##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 2007

COMMISSION FILE NUMBER: 000-32647



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KNOLOGY, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 58-2424258                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|KNOLOGY, INC. 1241 O.G. SKINNER DRIVE WEST POINT, GEORGIA      |  | 31833                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (706) 645-8553



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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 by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer ̈Accelerated filer  x    Non-accelerated Filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes ̈No  x

As of July 31, 2007, Knology, Inc. had 35,193,007 shares of common stock outstanding.



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##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

QUARTER ENDED JUNE 30, 2007

INDEX



|        |  |                                                                                                                     |  |     
|------- |  | ------------------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                                     |  | PAGE
|PART I  |  | FINANCIAL INFORMATION                                                                                               |  |     
|ITEM 1  |  | FINANCIAL STATEMENTS                                                                                                |  | 3   
|        |  | Condensed Consolidated Balance Sheets as of December 31, 2006 and Unaudited June 30, 2007                           |  | 3   
|        |  | Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2007 |  | 4   
|        |  | Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2007           |  | 5   
|        |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                      |  | 6   
|        |  |                                                                                                                    
|ITEM 2  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                               |  | 11  
|        |  |                                                                                                                    
|ITEM 3  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                          |  | 20  
|        |  |                                                                                                                    
|ITEM 4  |  | CONTROLS AND PROCEDURES                                                                                             |  | 20  
|        |  |                                                                                                                    
|PART II |  | OTHER INFORMATION                                                                                                   |  |     
|        |  |                                                                                                                    
|ITEM 1  |  | LEGAL PROCEEDINGS                                                                                                   |  | 21  
|        |  |                                                                                                                    
|ITEM1A  |  | RISK FACTORS                                                                                                        |  | 21  
|        |  |                                                                                                                    
|ITEM 2  |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                         |  | 21  
|        |  |                                                                                                                    
|ITEM 3  |  | DEFAULTS UPON SENIOR SECURITIES                                                                                     |  | 21  
|        |  |                                                                                                                    
|ITEM 4  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                 |  | 21  
|        |  |                                                                                                                    
|ITEM 5  |  | OTHER INFORMATION                                                                                                   |  | 21  
|        |  |                                                                                                                    
|ITEM 6  |  | EXHIBITS                                                                                                            |  | 22  
|        |  | SIGNATURES                                                                                                          |  | 23  
|        |  | EXHIBIT INDEX                                                                                                       |  |     



2



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##### Table of Contents

PART 1. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)



|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ----------------------- | - | -------- | -
|                                                                                                                                                                                    |  | December 31,2006 |          |   | June 30,2007(Unaudited) |  
|ASSETS                                                                                                                                                                              |  |                  |          |   |                         |   |          |  
|                                                                                                                                                                                    |  |                 
|CURRENT ASSETS:                                                                                                                                                                     |  |                  |          |   |                         |   |          |  
|Cash and cash equivalents                                                                                                                                                           |  | $                | 11,577   |   |                         | $ | 22,111   |  
|Restricted cash                                                                                                                                                                     |  |                  | 1,620    |   |                         |   | 590      |  
|Accounts receivable, net of allowance for doubtful accounts of $687 and $ 1,404 as of December 31, 2006 and June 30, 2007,
respectively                                             |  |                  | 22,511   |   |                         |   | 29,726   |  
|Prepaid expenses and other                                                                                                                                                          |  |                  | 2,509    |   |                         |   | 3,312    |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total current assets                                                                                                                                                                |  |                  | 38,217   |   |                         |   | 55,739   |  
|                                                                                                                                                                                    |  |                 
|PROPERTY, PLANT AND EQUIPMENT, NET                                                                                                                                                  |  |                  | 243,831  |   |                         |   | 423,550  |  
|                                                                                                                                                                                    |  |                 
|GOODWILL                                                                                                                                                                            |  |                  | 40,834   |   |                         |   | 115,494  |  
|                                                                                                                                                                                    |  |                 
|CUSTOMER BASE                                                                                                                                                                       |  |                  | 19       |   |                         |   | 4,167    |  
|                                                                                                                                                                                    |  |                 
|DEFERRED DEBT ISSUANCE COSTS, NET                                                                                                                                                   |  |                  | 9,912    |   |                         |   | 12,548   |  
|                                                                                                                                                                                    |  |                 
|INTEREST RATE HEDGE INSTRUMENT                                                                                                                                                      |  |                  | 1,474    |   |                         |   | 4,219    |  
|                                                                                                                                                                                    |  |                 
|INVESTMENTS                                                                                                                                                                         |  |                  | 1,243    |   |                         |   | 2,451    |  
|                                                                                                                                                                                    |  |                 
|INTANGIBLE AND OTHER ASSETS, NET                                                                                                                                                    |  |                  | 1,031    |   |                         |   | 3,104    |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total assets                                                                                                                                                                        |  | $                | 336,561  |   |                         | $ | 621,272  |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|                                                                                                                                                                                    |  |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                |  |                  |          |   |                         |   |          |  
|                                                                                                                                                                                    |  |                 
|CURRENT LIABILITIES:                                                                                                                                                                |  |                  |          |   |                         |   |          |  
|Current portion of notes payable                                                                                                                                                    |  | $                | 2,302    |   |                         | $ | 6,028    |  
|Accounts payable                                                                                                                                                                    |  |                  | 19,076   |   |                         |   | 22,911   |  
|Accrued liabilities                                                                                                                                                                 |  |                  | 15,525   |   |                         |   | 22,425   |  
|Unearned revenue                                                                                                                                                                    |  |                  | 10,984   |   |                         |   | 15,270   |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total current liabilities                                                                                                                                                           |  |                  | 47,887   |   |                         |   | 66,634   |  
|                                                                                                                                                                                    |  |                 
|NONCURRENT LIABILITIES:                                                                                                                                                             |  |                  |          |   |                         |   |          |  
|Notes payable                                                                                                                                                                       |  |                  | 270,711  |   |                         |   | 551,659  |  
|Deferred income tax                                                                                                                                                                 |  |                  | 0        |   |                         |   | 17,731   |  
|Warrants                                                                                                                                                                            |  |                  | 590      |   |                         |   | 963      |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total noncurrent liabilities                                                                                                                                                        |  |                  | 271,301  |   |                         |   | 570,353  |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total liabilities                                                                                                                                                                   |  |                  | 319,188  |   |                         |   | 636,987  |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                       |  |                  |          |   |                         |   |          |  
|                                                                                                                                                                                    |  |                 
|STOCKHOLDERS EQUITY:                                                                                                                                                               |  |                  |          |   |                         |   |          |  
|Preferred stock, $199,000,000 shares authorized, none outstanding                                                                                                                   |  |                  | 0        |   |                         |   | 0        |  
|Non-voting common stock, $.01 par value per share; 25,000,000 shares authorized, none outstanding                                                                                   |  |                  | 0        |   |                         |   | 0        |  
|Common stock, $.01 par value per share; 200,000,000 shares authorized, 34,758,682 and 35,182,451 shares issued and outstanding at
December 31, 2006 and June 30, 2007, respectively |  |                  | 348      |   |                         |   | 352      |  
|Additional paid-in capital                                                                                                                                                          |  |                  | 584,017  |   |                         |   | 586,397  |  
|Comprehensive income                                                                                                                                                                |  |                  | 0        |   |                         |   | 4,219    |  
|Accumulated deficit                                                                                                                                                                 |  |                  | (566,992 | ) |                         |   | (606,683 | )
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total stockholders equity                                                                                                                                                          |  |                  | 17,373   |   |                         |   | (15,715  | )
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total liabilities and stockholders equity                                                                                                                                          |  | $                | 336,561  |   |                         | $ | 621,272  |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  

See notes to condensed consolidated financial statements.



