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Internet America Reports Fiscal Year End Results

October 3, 2008

Internet America, Inc. (OTCBB:GEEK) today announced results for its fiscal year ended June 30, 2008.

Internet service revenues for the fiscal year ended June 30, 2008 were $8.4 million compared to $7.9 million for the corresponding period in 2007. The increase in revenues was primarily due to an increase in wireless subscribers through acquisition and organic growth, partially offset by an ongoing decline in the Company’s legacy dial-up Internet business. Revenue from telex messaging services included in other income was $346,000 for fiscal 2008. The Company did not have telex revenues prior to fiscal 2008. While Internet America’s total subscriber base decreased by 11.4% to 30,300 at June 30, 2008 due to a decrease in dial-up Internet customers, the Company’s broadband wireless Internet subscriber base increased 39.1% to 8,000 as of June 30, 2008 from 5,750 for the previous year.

The Company’s net loss was $3.0 million for the fiscal year ended June 30, 2008 compared to a net loss of $347,000 for the previous year. The increase of $2,653,000 is related primarily to the non-cash impairment of goodwill, increases in telecommunications costs and professional fees, and temporary increases in personnel costs.

In furtherance of its policy to regularly evaluate the carrying value of intangible assets, the Company recorded $780,000 as impairment of goodwill related to potential reduction in future cash flows from previous dial-up subscriber acquisitions.

During 2008, the Company experienced an increase in the telecommunications cost per subscriber as a result of the expansion of network capacity to provide higher quality service to customers as well as a growth in its wireless broadband footprint. Higher costs were partially offset with more favorable agreements with telecommunications service providers. Professional fees increased due to payments of $224,000 under a consulting contract related to telex messaging services.

Beginning in January 2008, the Company implemented a productivity program designed to improve operating margins by quality improvements in service processes. Although the Company experienced increases in personnel costs in the first and second quarters for the year ended June 30, 2008, the Company has experienced a significant decline in headcount in the third and fourth quarters. From its peak of 93 employees in December 2007, headcount was reduced to 73 people as of June 30, 2008 and further to 63 people as of September 21, 2008.

During the year, the Company undertook substantial network upgrade projects, investing $1.2 million in property and equipment, compared to $320,000 invested in fiscal 2007. Funding for these improvements was generated from two private placements of securities during fiscal 2008, totaling $5.3 million. Remaining cash on hand at June 30, 2008 totaled $3.9 million.

In addition to the continued growth of the Company’s broadband wireless subscriber base, the Company has sought to identify prospective acquisition opportunities that provide significant subscriber growth, a larger revenue base and meaningful geographic expansion. The Company believes that these acquisitions allow it to spread the costs of the Company’s well developed systems, superior network performance, high quality customer care and technical support over an increased number of subscribers, thus providing the benefits of economies of scale. The Company is actively looking at acquisition opportunities with operations outside of Texas which provide geographical diversity and greater potential for organic growth. The Company attempts to use its stock as consideration in acquisitions though financing for acquisitions could be a combination of the issuance of stock, the public issuance of equity securities and the private sale of debt or equity securities.

About Internet America

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 Fax2email, 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.

Use of Non-GAAP Financial Measures

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.

Forward Looking Statements

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. 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.

 Internet America, Inc. (OTC BB: GEEK) Unaudited Financial Summary (in thousands, except per share data and subscriber count)  For the Year Ended ------------------------- 6/30/08      6/30/07 ------------ ------------  Subscribers                                       30,300       34,200 ============ ============  Internet services                            $     8,431  $     7,985 Other                                                346            0 ------------ ------------ Total revenue                                   8,777        7,985  Connectivity and operations                        5,925        4,995 Sales and marketing                                  504          209 General and administrative                         3,370        2,327 ------------ ------------ EBITDA (loss)                                  (1,022)         454 Depreciation and amortization                     (1,173)        (791) Impairment loss                                     (780)           0 Interest expense, net                                (25)         (10) ------------ ------------ Net loss                                  $    (3,000) $      (347) ============ ============  Basic loss per share                         $     (0.20) $     (0.03) ============ ============ Weighted average shares - basic               14,978,681   12,508,914 ============ ============  Diluted loss per share                       $     (0.20) $     (0.03) ============ ============ Weighted average shares - diluted             14,978,681   12,508,914 ============ ============  

 Reconciliation of net income (a GAAP measure) to EBITDA (a Non-GAAP measure) (in thousands):  For the Year Ended ------------------ 6/30/08  6/30/07 --------- --------  Net loss                                             $(3,000)   $(347) Add: Depreciation and amortization                          1,173      791 Impairment loss                                          780        0 Interest expense, net                                     25       10 --------- -------- EBITDA (loss)                                     $(1,022)   $ 454 ========= ========  

 For the Year Ended ------------------ 6/30/08   6/30/07 ---------- -------  Current assets                                         $ 4,984  $1,668 Property and equipment, net                              2,329     855 Other assets, net                                        4,882   5,223 ---------- ------- Total assets                                        $12,195  $7,746 ========== =======  Current liabilities                                    $ 2,751  $2,685 Long-term liabilities                                    1,336     453 Total shareholders' equity                               8,108   4,608 ---------- ------- Total liabilities and shareholders' equity          $12,195  $7,746 ========== ======= 



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