $ (0.37) $ (1.13) $ (0.64)
============ ============ ============ ============
DILUTED $ (0.62) $ (0.37) $ (1.13) $ (0.64)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 9,926,914 8,129,357 9,850,213 7,569,284
DILUTED 9,926,914 8,129,357 9,850,213 7,569,284
See accompanying notes to condensed financial statements.
4
Financial Statements - Continued
INTERNET AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
------------------------------
2000 1999
------------ ------------
OPERATING ACTIVITIES:
Net loss $(11,177,519) $ (4,847,115)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 7,976,836 3,889,161
Provision for bad debt expense 1,400,000 --
Non-cash compensation expense 562,500 --
Changes in operating assets and liabilities:
Accounts receivable (1,303,319) (149,068)
Prepaid expenses and other current assets (243,027) 149,406
Other assets 11,683 (163,443)
Accounts payable and accrued liabilities 2,956,910 (673,134)
Deferred revenue 205,891 (534,970)
------------ ------------
Net cash provided by (used in) operating activities 389,955 (2,329,163)
------------ ------------
INVESTING ACTIVITIES
Purchases of property and equipment (402,584) (425,275)
Purchases of subscribers -- (1,558,432)
------------ ------------
Net cash used in investing activities (402,584) (1,983,707)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 46,148 499,891
Principal payments of capital lease obligations (130,865) (15,995)
Principal payments of long-term debt (121,852) (292,445)
------------ ------------
Net cash provided by (used in) financing activities (206,569) 191,451
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (219,198) (4,121,419)
CASH AND CASH EQUIVALENTS, beginning of period 1,373,786 5,845,562
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,154,588 $ 1,724,143
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 37,664 $ 26,705
Contribution of capital in exchange for note payable $ -- $ 10,267
Common stock and options issued in acquisition of PDQ.Net $ -- $ 29,872,852
Accrued liability recorded for acquisiton costs $ -- $ 400,000
Issuance of 200,000 shares of common stock in exchange for note
receivable from an officer of the company $ 685,500 $ --
See accompanying notes to condensed financial statements.
5
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 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,
2000, included in the Company's Annual Report on Form 10-KSB (File No
000-25147).
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 December 31, 2000, options to purchase 1,227,278 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. During the quarter ended December 31, 2000,
no options to purchase shares of common stock were exercised.
3. Issuance of Shares of Common Stock
Pursuant to a Stock Purchase Agreement entered into during September
2000, the Company issued 200,000 shares of its common stock to an officer
in exchange for cash of $2,000 and a note receivable, bearing interest at
6.33%, for $685,500. The note provides for payment of interest on a
quarterly basis beginning October 1, 2000 with principal due August 29,
2007. The purchase price of the common stock under the Stock Purchase
Agreement was based on the closing price of the common stock on the date
the Company's board of directors approved the transaction.
Under the terms of the Stock Purchase Agreement, the officer has the
option to put the shares of common stock to the Company during the term
(which expires September 5, 2007) of the Stock Purchase Agreement for
$3.4375 per share. In connection with the put option, the Company has
recognized a non-cash compensation expense of $275,000 during the quarter
ended December 31, 2000, which was a result of the decrease in the price
of the Company's common stock between September 30, 2000 and December 31,
2000.
4. Recently Issued Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("FAS
133"), Accounting for Derivative Instruments and Hedging Activities, was
issued. This statement establishes standards for valuing and reporting at
fair value all derivative instruments as either assets or liabilities.
FAS 133, as amended by FAS 137 and 138, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The adoption
of this Standard did not have a material impact on the Company's
financial statements.