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##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)



|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                         |  | Three Months Ended June 30, |            |   | Six Months Ended June 30, |  
|                                                                         |  | 2006                        |            |   | 2007                      |   |            | 2006 |  |   | 2007       |  
|OPERATING REVENUES:                                                      |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Video                                                                    |  | $                           | 28,533     |   |                           | $ | 38,290     |      |  | $ | 56,229     |   |  | $ | 69,008     |  
|Voice                                                                    |  |                             | 20,581     |   |                           |   | 31,970     |      |  |   | 41,021     |   |  |   | 53,036     |  
|Data                                                                     |  |                             | 14,466     |   |                           |   | 20,635     |      |  |   | 28,202     |   |  |   | 36,912     |  
|Other                                                                    |  |                             | 533        |   |                           |   | 1,212      |      |  |   | 1,360      |   |  |   | 2,170      |  
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Total operating revenues                                                 |  |                             | 64,113     |   |                           |   | 92,107     |      |  |   | 126,812    |   |  |   | 161,126    |  
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|OPERATING EXPENSES:                                                      |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Direct costs (excluding depreciation and amortization)                   |  |                             | 18,888     |   |                           |   | 27,642     |      |  |   | 37,402     |   |  |   | 48,121     |  
|Selling, general and administrative expenses                             |  |                             | 29,128     |   |                           |   | 36,707     |      |  |   | 58,557     |   |  |   | 66,377     |  
|Depreciation and amortization                                            |  |                             | 16,465     |   |                           |   | 22,015     |      |  |   | 33,849     |   |  |   | 38,721     |  
|Capital markets activity                                                 |  |                             | 1,518      |   |                           |   | 0          |      |  |   | 1,518      |   |  |   | 0          |  
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                                                 |  |                             | 65,999     |   |                           |   | 86,364     |      |  |   | 131,326    |   |  |   | 153,219    |  
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|OPERATING LOSS (INCOME)                                                  |  |                             | (1,886     | ) |                           |   | 5,743      |      |  |   | (4,514     | ) |  |   | 7,907      |  
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|OTHER INCOME (EXPENSE):                                                  |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Interest income                                                          |  |                             | 102        |   |                           |   | 115        |      |  |   | 189        |   |  |   | 242        |  
|Interest expense                                                         |  |                             | (9,048     | ) |                           |   | (11,091    | )    |  |   | (17,667    | ) |  |   | (19,247    | )
|Loss on debt extinguishment                                              |  |                             | 0          |   |                           |   | (27,375    | )    |  |   | 0          |   |  |   | (27,375    | )
|Gain (loss) on interest rate hedge instrument                            |  |                             | 1,141      |   |                           |   | (303       | )    |  |   | 1,868      |   |  |   | (758       | )
|Loss on adjustment of warrants to market                                 |  |                             | (169       | ) |                           |   | (85        | )    |  |   | (391       | ) |  |   | (373       | )
|Other income (expense), net                                              |  |                             | 13         |   |                           |   | (2         | )    |  |   | (6         | ) |  |   | (87        | )
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Total other expense                                                      |  |                             | (7,961     | ) |                           |   | (38,741    | )    |  |   | (16,007    | ) |  |   | (47,598    | )
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|NET LOSS                                                                 |  |                             | (9,847     | ) |                           |   | (32,998    | )    |  |   | (20,521    | ) |  |   | (39,691    | )
|PREFERRED STOCK DIVIDENDS                                                |  |                             | (355       | ) |                           |   | 0          |      |  |   | (747       | ) |  |   | 0          |  
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                             |  | $                           | (10,202    | ) |                           | $ | (32,998    | )    |  | $ | (21,268    | ) |  | $ | (39,691    | )
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS |  | $                           | (0.42      | ) |                           | $ | (0.94      | )    |  | $ | (0.87      | ) |  | $ | (1.14      | )
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   |  |                             | 24,547,736 |   |                           |   | 35,052,896 |      |  |   | 24,479,106 |   |  |   | 34,953,396 |  
|                                                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  

See notes to condensed consolidated financial statements.



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##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(DOLLARS IN THOUSANDS)



|                                                                                |  |                          |         |   |      |   |          |  
|------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | -------- | -
|                                                                                |  | Six Months EndedJune 30, |        
|                                                                                |  | 2006                     |         |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                          |         |   |      |   |          |  
|Net loss                                                                        |  | $                        | (20,521 | ) |      | $ | (39,691  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                          |         |   |      |   |          |  
|Depreciation and amortization                                                   |  |                          | 33,849  |   |      |   | 38,721   |  
|Loss on debt extinguishment                                                     |  |                          | 0       |   |      |   | 27,375   |  
|Non-cash stock option compensation                                              |  |                          | 1,204   |   |      |   | 995      |  
|Accretion of second lien term loan                                              |  |                          | 330     |   |      |   | 169      |  
|Non-cash bank loan interest expense                                             |  |                          | 1,666   |   |      |   | 1,607    |  
|Non-cash (gain) loss on interest rate hedge instrument                          |  |                          | (1,868  | ) |      |   | 758      |  
|Provision for bad debt                                                          |  |                          | 1,479   |   |      |   | 1,404    |  
|Loss on disposition of assets                                                   |  |                          | 13      |   |      |   | 92       |  
|Loss on adjustment of warrants to market                                        |  |                          | 391     |   |      |   | 373      |  
|Changes in operating assets and liabilities:                                    |  |                          |         |   |      |   |          |  
|Accounts receivable                                                             |  |                          | (1,241  | ) |      |   | (2,355   | )
|Prepaid expenses and other                                                      |  |                          | 398     |   |      |   | 517      |  
|Accounts payable                                                                |  |                          | (344    | ) |      |   | (3,579   | )
|Accrued liabilities                                                             |  |                          | (1,998  | ) |      |   | 3,869    |  
|Unearned revenue                                                                |  |                          | 245     |   |      |   | 865      |  
|                                                                                |  |                          |         |   |      |   |          |  
|Total adjustments                                                               |  |                          | 34,124  |   |      |   | 70,811   |  
|                                                                                |  |                          |         |   |      |   |          |  
|Net cash provided by operating activities                                       |  |                          | 13,603  |   |      |   | 31,120   |  
|                                                                                |  |                          |         |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                          |         |   |      |   |          |  
|Capital expenditures                                                            |  |                          | (15,949 | ) |      |   | (20,476  | )
|Purchase of PrairieWave                                                         |  |                          | 0       |   |      |   | (256,070 | )
|Franchise and other intangible expenditures                                     |  |                          | (128    | ) |      |   | (170     | )
|Proceeds from sale of property                                                  |  |                          | 73      |   |      |   | 59       |  
|Change in restricted cash                                                       |  |                          | 1,202   |   |      |   | 1,030    |  
|                                                                                |  |                          |         |   |      |   |          |  
|Net cash used in investing activities                                           |  |                          | (14,802 | ) |      |   | (275,627 | )
|                                                                                |  |                          |         |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |                          |         |   |      |   |          |  
|Proceeds from long term debt                                                    |  |                          | 0       |   |      |   | 555,000  |  
|Penalty payment related to debt refinance                                       |  |                          | 0       |   |      |   | (18,124  | )
|Principal payments on debt and short-term borrowings                            |  |                          | (1,108  | ) |      |   | (270,637 | )
|Expenditures related to issuance of long term debt                              |  |                          | (3,464  | ) |      |   | (13,302  | )
|Stock options exercised                                                         |  |                          | 330     |   |      |   | 1,388    |  
|Proceeds from unwind of interest rate hedge instrument                          |  |                          | 0       |   |      |   | 716      |  
|Proceeds from exercised warrants                                                |  |                          | 2       |   |      |   | 0        |  
|                                                                                |  |                          |         |   |      |   |          |  
|Net cash used in (provided by) financing activities                             |  |                          | (4,240  | ) |      |   | 255,041  |  
|                                                                                |  |                          |         |   |      |   |          |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                            |  |                          | (5,439  | ) |      |   | 10,534   |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                  |  |                          | 12,183  |   |      |   | 11,577   |  
|                                                                                |  |                          |         |   |      |   |          |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      |  | $                        | 6,744   |   |      | $ | 22,111   |  
|                                                                                |  |                          |         |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              |  |                          |         |   |      |   |          |  
|Cash paid during the periods for interest                                       |  | $                        | 15,130  |   |      | $ | 15,054   |  
|                                                                                |  |                          |         |   |      |   |          |  
|Non-cash financing activities:                                                  |  |                          |         |   |      |   |          |  
|Debt acquired in capital lease transactions                                     |  | $                        | 14      |   |      | $ | 0        |  
|                                                                                |  |                          |         |   |      |   |          |  
|Preferred stock dividend paid in kind                                           |  | $                        | 747     |   |      | $ | 0        |  
|                                                                                |  |                          |         |   |      |   |          |  
|Preferred stock conversion to common                                            |  | $                        | 19,285  |   |      | $ | 0        |  
|                                                                                |  |                          |         |   |      |   |          |  
|Detail of acquisition:                                                          |  |                          |         |   |      |   |          |  
|Accounts receivables, net                                                       |  |                          | 0       |   |      |   | 6,265    |  
|Prepaid expenses                                                                |  |                          | 0       |   |      |   | 1,363    |  
|Property, plant and equipment                                                   |  |                          | 0       |   |      |   | 197,739  |  
|Goodwill                                                                        |  |                          | 0       |   |      |   | 75,274   |  
|Customer base                                                                   |  |                          | 0       |   |      |   | 4,402    |  
|Intangible and other assets                                                     |  |                          | 0       |   |      |   | 2,031    |  
|Investments                                                                     |  |                          | 0       |   |      |   | 1,207    |  
|Accounts payable                                                                |  |                          | 0       |   |      |   | (7,414   | )
|Accrued liabilities                                                             |  |                          | 0       |   |      |   | (3,421   | )
|Unearned revenue                                                                |  |                          | 0       |   |      |   | (3,031   | )
|Deferred income tax                                                             |  |                          | 0       |   |      |   | (18,345  | )
|                                                                                |  |                          |         |   |      |   |          |  
|Net cash paid for acquisition                                                   |  | $                        | 0       |   |      | $ | 256,070  |  
|                                                                                |  |                          |         |   |      |   |          |  

