Internet America Reports Fiscal Second Quarter Results

Business Wire, Feb 17, 2009

HOUSTON -- Internet America, Inc. (OTCBB:GEEK) today announced results for the fiscal second quarter ended December 31, 2008. Wireless broadband Internet revenues continue to grow and totaled approximately $1,061,000, or 53.4% of total revenues, for the quarter ending December 31, 2008, compared to approximately $1,036,000, or 45.6% of total revenues, for the same period last fiscal year. The Company's wireless broadband Internet subscriber count increased slightly to 7,900 as of December 31, 2008, compared to 7,800 as of December 31, 2007. The Company's management continued to focus on network improvements in an upgrade process which will increase the potential for organically growing the Company's wireless broadband business in the future. We restricted the addition of new wireless broadband Internet customers while improvements were made. Total revenues for the second quarter decreased by 12.4% to approximately $2.0 million compared to total revenues of approximately $2.3 million in the second quarter of 2007 and the total subscriber count decreased to 28,400 on December 31, 2008 compared to 33,200 subscribers at the end of the same period last year. These decreases were due to the anticipated decline of dial-up Internet service customers from Internet America's legacy dial-up Internet operations.

Net loss for the second quarter of 2008 was approximately $325,000, or a loss of $0.02 per share, compared to net loss of approximately $787,000, or $0.06 per share in the same period last year. EBITDA loss (earnings before interest, taxes, depreciation and amortization) was reduced by 92.2% to approximately $37,000 in the second quarter compared to EBITDA loss of approximately $476,000 in the second quarter a year ago. Net loss and EBITDA (loss) were positively impacted in the second quarter of 2008 by decreased costs associated with connectivity and operations, sales and marketing and general and administrative expenses. The increased costs incurred by Internet America in the second quarter of 2007 were related to increased staffing during the integration of four acquired entities and certain one-time expenses related to marketing, legal fees and abandoned leases.

As part of our growth of wireless broadband Internet revenues, the Company is currently focused on larger acquisitions that will not materially drain our cash resources but will be accretive after completing integration. On November 14, 2008, the Company entered into a definitive agreement to merge with KeyOn Communications Holdings, Inc. ("KeyOn") in a stock-for-stock transaction, with KeyOn shareholders maintaining 45% of the merged companies. The closing is subject to, among other customary closing conditions, the performance of certain financial covenants and the effectiveness of the registration statement filed with the SEC. Extensive information about the merger, including the risks involved, is contained in the Form S-4/A registration statement of the Company.

Internet America is a leading Internet service provider serving the Texas market. Based in Houston, Internet America offers businesses and individuals a wide array of Internet services including broadband Internet delivered wirelessly and over DSL, dedicated high-speed access, web hosting, and dial-up Internet access. Internet America provides customers a wide range of related value-added services, including Fax-2-Email, online backup and storage solutions, parental control software, and global roaming solutions. Internet America focuses on the speed and quality of its Internet services and its commitment to providing excellent customer care. Additional information on Internet America is available on the Company's web site at http://www.internetamerica.com.

In this press release, the Company refers to a non-GAAP financial measure called EBITDA because of management's belief that this measure is a financial indicator of the Company's ability to internally generate operating funds. Management also believes that this non-GAAP financial measure is useful information to investors because it is widely used by professional research analysts in the valuation and investment recommendations of companies in the Company's peer group. EBITDA should not be considered an alternative to net income, as defined by GAAP.

This press release may contain forward-looking statements relating to future business expectations. These statements, specifically including management's beliefs, expectations and goals, are subject to many uncertainties that exist in Internet America's operations and business environment. Business plans may change, and actual results may differ materially as a result of a number of risk factors. These risks include, without limitation, that (1) we will not be able to increase our rural customer base at the expected rate, (2) we will not improve EBITDA, profitability or product margins, (3) we will not be able to identify and negotiate acquisitions of wireless broadband Internet customers and infrastructure on attractive terms or successfully integrate those acquisitions into our operations, (4) financing will not be available to us if and as needed, (5) we will not be competitive with existing or new competitors, (6) we will not keep up with industry pricing or technological developments impacting the Internet, (7) we will be adversely affected by dependence on network infrastructure, telecommunications providers and other vendors or by regulatory changes, (8) service interruptions or impediments could harm our business; (9) we may be accused of infringing upon the intellectual property rights of third parties, which is costly to defend and could limit our ability to use certain technologies in the future, (10) government regulations could force us to change our business practices, (11) we may be unable to hire and retain qualified personnel, including our key executive officers, (12) provisions in our certificate of incorporation, bylaws and shareholder rights plan could limit our share price and delay a change of management; and (13) our stock price has been volatile historically and may continue to be volatile. Additional risks and uncertainties relating specifically to the proposed merger with KeyOn include, without limitation, that (1) the proposed merger will cause disruptions in our business and the business of KeyOn, (2) we may fail to complete the merger, (3) we may fail to integrate successfully and achieve the anticipated benefits of the merger, (4) we have incurred and will incur additional significant costs associated with the merger that may exceed the benefits, (5) as a result of purchase accounting treatment, we will significantly increase amortization expense for intangibles relating to KeyOn which will decrease net income for the foreseeable future, and (6) we may need to obtain additional financing to service the debt incurred in the merger. 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.