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in
Financial Statements. SAB No. 101 provides guidance on the recognition,
presentation and disclosures of revenue in financial statements filed
with the Commission and is required to be implemented no later than the
fourth quarter of fiscal 2000. The adoption of SAB No. 101 did not have
a material effect on the Company's financial statements
6
ITEM 2-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains "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-KSB for the fiscal
year ended June 30, 2000, filed with the Securities and Exchange Commission on
September 26, 2000, 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") that provides
a wide array of Internet services tailored to meet the needs of business and
individual subscribers. We afford our subscribers a high quality Internet
experience with fast, reliable service and responsive customer care. As of
December 31, 2000, we served approximately 153,000 subscribers in the
southwestern United States.
Rapid revenue growth and high user density are the cornerstones of our
business strategy. We will continue to pursue an ambitious growth strategy, but
in a controlled manner. Our goal is to rapidly create high user density in
specific markets to achieve and maintain positive EBITDA (Earnings Before
Interest, Taxes, Depreciation, and Amortization).
The majority of our revenues are derived from dial-up Internet access.
Consumer dial-up access generates positive cash flow and remains an important
and viable part of our current business model. A key part of our strategy,
however, is to focus our efforts on building a significant portion of our total
business on broadband services, such as Digital Subscriber Line (DSL) access and
integrated broadband services to business customers. We are currently realizing
operational losses from our DSL initiative due to the marketing and front-end
deployment costs of these services, but management believes that operating
margins for these services will improve as our volume grows and front-end
deployment costs decline.
On November 22, 1999, we acquired all of the outstanding shares of
PDQ.Net, Inc., a Houston-based ISP, in exchange for 2,425,000 shares of common
stock. We also issued options to purchase 352,917 shares of Common Stock with a
weighted average exercise price of $1.62 per share in replacement of all of the
outstanding stock options of PDQ. The transaction was accounted for as a
purchase. We acquired approximately 41,400 new subscribers as a result of this
transaction. PDQ is a wholly owned subsidiary of Internet America and
constitutes the majority of our Houston operations.
STATEMENT OF OPERATIONS
Internet services revenue is derived from 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' connections to our network and (ii) fees
paid to backbone providers for connections from our network to the Internet.
7
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.
Depreciation 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.
Purchased subscriber bases and related goodwill are amortized over three years.
The assets and liabilities acquired in business combinations are recorded at
estimated fair values. The excess of the cost of the net assets acquired over
their fair value is recorded as goodwill and amortized over an estimated life of
three years.
Our business is not subject to any significant seasonal influences.
8
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999
The following table sets forth certain unaudited financial data for the
three months ended December 31, 2000 and 1999. 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 count).
Three Months Ended Three Months Ended
December 31, 2000 December 31, 1999
-------------------------- --------------------------
% of % of
(000's) Revenues (000's) Revenues
--------- ----------- --------- -----------
STATEMENT OF OPERATIONS DATA:
REVENUES:
Internet services $ 8,659 99.1% $ 6,621 98.6%
Other 83 0.9% 91 1.4%
--------- ----------- --------- -----------
Total 8,742 100.0% 6,712 100.0%
--------- ----------- --------- -----------
OPERATING COSTS AND EXPENSES:
Connectivity and operations 6,354 72.7% 3,932 58.6%
Sales and marketing 1,074 12.3% 1,547 23.0%
General and administrative 3,466 39.6% 1,797 26.8%
Depreciation and amortization 3,989 45.6% 2,473 36.8%
--------- ----------- --------- -----------
Total 14,883 170.2% 9,749 145.2%
--------- ----------- --------- -----------
OPERATING LOSS (6,141) (70.2%) (3,037) (45.2%)
INTEREST INCOME (EXPENSE), NET 2 (0.1%) 13 0.2%
--------- ----------- --------- -----------
NET LOSS $ (6,139) (70.3%) $ (3,024) (45.1%)
========= =========== ========= ===========
NET LOSS PER COMMON
SHARE:
BASIC $ (0.62) $ (0.37)
========= =========
DILUTED $ (0.62) $ (0.37)
========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 9,927 8,129
DILUTED 9,927 8,129
OTHER DATA:
Subscribers at end of period 153,000 147,000
9
Total revenue. Total revenue increased by $2.0 million, or 30.2%, to $8.7
million for the three months ended December 31, 2000, from $6.7 million for the
three months ended December 31, 1999. The increase in total revenue is
attributable to the increase in internet services revenue of $2.0 million to
$8.7 million for the three months ended December 31, 2000, from $6.6 million for
the same period in the prior year. The majority of this increase in revenue is
attributable to the acquisition of PDQ and increased sales of our DSL products,
which we began offering during last fiscal year. Other revenue decreased by
$8,000 to $83,000 for the three months ended December 31, 2000, from $91,000 for
the same period in the prior year. The decrease in other revenue is due to a
decrease in peripheral equipment sales.