See notes to condensed consolidated financial statements



5



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##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Six Months Ended JUNE 30, 2007

(UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1. ORGANIZATION AND NATURE OF BUSINESS

Knology, Inc. and its subsidiaries, including its predecessors,
(Knology or the Company) is a publicly traded company incorporated under the laws of the State of Delaware in September 1998.

Knology and its subsidiaries own and operate an advanced interactive broadband network and provide residential and business customers broadband communications services, including analog and digital cable television, local and long-distance
telephone, high-speed Internet access, and broadband carrier services to various markets in the southeastern and midwestern United States.

The telephone
operations group, consisting of Interstate Telephone Company, Globe Telecommunications, Inc., ITC Globe, Inc., and Valley Telephone Co., LLC (the Telephone Operations Group) is wholly owned and provides a full line of local telephone and
related services and broadband services. Certain of the Telephone Operations Group subsidiaries are subject to regulation by state public service commissions of applicable states for intrastate telecommunications services. For applicable interstate
matters related to telephone service, certain Telephone Operations Group subsidiaries are subject to regulation by the Federal Communications Commission.

On April 3, 2007, the Company completed its acquisition of PrairieWave Holdings, Inc., a voice, video and high-speed internet broadband services provider in the Rapid City and Sioux Falls, South Dakota regions, as well as portions of
Minnesota and Iowa. The financial position and results of operations for PrairieWave Holdings, Inc. are included in the Companys presented consolidated financial statements since the date of acquisition.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted (GAAP) in the United States for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered
necessary for the fair presentation of the financial statements have been included, and the financial statements present fairly the financial position and results of operations for the interim periods presented. These financial statements should be
read in conjunction with the consolidated financial statements and notes thereto, together with managements discussion and analysis of financial condition and results of operations contained in the Companys Annual Report on Form 10-K for
the year ended December 31, 2006.

The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities 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 from those estimates. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2007, or any other interim period.

The Company operates as one operating segment.

In 2006, the Company
revised its presentation of pole attachment rent and network hub rent costs to classify them as a component of direct costs. The Company had previously classified these costs as selling, general and administrative expenses. The reclassification
amounted to $956 and $1,959 for the three and six months ended June 30, 2006, respectively. Certain other prior year amounts have been reclassified to conform to current year presentation. Corresponding changes have been made to the
Companys Consolidated Balance Sheet and Statements of Operations as appropriate.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING ESTIMATES

The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including those related to collectability of accounts receivable, valuation of inventories and investments, recoverability of goodwill
and intangible assets, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. These changes in estimates are
recognized in the period they are realized.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 (SFAS
No. 159). SFAS No. 159 allows companies to measure certain financial



6



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instruments at fair value without having to apply complex hedge accounting provisions and to report unrealized gains and losses on elected items in earnings.
This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect that the adoption of SFAS No. 159 will have a material impact on its results of operations or
financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS
No. 157, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements providing a single definition of fair value, which should result in increased
consistency and comparability in fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect
that the adoption of SFAS No. 157 will have a material impact on its results of operations or financial position.

4. CASH AND CASH EQUIVALENTS

Cash and cash equivalents are highly liquid investments with a maturity of three months or less at the date of purchase and consist of time deposits
and investment in money market funds with commercial banks and financial institutions.

As of June 30, 2007, the Company has $590 of cash that is
restricted in use, all of which the Company has pledged as collateral related to certain insurance and surety bond agreements.

5. GOODWILL AND
INTANGIBLE ASSETS

The Company performs a goodwill impairment test in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, annually on January 1. There was no impairment identified as a result of the January 1, 2007 impairment test.

Intangible assets as
of December 31, 2006 and June 30, 2007, respectively, were as follows:



|                                                                  |  |                  |        |              |   |                             |  |     
|----------------------------------------------------------------- |  | ---------------- | ------ | ------------ | - | --------------------------- |  | ----
|                                                                  |  | December 31,2006 |        | June 30,2007 |   | Amortization Period (Years)
|Customer base                                                     |  | $                | 460    |              | $ | 4,862                       |  | 2-5 
|Other                                                             |  |                  | 914    |              |   | 2,427                       |  | 4-10
|                                                                  |  |                  |        |              |   |                             |  |     
|Gross carrying value of intangible assets subject to amortization |  |                  | 1,374  |              |   | 7,289                       |  |     
|Less accumulated amortization                                     |  |                  | 742    |              |   | 1,118                       |  |     
|                                                                  |  |                  |        |              |   |                             |  |     
|Net carrying value of intangible assets subject to amortization   |  | $                | 632    |              | $ | 6,171                       |  |     
|                                                                  |  |                  |        |              |   |                             |  |     
|Goodwill                                                          |  | $                | 40,834 |              | $ | 115,494                     |  |     
|                                                                  |  |                  |        |              |   |                             |  |     

6. DEBT

On
June 29, 2005, the Company entered into a first lien credit agreement and second lien credit agreement providing the Company with aggregate cash proceeds of $280,000. These proceeds, together with cash on hand, were used to repay all amounts
outstanding under the Companys then existing credit facilities and to redeem its 12% senior notes due 2009, which were redeemed on July 29, 2005. The second lien was issued at a discount of 4% for $95,000, which accreted up to a face
amount of $99,000 on June 29, 2011.

In 2005, the Company entered into an interest rate cap agreement for a notional amount of $280,000 to cap its
variable LIBOR rate at 5%, mitigating interest rate risk on its first and second lien term loans. On April 18, 2007, the Company unwound its existing interest rate cap agreement for $716 cash proceeds. The Company has recorded a loss of $758
for the six months ended June 30, 2007. The changes in the fair value of the cap agreement were recorded as a Gain (loss) on interest rate cap agreement in other income (expense) since the cap rate agreement was not designated as a
hedge under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities.

On June 30, 2006, Amendment No. 1 to the
first lien credit agreement became effective. The Amendment reduced the interest rate on the Companys first lien term loan from LIBOR plus 5.5% to LIBOR plus 2.5%. The provisions of the first lien credit agreement required a 2% pre-payment
premium of $3,455 with the amendment.

On March 14, 2007, the Company entered into an Amended and Restated Credit Agreement which provides for a
$580,000 credit facility, consisting of a $555,000 term loan and a $25,000 revolving credit facility. On April 3, 2007, the Company received proceeds of $555,000 to fund the $255,000 PrairieWave Holdings, Inc. acquisition purchase price,
refinance the Companys first and second lien agreement, and pay transaction costs associated with the transactions. The term loan bears interest at LIBOR plus 2.25% and amortizes at a rate of 1.0% per annum, payable quarterly, with a
June 30, 2012 maturity date.

On May 3, 2007, the Company entered into a new interest rate swap contract on a notional amount of $555,000
amortizing 1% annually. The swap agreement fixes 100% of the floating rate at 4.977% until June 30, 2010. The interest rate hedge instrument is designated as a hedge under SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities. Changes in the fair value of the swap agreement are recorded as Comprehensive Income in the equity section of the balance sheet.



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Long-term debt at December 31, 2006 and June 30, 2007 consisted of the following:



|                                                                                                                                                                                                                                                  |  |                  |         |              |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------ | - | -------
|                                                                                                                                                                                                                                                  |  | December 31,2006 |         | June 30,2007
|First Lien term loan, at a rate of LIBOR plus 2.25%, with $5,550 annual principal amortization, interest payable quarterly with final
principal and any unpaid interest due June 30, 2012.                                                        |  | $                | 0       |              | $ | 555,000
|                                                                                                                                                                                                                                                  |  |                 
|First Lien term loan, at a rate of LIBOR plus 2.5%, with $1,850 annual principal amortization, interest payable quarterly with final principal
and any unpaid interest due June 29, 2010.                                                         |  |                  | 171,825 |              |   | 0      
|                                                                                                                                                                                                                                                  |  |                 
|Second Lien term loan, with a face amount of $99,000, at a rate of LIBOR plus 10% (8.5% cash and 1.5% PIK, $387 for the three months ended
March 31, 2007), interest payable quarterly, with principal and any unpaid interest due June 29, 2011. |  |                  | 98,286  |              |   | 0      
|                                                                                                                                                                                                                                                  |  |                 
|Capitalized lease obligation, at rates between 7% and 8%, with monthly principal and interest payments through December 2012.                                                                                                                     |  |                  | 2,902   |              |   | 2,687  
|                                                                                                                                                                                                                                                  |  |                  |         |              |   |        
|                                                                                                                                                                                                                                                  |  |                  | 273,013 |              |   | 557,687
|                                                                                                                                                                                                                                                  |  |                 
|Less current maturities                                                                                                                                                                                                                           |  |                  | 2,302   |              |   | 6,028  
|                                                                                                                                                                                                                                                  |  |                  |         |              |   |        
|                                                                                                                                                                                                                                                  |  | $                | 270,711 |              | $ | 551,659
|                                                                                                                                                                                                                                                  |  |                  |         |              |   |        

The first lien credit facility entered into on April 3, 2007 is guaranteed by all of the Companys
subsidiaries. The credit facility is also secured by first liens on all of the Companys assets and the assets of its guarantor subsidiaries.

The
credit agreement contains customary representations and warranties and various affirmative and negative covenants. The credit agreement also includes customary events of default, including but not limited to:



| |  |  | nonpayment of principal, interest or other fees or amounts;
| | - |  | -----------------------------------------------------------



| |  |  | incorrectness of representations and warranties in any material respect;
| | - |  | ------------------------------------------------------------------------



| |  |  | violations of covenants;
| | - |  | ------------------------



| |  |  | cross defaults and cross acceleration;
| | - |  | --------------------------------------



| |  |  | bankruptcy;
| | - |  | -----------



| |  |  | material judgments;
| | - |  | -------------------



| |  |  | ERISA events;
| | - |  | -------------



| |  |  | actual or asserted invalidity of provisions of or liens created under guarantees or security documents;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | material violations of environmental laws;
| | - |  | ------------------------------------------



| |  |  | defaults under material contractual obligations; and
| | - |  | ----------------------------------------------------



| |  |  | the failure to maintain licenses and franchises if such failure would have a material adverse effect.
| | - |  | -----------------------------------------------------------------------------------------------------

As of June 30, 2007, the Company was in compliance with all of its debt covenants.

The Company had outstanding warrants (issued in connection with the 1997 high-yield debt offering) with a fair value of $963 at June 30, 2007. The Company adjusts the carrying value of the warrants based on the
closing price of the Companys common stock at the end of each reporting period. For the six months ended June 30, 2007, the Company recorded a loss of $373 as a (Loss) gain on adjustment of warrants to market in other
(expense) income.

7. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

The Company is subject to litigation in the normal course of its business. However, in our opinion, there is no legal
proceeding pending against the Company which would have a material adverse effect on its financial position, results of operations or liquidity. The Company is also a party to regulatory proceedings affecting the segments of the communications
industry generally in which it engages in business.



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UNUSED LETTERS OF CREDIT

The Companys unused letters of credit for vendors and suppliers was $317 as of June 30, 2007, which reduces the funds available under the $25,000 five year senior secured revolving loan and letter of credit facility.

8. NONCASH COMPENSATION EXPENSE

The Company adopted SFAS
No. 123R on January 1, 2006 which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values as the options vest. The fair value of
stock options is estimated at the date of grant using the Black-Scholes option pricing model. There have been no changes in the methodology for calculating the expense since the filing of the Companys Annual Report on Form 10-K for the year
ended December 31, 2006.

During the second quarter of 2007, the Company granted 167,010 shares with a market value of $2,737. The shares vest equally
over the next 4 years.

The Company has recognized stock-based compensation of $995 and $1,204 for the six months ended June 30, 2007 and 2006,
respectively.

9. INCOME TAXES

In June 2006, the FASB
issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of SFAS No. 109 (FIN 48). The interpretation addresses the determination of whether tax benefits claimed or expected to
be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

The Company adopted the provisions of FIN 48 on January 1, 2007. After application of the provisions of FIN 48, it was not necessary for the Company to recognize
any liability for unrecognized tax benefits or adjustment to the balance of retained earnings as of January 1, 2007. The Companys policy is to classify interest and penalties related to unrecognized tax benefits in income tax expense. As
of January 1, 2007, the Company had no accrued interest and penalties related to unrecognized tax benefits. As of January 1, 2007, after the implementation of FIN 48, the Companys unrecognized tax benefits were $0.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. For federal tax purposes, the Companys
2003 through 2006 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. Generally, for state tax purposes, the Companys 2002 through 2006 tax years remain open for examination by the
tax authorities under a four year statute of limitations. The adoption of FIN 48 on January 1, 2007 did not have a material effect on the Companys consolidated results of operations or financial condition.