Connectivity and operations. Connectivity and operations expense
increased by $2.4 million, or 61.6%, to $6.3 million for the three months ended
December 31, 2000, from $3.9 million for the three months ended December 31,
1999. As a percentage of revenue, connectivity and operations expense increased
to 72.7% for the three months ended December 31, 2000, from 58.6% for the same
period in the prior year. The increase as a percentage of revenue is primarily
due to additional connectivity costs related to our entry into new markets and
the deployment of our DSL products.
Sales and marketing. Sales and marketing expense decreased by $472,000,
or 30.5%, to $1.1 million for the three months ended December 31, 2000, compared
to $1.5 million for the same period in the prior year. The majority of the
decrease relates to a reduction of television advertising in all markets.
General and administrative. General and administrative expense increased
by $1.7 million, or 92.9%, to $3.5 million for the three months ended December
31, 2000, from $1.8 million for the three months ended December 31, 1999.
General and administrative expense as a percentage of total revenue increased to
39.7% for the three months ended December 31, 2000, from 26.8% for the same
period in the prior year. The increase is primarily due to a write off of bad
debt expense of $1.4 million taken during the current quarter. The write-off was
due to an evaluation during the current quarter of the collectibility of
accounts receivable, including consumer accounts. Delinquent accounts deemed
uncollectible were disconnected and written off, although we will continue
collection efforts on such accounts. In addition, general and administrative
expense for the three months ended December 31, 2000 includes $275,000 in
non-cash compensation expense related to an officer's stock purchase agreement.
Depreciation and amortization. Depreciation and amortization increased by
$1.5 million, or 61.3%, to $4.0 million for the three months ended December 31,
2000, from $2.5 million for the same period in the prior year. All of the
increase relates to the amortization of goodwill and cost of acquired
subscribers arising from the acquisition of PDQ.
Interest income and expense. We earned approximately $2,000 of interest
income during the three months ended December 31, 2000, compared to $13,000 for
the same period in the prior year. The proceeds from our initial public offering
were primarily expended in acquisitions and marketing, resulting in a decrease
in interest income.
10
SIX MONTHS ENDED DECEMBER 31, 2000 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1999
The following table sets forth certain unaudited financial data for the
six months ended December 31, 2000 and 1999. 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 count).