10. ACQUISITION

On April 3, 2007, the Company completed its
acquisition of PrairieWave Holdings, Inc., a voice, video and high-speed internet broadband services provider in the Rapid City and Sioux Falls, South Dakota regions, as well as portions of Minnesota and Iowa.The Company used the proceeds of
the Amended and Restated Credit Agreement to fund the $255,000 purchase price and related transaction costs of the PrairieWave acquisition, as well as refinance all amounts outstanding under the Companys existing first and second lien credit
facilities dated June 29, 2005. The financial position and results of operations for PrairieWave Holdings, Inc. are included in the Companys presented consolidated financial statements since the date of acquisition. The total purchase
price for the assets acquired, net of liabilities assumed and including direct acquisition costs was $256,070.

The Company obtained independent third
party valuations of real and personal property and certain acquired intangible assets. The following table summarizes the allocation of purchase price to the fair values of the assets acquired and liabilities assumed at the date of the acquisition.



|                                     |  |               |        
|------------------------------------ |  | ------------- | -------
|                                     |  | April 3, 2007
|Assets acquired:                     |  |               |        
|Accounts receivable, net             |  | $             | 6,265  
|Prepaid expenses                     |  |               | 1,363  
|Property, plant and equipment        |  |               | 197,739
|Investments                          |  |               | 1,207  
|Goodwill                             |  |               | 75,274 
|Customer base                        |  |               | 4,202  
|Intangible and other assets          |  |               | 2,031  
|                                     |  |               |        
|Total assets acquired                |  |               | 288,281
|Liabilities assumed:                 |  |               |        
|Accounts payable                     |  |               | 7,414  
|Accrued liabilities                  |  |               | 3,421  
|Unearned revenue                     |  |               | 3,031  
|Deferred income tax liability        |  |               | 18,345 
|                                     |  |               |        
|Total liabilities assumed            |  |               | 32,211 
|                                     |  |               |        
|Purchase price, net of cash acquired |  | $             | 256,070
|                                     |  |               |        



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The assets reflected above include costs associated with the Companys restructuring plan which was formed upon
completion of the acquisition. The restructuring plan includes involuntary employee termination costs of $803 for severance pay and stay bonuses. The restructuring plan also includes $778 of marketing costs associated with rebranding.



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

THE MANAGEMENTS DISCUSSION AND ANALYSIS AND OTHER PORTIONS OF THIS QUARTERLY REPORT INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS, INCLUDING THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THAT ARE SUBJECT TO FUTURE EVENTS, RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED. IMPORTANT FACTORS THAT EITHER INDIVIDUALLY OR IN THE AGGREGATE
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED INCLUDE, WITHOUT LIMITATION, (1) THAT WE WILL NOT RETAIN OR GROW OUR CUSTOMER BASE, (2) THAT WE WILL FAIL TO BE COMPETITIVE WITH EXISTING AND NEW COMPETITORS,
(3) THAT WE WILL NOT ADEQUATELY RESPOND TO TECHNOLOGICAL DEVELOPMENTS THAT IMPACT OUR INDUSTRY AND MARKETS, (4) THAT NEEDED FINANCING WILL NOT BE AVAILABLE TO US IF AND AS NEEDED, (5) THAT A SIGNIFICANT CHANGE IN THE GROWTH RATE OF
THE OVERALL U.S. ECONOMY WILL OCCUR SUCH THAT THERE IS A MATERIAL IMPACT ON CONSUMER AND CORPORATE SPENDING, (6) THAT WE WILL NOT BE ABLE TO COMPLETE FUTURE ACQUISITIONS, THAT WE MAY HAVE DIFFICULTIES INTEGRATING ACQUIRED BUSINESSES, OR THAT
THE COST OF SUCH INTEGRATION WILL BE GREATER THAN WE EXPECT, AND (7) THAT SOME OTHER UNFORESEEN DIFFICULTIES OCCUR, AS WELL AS THOSE RISKS SET FORTH IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2006, AND OUR OTHER FILINGS
WITH THE SEC. THIS LIST IS INTENDED TO IDENTIFY ONLY CERTAIN OF THE PRINCIPAL FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN. FORWARD-LOOKING STATEMENTS RELATING TO
EXPECTATIONS ABOUT FUTURE RESULTS OR EVENTS ARE BASED UPON INFORMATION AVAILABLE TO US AS OF TODAYS DATE, AND WE DO NOT ASSUME ANY OBLIGATION TO UPDATE ANY OF THESE STATEMENTS

For convenience in this quarterly report, Knology, we, us, and the Company refer to Knology, Inc. and
our consolidated subsidiaries, taken as a whole.

Overview

We are a fully integrated provider of video, voice, data and advanced communications services to residential and business customers in nine markets in the southeastern United States, as well as two markets in South
Dakota. We provide a full suite of video, voice and data services in Huntsville and Montgomery, Alabama; Panama City and portions of Pinellas County, Florida; Augusta, Columbus and West Point, Georgia; Charleston, South Carolina; Knoxville,
Tennessee; and Rapid City and Sioux Falls, South Dakota, as well as portions of Minnesota and Iowa. Our primary business is the delivery of bundled communication services over our own network. In addition to our bundled package offerings, we sell
these services on an unbundled basis.

We have built our business through:



| |  |  | acquisitions of cable systems;
| | - |  | ------------------------------



| |  |  | upgrades of acquired networks to introduce expanded broadband services including bundled video, voice and data services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | construction and expansion of our broadband network to offer integrated video, voice and data services; and
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | organic growth of connections through increased penetration of services to new marketable homes and our existing customer base.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

The following is a discussion of our consolidated financial condition and results of operations for the six months ended June 30, 2007, and certain
factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this Form 10-Q.

Acquisition

On April 3, 2007, the Company
completed its acquisition of PrairieWave Holdings, Inc., a voice, video and high-speed internet broadband services provider in the Rapid City and Sioux Falls, South Dakota regions, as well as portions of Minnesota and Iowa. The Companys
purchase of PrairieWave Holdings, Inc. is a strategic acquisition that combines companies with similar business models and philosophies such as:



| |  |  | operating in secondary and tertiary markets
| | - |  | -------------------------------------------



| |  |  | servicing bundled customers
| | - |  | ---------------------------



| |  |  | providing solid financial margins
| | - |  | ---------------------------------



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| |  |  | delivering industry-leading customer service
| | - |  | --------------------------------------------

The
Company used the $555 million proceeds of the Amended and Restated Credit Agreement to fund the $255 million purchase price and related transaction costs of the PrairieWave acquisition, as well as refinance all amounts outstanding under the
Companys existing credit facilities dated June 29, 2005. The financial position and results of operations for PrairieWave Holdings, Inc. are included in the Companys consolidated statements since the date of acquisition.

The acquisition has been accounted for in accordance with SFAS No. 141, Business Combinations (SFAS No. 141). The total purchase
price for the assets acquired, net of liabilities assumed and including direct acquisition costs was $256.1 million. The Company obtained independent third party valuations of real and personal property and certain acquired intangible assets. The
acquisition was recorded by allocating the costs of assets acquired, including identifiable intangible assets and liabilities assumed, based on fair value at the date of acquisition. The excess of the cost of the acquisition over the net amounts
assigned to the fair value of assets acquired and liabilities assumed is recorded as goodwill. The following table summarizes the allocation of purchase price to the fair values of the assets acquired and liabilities assumed at the date of the
acquisition.



|                                     |  |                             |        
|------------------------------------ |  | --------------------------- | -------
|                                     |  | April 3, 2007(in thousands)
|Assets acquired:                     |  |                             |        
|Accounts receivable, net             |  | $                           | 6,265  
|Prepaid expenses                     |  |                             | 1,363  
|Property, plant and equipment        |  |                             | 197,739
|Investments                          |  |                             | 1,207  
|Goodwill                             |  |                             | 75,274 
|Customer base                        |  |                             | 4,402  
|Intangible assets and other assets   |  |                             | 2,031  
|                                     |  |                             |        
|Total assets acquired                |  |                             | 288,281
|Liabilities assumed:                 |  |                             |        
|Accounts payable                     |  |                             | 7,414  
|Accrued liabilities                  |  |                             | 3,421  
|Unearned revenue                     |  |                             | 3,031  
|Deferred income tax liability        |  |                             | 18,345 
|                                     |  |                             |        
|Total liabilities assumed            |  |                             | 32,211 
|                                     |  |                             |        
|Purchase price, net of cash acquired |  | $                           | 256,070
|                                     |  |                             |        

Homes Passed and Connections

We report homes passed as the number of residential and business units, such as single family homes, apartments and condominium units, passed by our broadband network and listed in our database. Marketable homes
passed are homes passed other than those we believe are covered by exclusive arrangements with other providers of competing services. Because we deliver multiple services to our customers, we report the total number of connections for video, voice
and data rather than the total number of customers. We count each video, voice or data purchase as a separate connection. For example, a single customer who purchases cable television, local telephone and Internet access services would count as
three connections. We do not record the purchase of digital video services by an analog video customer as an additional connection. As we continue to sell bundled services, we expect more of our video customers to purchase voice, data and other
enhanced services in addition to video services. Accordingly, we expect that our number of voice and data connections will grow faster than our video connections and will represent a higher percentage of our total connections in the future.

The following table summarizes the number of marketable homes passed and connections as of June 30, 2006 and 2007.



|                        |  |          |  |          
|----------------------- |  | -------- |  | ---------
|                        |  | JUNE 30,
|                        |  | 2006     |  | 2007     
|Connections:(1)         |  |          |  |          
|Video                   |  | 177,410  |  | 224,766  
|Voice:                  |  |          |  |          
|On-net                  |  | 153,038  |  | 226,035  
|Off-net                 |  | 6,239    |  | 6,077    
|Data                    |  | 114,633  |  | 169,974  
|                        |  |          |  |          
|Total connections       |  | 451,320  |  | 626,852  
|                        |  |          |  |          
|Residential connections |  | 402,175  |  | 542,443  
|Business connections    |  | 49,145   |  | 84,409   
|Homes passed            |  | 962,391  |  | 1,093,448
|Marketable homes passed |  | 753,769  |  | 883,401  



12



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---

|(1) | All of our video and data connections are provided over our networks. Our voice
connections consist of both On-net and Off-net connections. On-net refers to lines provided over our networks. It includes 21,542 and 20,082 lines as of June 30, 2006 and 2007, respectively, using traditional copper
telephone lines. Off-net refers to telephone connections provided over telephone lines leased from third parties.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical
Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States, which require us to make estimates and assumptions. See our consolidated financial statements and related notes thereto contained in our Annual Report on Form 10-K, which contains accounting policies including those that may
involve a higher degree of judgment and complexity and other disclosures required by accounting principles generally accepted in the United States.

Revenues

Our operating revenues are primarily derived from monthly charges for video, voice and internet data services and
other services to residential and business customers. We provide these services over our network. Our products and services involve different types of charges and in some cases a different method of accounting for or recording revenues. Below is a
description of our significant sources of revenue:



| |  |  | Video revenues. Our video revenues consist of fixed monthly fees for expanded basic, premium and digital cable television services, as well as fees from
pay-per-view movies, fees for video-on-demand and events such as boxing matches and concerts that involve a charge for each viewing. Video revenues accounted for approximately 41.6% and 42.8% of our consolidated revenues for the three and six months
ended June 30, 2007, compared to 44.5% and 44.3% for the three and six months ended June 30, 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Voice revenues. Our voice revenues consist primarily of fixed monthly fees for local service and enhanced services, such as call waiting, voice mail and
measured and flat rate long-distance service. Voice revenues accounted for approximately 34.7% and 32.9% of our consolidated revenues for the three and six months ended June 30, 2007, compared to 32.1% and 32.3% for the three and six months
ended June 30, 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data revenues. Our data revenues consist primarily of fixed monthly fees for data service and rental of cable modems. Data revenues accounted for
approximately 22.4% and 22.9% of our consolidated revenues for the three and six months ended June 30, 2007, compared to 22.6% and 22.2% for the three and six months ended June 30, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other revenues. Other revenues result principally from broadband carrier services. Other revenues accounted for approximately 1.3% of our consolidated
revenues for the three and six months ended June 30, 2007, compared to .8% and 1.1% for the three and six months ended June 30, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our ability to increase the number of our connections and, as a result, our revenues is directly affected by the level of competition we face in each of our markets with respect to each of our service offerings:



| |  |  | In providing video services, we currently compete with AT&T, Bright House, Charter, Comcast, Mediacom and Time Warner. We also compete with satellite television
providers such as DirecTV and Echostar. Our other competitors include broadcast television stations and other satellite television companies. We expect in the future to face additional competition from telephone companies providing video services
within their service areas.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In providing local and long-distance telephone services, we compete with the incumbent local phone company and various long-distance providers in each of our
markets. AT&T and Verizon are the incumbent local phone companies in our markets. They offer both local and long-distance services in our markets and are particularly strong competitors. We also compete with providers of long-distance telephone
services, such as AT&T, MCI and Sprint. We also expect an increase in the deployment of VoIP services and expect to continue to compete with Vonage Holding Company, Comcast and other providers.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In providing data services, we compete with traditional dial-up Internet service providers; incumbent local exchange carriers that provide dial-up and DSL services;
providers of satellite-based Internet access services; cable television companies; and providers of wireless high-speed data services. Providing data services is a rapidly growing business and competition is increasing in each of our markets. Some
of our competitors have competitive advantages such as greater experience, resources, marketing capabilities and stronger name recognition.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



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##### Table of Contents

Costs and Expenses

Our operating expenses include direct cost of services, selling, operations and administrative expenses and depreciation and amortization.

Direct costs of services include:



| |  |  | Direct costs of video services. Direct costs of video services consist primarily of monthly fees to the National Cable Television Cooperative and other
programming providers. Programming costs are our largest single cost and we expect this trend to continue. Programming costs as a percentage of video revenue were approximately 52.4% and 51.1% for the three and six months ended June 30, 2007,
compared to 49.3% and 49.4% for the three and six months ended June 30, 2006. We have entered into contracts with various entities to provide programming to be aired on our network. We pay a monthly fee for these programming services, generally
based on the average number of subscribers to the program, although some fees are adjusted based on the total number of subscribers to the system and/or the system penetration percentage. Since programming cost is partially based on numbers of
subscribers, it will increase as we add more subscribers. It will also increase as costs per channel increase over time.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of voice services. Direct costs of voice services consist primarily of transport cost and network access fees. The direct cost of voice services
as a percentage of voice revenues was approximately 16.2% and 16.1% for the three and six months ended June 30, 2007, compared to 16.0% for the three and six months ended June 30, 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of data services. Direct costs of data services consist primarily of transport cost and network access fees. The direct cost of data services as
a percentage of data revenue was approximately 5.0% and 4.4% for the three and six months ended June 30, 2007, compared to 3.1% for the three and six months ended June 30, 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of other services. Direct costs of other services consist primarily of transport cost and network access fees. The direct cost of other services
as a percentage of other revenue was approximately 13.1% and 14.8% for the three and six months ended June 30, 2007, compared to 22.1% and 18.8% for the three and six months ended June 30, 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pole attachment and other network rental expenses. Pole attachment and other network rental expenses consist primarily of pole attachment rents paid to
utility companies for space on their utility poles to deliver our various services and network hub rents. Pole attachment and other network rental expenses as a percentage of total revenue was approximately 1.3% and 1.4% for the three and six months
ended June 30, 2007 and 1.5% for the three and six months ended June 30, 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Relative to our current product
mix, we expect voice and data revenue will become larger percentages of our overall revenue, and potentially will provide higher gross profits. Based on the anticipated changes in our revenue mix, we expect that our consolidated cost of services as
a percentage of our consolidated revenues will decrease.