Six Months Ended Six Months Ended
December 31, 2000 December 31, 1999
---------------------------- -----------------------------
% of % of
(000's) Revenues (000's) Revenues
------------ ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA:
REVENUES:
Internet services $ 17,599 99.4% $ 12,007 97.6%
Other 110 0.6% 297 2.4%
----------- ----------- ------------ -----------
Total 17,709 100.0% 12,304 100.0%
----------- ----------- ------------ -----------
OPERATING COSTS AND EXPENSES:
Connectivity and operations 12,140 68.6% 7,083 57.6%
Sales and marketing 2,811 15.9% 3,045 24.7%
General and administrative 5,956 33.6% 3,184 25.9%
Depreciation and amortization 7,977 45.0% 3,889 31.6%
----------- ----------- ------------ -----------
Total 28,884 163.1% 17,201 139.8%
----------- ----------- ------------ -----------
OPERATING LOSS (11,175) (63.1%) (4,897) (39.8%)
INTEREST INCOME (EXPENSE), NET (2) (0.1%) 50 0.4%
----------- ----------- ------------ -----------
NET LOSS $(11,177) (63.2%) $ (4,847) (39.4%)
=========== =========== ============ ===========
NET LOSS PER COMMON
SHARE:
BASIC $ (1.13) $ (0.64)
=========== ============
DILUTED $ (1.13) $ (0.64)
=========== ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 9,850 7,569
DILUTED 9,850 7,569
OTHER DATA:
Subscribers at end of period 153,000 147,000
11
Total revenue. Total revenue increased by $5.4 million, or 43.9%, to
$17.7 million for the six months ended December 31, 2000, from $12.3 million for
the six months ended December 31, 1999. The increase in total revenue is
attributable to the increase in internet services revenue of $5.6 million to
$17.6 million for the six months ended December 31, 2000, from $12.0 million for
the same period in the prior year. The majority of the increase in internet
services revenue is attributable to the acquisition of PDQ and increased sales
of our DSL products, which we began offering during last fiscal year. Other
revenue decreased by $187,000 to $110,000 for the six months ended December 31,
2000, from $297,000 for the same period in the prior year. The decrease in other
revenue is due to a decrease in peripheral equipment sales.
Connectivity and operations. Connectivity and operations expense
increased by $5.0 million, or 71.4%, to $12.1 million for the six months ended
December 31, 2000, from $7.1 million for the six months ended December 31, 1999.
As a percentage of revenue, connectivity and operations expense increased to
68.6% for the six months ended December 31, 2000, from 57.6% for the same period
in the prior year. The increase as a percentage of revenue is primarily due to
additional connectivity costs related to our entry into new markets and the
deployment of our DSL products.
Sales and marketing. Sales and marketing expense decreased by $234,000,
or 7.7%, to $2.8 million for the six months ended December 31, 2000, compared to
$3.0 million for the same period in the prior year. The majority of the decrease
relates to a reduction of television advertising in all markets.
General and administrative. General and administrative expense increased
by $2.7 million, or 87.0%, to $6.0 million for the six months ended December 31,
2000, from $3.1 million for the six months ended December 31, 1999. General and
administrative expense as a percentage of total revenue increased to 33.6% for
the six months ended December 31, 2000, from 25.9% for the same period in the
prior year, primarily due to administrative support related to our acquisition
of PDQ. In addition, general and administrative expense for the six months ended
December 31, 2000 includes $562,500 in non-cash compensation expense related to
an officer's stock purchase agreement and $112,000 in accruals related to the
consolidation of Texas operations.
Depreciation and amortization. Depreciation and amortization increased by
$4.1 million, or 105%, to $8.0 million for the six months ended December 31,
2000, from $3.9 million for the same period in the prior year. All of the
increase relates to the amortization of goodwill and cost of acquired
subscribers arising from the acquisition of PDQ.
Interest income and expense. We incurred approximately $2,575 of interest
expense during the six months ended December 31, 2000, compared to interest
income of $50,000 for the same period in the prior year. The proceeds from our
initial public offering were primarily expended in acquisitions and marketing,
resulting in a decrease in interest income.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our 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. We completed an initial public
offering in December 1998 and received net proceeds of approximately $19.8
million. After the offering, we repaid approximately $2.1 million in shareholder
notes, and certain other indebtedness, and made several large cash subscriber
acquisitions. As of December 31, 2000, cash and cash equivalents on hand totaled
$1.2 million.
Cash provided by operating activities totaled $390,000 for the six months
ended December 31, 2000, compared to cash used in operating activities of $2.3
million for the same period in the prior year. Cash provided by operating
activities for the six months ended December 31, 2000 was impacted by increased
cash flow resulting from an increase in trade payables of $2.9 million, due
primarily to increasing amounts due to telecommunications vendors for DSL
connectivity and related equipment.