Selling, operations and administrative expenses include:



| |  |  | Sales and marketing expenses. Sales and marketing expenses include the cost of sales and marketing personnel and advertising and promotional expenses.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Network operations and maintenance expenses. Network operations and maintenance expenses include payroll and departmental costs incurred for network design,
24/7 maintenance monitoring and plant maintenance activity.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Service and installation expenses. Service and installation expenses include payroll and departmental costs incurred for customer installation and service
technicians.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customer service expenses. Customer service expenses include payroll and departmental costs incurred for customer service representatives and customer
service management, primarily at our centralized call center.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and administrative expenses. General and administrative expenses consist of corporate and subsidiary management and administrative costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

Depreciation and amortization expenses include depreciation of our interactive broadband networks and equipment and
amortization of costs in excess of net assets and other intangible assets related to acquisitions.

As our sales and marketing efforts
continue and our networks expand, we expect to add customer connections resulting in increased revenue. We also expect our cost of services and operating expenses to increase as we add connections and grow our business.



14



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##### Table of Contents

Results of Operations

Three months ended June 30, 2007 compared to three months ended June 30, 2006

The following table sets forth
financial data as a percentage of operating revenues for the three months ended June 30, 2006 and 2007.



|                                                   |  |                            |   |  |      |  
|-------------------------------------------------- |  | -------------------------- | - |  | ---- | -
|                                                   |  | Three months endedJune 30, |  
|                                                   |  | 2006                       |   |  | 2007 |  
|Operating revenues:                                |  |                            |   |  |      |  
|Video                                              |  | 45                         | % |  | 42   | %
|Voice                                              |  | 32                         |   |  | 35   |  
|Data                                               |  | 22                         |   |  | 22   |  
|Other                                              |  | 1                          |   |  | 1    |  
|                                                   |  |                            |   |  |      |  
|Total                                              |  | 100                        |   |  | 100  |  
|Operating expenses:                                |  |                            |   |  |      |  
|Direct costs                                       |  | 30                         |   |  | 30   |  
|Selling, operating and administrative              |  | 45                         |   |  | 40   |  
|Depreciation and amortization                      |  | 26                         |   |  | 24   |  
|Capital markets activity                           |  | 2                          |   |  | 0    |  
|                                                   |  |                            |   |  |      |  
|Total                                              |  | 103                        |   |  | 94   |  
|                                                   |  |                            |   |  |      |  
|Operating loss                                     |  | (3                         | ) |  | 6    |  
|                                                   |  |                           
|Interest income                                    |  | 0                          |   |  | 0    |  
|Interest expense                                   |  | (14                        | ) |  | (12  | )
|Loss on debt extinguishment                        |  | 0                          |   |  | (30  | )
|Gain (loss) on interest rate hedge instrument      |  | 2                          |   |  | (0   | )
|Loss on adjustment of warrants to market agreement |  | 0                          |   |  | (0   | )
|Other expenses, net                                |  | 0                          |   |  | 0    |  
|                                                   |  |                            |   |  |      |  
|Total other expense                                |  | (12                        | ) |  | (42  | )
|                                                   |  |                            |   |  |      |  
|Net loss                                           |  | (15                        | ) |  | (36  | )
|Preferred stock dividends                          |  | (1                         | ) |  | (0   | )
|                                                   |  |                            |   |  |      |  
|Net loss attributable to common stockholders       |  | (16                        | ) |  | (36  | )
|                                                   |  |                            |   |  |      |  

Revenues. Operating revenues increased 43.7% from $64.1 million for the three months ended
June 30, 2006, to $92.1 million for three months ended June 30, 2007. Operating revenues from video services increased 34.2% from $28.5 million for the three months ended June 30, 2006, to $38.3 million for the same period in 2007.
Operating revenues from voice services increased 55.3% from $20.6 million for the three months ended June 30, 2006, to $32.0 million for the same period in 2007. Operating revenues from data services increased 42.6% from $14.5 million for the
three months ended June 30, 2006, to $20.6 million for the same period in 2007. Operating revenues from other services increased 127.2% from $533,000 for the three months ended June 30, 2006, to $1.2 million for the same period in 2007.

The increased revenues are due primarily to an increase in the number of connections, from 451,320 as of June 30, 2006, to 626,852 as
of June 30, 2007 and rate increases effective in the first quarter of 2007. The additional connections resulted primarily from the PrairieWave acquisition and:



| |  |  | Continued growth in our bundled customers;
| | - |  | ------------------------------------------



| |  |  | Continued strong growth in business sales; and,
| | - |  | -----------------------------------------------



| |  |  | Continued penetration in our mature markets.
| | - |  | --------------------------------------------

Direct Costs. Direct costs increased 46.3% from $18.9 million for the three months ended June 30, 2006, to $27.6 million for the three months ended June 30, 2007. Direct costs of video services increased 42.6% from $14.1
million for the three months ended June 30, 2006, to $20.1 million for the same period in 2007. Direct costs of voice services increased 57.4% from $3.3 million for the three months ended June 30, 2006 to $5.2 million for the same period
in 2007. Direct costs of data services increased 128.7% from $455,000 for the three months ended June 30, 2006, to $1.0 million for the same period in 2007. Direct costs of other services increased 34.9% from $118,000 for the three months ended
June 30, 2006, to $159,000 for the same period in 2007. Pole attachment and other network rental expenses increased 26.3% from $1.0 million for the three months ended June 30, 2006, to $1.2 million for the same period in 2007. The increase
in direct costs was primarily from the acquisition of PrairieWave. We expect our cost of services to increase as we add more connections. The increase in direct costs of video services are primarily due to the PrairieWave



15



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##### Table of Contents

acquisition and programming costs increases, which have been increasing over the last several years on an aggregate basis due to an increase in subscribers
and on a per subscriber basis due to an increase in costs per program channel. We expect this trend to continue and we may not be able to pass these higher costs on to customers because of competitive factors, which could adversely affect our cash
flow and gross profit. We expect increases in voice, data and other direct costs of services with the additions of leased facilities used to backhaul our traffic to our switching facilities as connections and data capacity requirements increase.

Selling, general and administrative. Our selling, general and administrative increased 26.0% from $29.1 million for the three
months ended June 30, 2006, to $36.7 million for the three months ended June 30, 2007. The increase in our operating costs, included in selling, general and administrative, is consistent with our acquisition of PrairieWave and growth in
connections and customers in 2007, and consists mainly of increases in salaries and wages, sales and marketing and bad debt expense. We incurred one time charges related to travel and other PrairieWave integration costs, included in selling, general
and administrative, of $216,000 for the six months ended June 30, 2007. Our non-cash stock option compensation expense, included in selling, general and administrative, increased from $412,000 for the three months ended June 30, 2006, to
$537,000 for the three months ended June 30, 2007.