Cash used in investing activities totaled $403,000 for the six months
ended December 31, 2000, and consisted of routine purchases of property and
equipment to expand and upgrade our network.
Cash used in financing activities totaled $207,000 for the six months
ended December 31, 2000 and consisted of proceeds of $46,000 from the exercise
of stock options by option holders less payments of $253,000 to service
long-term obligations.
12
We estimate that cash on hand of $1.2 million at December 31, 2000 along
with cash expected to be provided by operations will be sufficient for meeting
our working capital needs for fiscal 2001 with regard to continuing operations
in existing markets. There are, however, disputed amounts in our accounts
payable. If these accounts payable are not settled in a satisfactory manner, we
may experience a short-term liquidity problem. There can be no assurance of a
satisfactory resolution of these accounts payable.
Additional financing will be required to fund expansion through
acquisitions and marketing. We intend to continue reduced expenditures for
television advertising during the third fiscal quarter of fiscal 2001 to assist
our short-term liquidity.
The availability of additional capital from public debt and equity
markets is currently limited due to a decline in stock prices for the entire
Internet sector. 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
have to modify our operations and growth strategies to match available funding.
In such case, it is likely that our advertising expenditures would be downscaled
to a level where positive cash flows are generated from operations. We have no
long term advertising commitments.
"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, (2) we will not be competitive with existing or new
competitors, (3) we will not be able to sustain our current growth, (4) we will
not successfully integrate acquisitions or achieve operating efficiencies, (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.
13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
On November 1, 2000, the Company held its 2000 annual meeting of
shareholders, at which the shareholders voted as follows:
AUTHORITY
MATTER VOTED ON SHARES VOTED FOR WITHHELD
--------------- ---------------- --------
The election of Gary L. Corona to the
board of directors 8,326,868 210,979
The election of William E. Ladin, Jr. to the
board of directors 8,382,849 154,998
NUMBER OF SHARES
-------------------------------
MATTER VOTED ON FOR AGAINST ABSTAIN
--------------- --- ------- -------
Approval of an amendment to the Internet America, Inc.
1998 Nonqualified Stock Option Plan to increase by
400,000 the number of shares of common stock available
for issuance pursuant to such plan and to revise
language regarding granting options to Independent
Directors 8,247,314 252,431 38,102
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), and
Exhibit No. 3.3 to the Company's Form 10-QSB filed on November
15, 1999 (File No. 000-25147).
4.1 Specimen Common Stock Certificate, incorporated by reference
to Exhibit No. 4.1 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).
4.2 Pages from the Articles and By-Laws that define the rights of
holders of Common Stock, incorporated by reference to Exhibit
4.2 of the Company's Registration Statement on Form SB-2,
initially filed with the Securities and Exchange Commission on
January 21, 2000 (File No. 333-95179).
11 Computation of earnings per share (1)
- ---------
(1) See note 2 to the financial statements.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter for
which this report is filed.
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: 02/14/01 By: /s/ Jack T. Smith
----------------------------------------
Jack T. Smith
President and Chief Executive Officer
Date: 02/14/01 By: /s/ Cherie R. Marcum
----------------------------------------
Cherie R. Marcum
Chief Accounting Officer
Date: 02/14/01 By: /s/ Peter C. Gibbons
----------------------------------------
Peter C. Gibbons
Chief Operating Officer
15
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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), and
Exhibit No. 3.3 to the Company's Form 10-QSB filed on November
15, 1999 (File No. 000-25147).
4.1 Specimen Common Stock Certificate, incorporated by reference
to Exhibit No. 4.1 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).
4.2 Pages from the Articles and By-Laws that define the rights of
holders of Common Stock, incorporated by reference to Exhibit
4.2 of the Company's Registration Statement on Form SB-2,
initially filed with the Securities and Exchange Commission on
January 21, 2000 (File No. 333-95179).
11 Computation of earnings per share (1)
- ---------
(1) See note 2 to the financial statements.