Depreciation and amortization. Our depreciation and amortization increased
from $16.5 million for the three months ended June 30, 2006, to $22.0 million for the three months ended June 30, 2007 primarily due to the acquisition of PrairieWave. We expect depreciation and amortization expense to decrease as our
overall capital expenditures decrease and existing long-lived assets become fully depreciated.

Interest expense. Interest expense
increased from $9.0 million for the three months ended June 30, 2006, to $11.1 million for the three months ended June 30, 2007. The increase in interest expense is primarily a result of the amendment of our term loan due to the
PrairieWave acquisition.

Loss on debt extinguishment.We recorded a loss of $27.4 million on the early extinguishment of debt
related to the prepayment penalty payment and writeoff of debt issuance costs for the existing credit facilities for the six months ended June 30, 2007.

Gain (loss) on interest rate hedge instrument. We paid $1.3 million for a hedge instrument, which became effective July 29, 2005 and was scheduled to terminate July 29, 2008. The cap agreement had a
fair value of $1.5 million as of December 31, 2006. We terminated this cap agreement on April 18, 2007 for cash proceeds of $716,000 in connection with our entry into a new hedge agreement with a notional amount of $555 million. See Note 6
(Debt) to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this report. The Company has recorded a loss of $758,000 for the six months ended June 30, 2007.

Loss on the adjustment of warrants to market. During the three months ended June 30, 2006, we adjusted the carrying value of the outstanding
warrants to purchase our common stock to market value based on the published market per share value of our common stock. The published market per share value of our common stock on June 30, 2006 was $9.30 resulting in a $169,000 loss on the
adjustment of warrants to market value. During the three months ended June 30, 2007, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on the published market per share value of our
common stock. The published market per share value of our common stock on June 30, 2007 was $17.37 resulting in a $85,000 loss on the adjustment of warrants to market.

Preferred stock dividends. We issued 35,506 additional shares of the Series AA preferred stock during the three months ended June 30, 2006,
as a stock dividend, and recognized an expense of $355,000 for the three months ended June 30, 2006. All of the outstanding shares of our Series AA preferred stock converted into shares of common stock in June 2006.

Net loss attributable to common stockholders. We incurred a net loss attributable to common stockholders of $10.2 million and $33.0 million for
the three months ended June 30, 2006, and 2007, respectively. We expect net losses to decrease as our business matures.

Six months ended
June 30, 2007 compared to six months ended June 30, 2006

The following table sets forth financial data as a percentage of
operating revenues for the six months ended June 30, 2006 and 2007.



|                                      |  |                          |   |  |      |  
|------------------------------------- |  | ------------------------ | - |  | ---- | -
|                                      |  | Six months endedJune 30, |  
|                                      |  | 2006                     |   |  | 2007 |  
|Operating revenues:                   |  |                          |   |  |      |  
|Video                                 |  | 45                       | % |  | 43   | %
|Voice                                 |  | 32                       |   |  | 33   |  
|Data                                  |  | 22                       |   |  | 23   |  
|Other                                 |  | 1                        |   |  | 1    |  
|                                      |  |                          |   |  |      |  
|Total                                 |  | 100                      |   |  | 100  |  
|Operating expenses:                   |  |                          |   |  |      |  
|Direct costs                          |  | 30                       |   |  | 30   |  
|Selling, operating and administrative |  | 46                       |   |  | 41   |  



16



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##### Table of Contents

|                                                          |  |                          |   |  |      |  
|--------------------------------------------------------- |  | ------------------------ | - |  | ---- | -
|                                                          |  | Six months endedJune 30, |  
|                                                          |  | 2006                     |   |  | 2007 |  
|Depreciation and amortization                             |  | 27                       |   |  | 24   |  
|Refinancing expense                                       |  | 1                        |   |  | 0    |  
|                                                          |  |                          |   |  |      |  
|Total                                                     |  | 104                      |   |  | 95   |  
|                                                          |  |                          |   |  |      |  
|Operating loss                                            |  | (4                       | ) |  | 5    |  
|                                                          |  |                         
|Interest income                                           |  | 0                        |   |  | 0    |  
|Interest expense                                          |  | (14                      | ) |  | (12  | )
|Loss on debt extinguishment                               |  | 0                        |   |  | (17  | )
|Gain (loss) on interest rate hedge agreement              |  | 2                        |   |  | (1   | )
|Gain (loss) on adjustment of warrants to market agreement |  | (0                       | ) |  | (0   | )
|Other income (expenses), net                              |  | (0                       | ) |  | (0   | )
|                                                          |  |                          |   |  |      |  
|Total other expense                                       |  | (12                      | ) |  | (30  | )
|                                                          |  |                          |   |  |      |  
|Net loss                                                  |  | (16                      | ) |  | (25  | )
|Preferred stock dividends                                 |  | (1                       | ) |  | 0    |  
|                                                          |  |                          |   |  |      |  
|Net loss attributable to common stockholders              |  | (17                      | ) |  | (25  | )
|                                                          |  |                          |   |  |      |  

Revenues. Operating revenues increased 27.1% from $126.8 million for the six months ended
June 30, 2006, to $161.1 million for six months ended June 30, 2007. Operating revenues from video services increased 22.7% from $56.2 million for the six months ended June 30, 2006, to $69.0 million for the same period in 2007.
Operating revenues from voice services increased 29.3% from $41.0 million for the six months ended June 30, 2006, to $53.0 million for the same period in 2007. Operating revenues from data services increased 30.9% from $28.2 million for the six
months ended June 30, 2006, to $36.9 million for the same period in 2007. Operating revenues from other services increased 59.6% from $1.4 million for the six months ended June 30, 2006, to $2.2 million for the same period in 2007. The
increase in revenues was primarily from the acquisition of PrairieWave.

Direct Costs. Direct costs increased 28.7% from $37.4
million for the six months ended June 30, 2006, to $48.1 million for the six months ended June 30, 2007. Direct costs of video services increased 27% from $27.8 million for the six months ended June 30, 2006, to $35.2 million for the
same period in 2007. Direct costs of voice services increased 30.7% from $6.5 million for the six months ended June 30, 2006 to $8.6 million for the same period in 2007. Direct costs of data services increased 87.6% from $874,000 for the six
months ended June 30, 2006, to $1.6 million for the same period in 2007. Direct costs of other services increased 25.7% from $256,000 for the six months ended June 30, 2006, to $322,000 for the same period in 2007. Pole attachment and
other network rental expenses increased 19% from $2.0 million for the six months ended June 30, 2006, to $2.3 million for the same period in 2007. The increase in direct costs was primarily from the acquisition of PrairieWave.

Selling, general and administrative. Our selling, general and administrative increased 13.4% from $58.6 million for the six months ended
June 30, 2006, to $66.4 million for the six months ended June 30, 2007. The increase in our operating costs, included in selling, general and administrative, is consistent with our acquisition of PrairieWave and growth in connections and
customers in 2007, and consists mainly of increases in salaries and wages, sales and marketing and bad debt expense. We incurred one time charges related to travel and other PrairieWave integration costs, included in selling, general and
administrative, of $216,000 for the six months ended June 30, 2007. Our non-cash stock option compensation expense, included in selling, general and administrative, decreased from $1.2 million for the six months ended June 30, 2006, to
$995,000 for the six months ended June 30, 2007.

Depreciation and amortization. Our depreciation and amortization increased
from $33.8 million for the six months ended June 30, 2006, to $38.7 million for the six months ended June 30, 2007 primarily due to the PrairieWave acquisition.

Refinancing expense. We incurred one time charges related to the amendment of our first lien credit facility, as arranged by Credit Suisse, of $1.5 million for the six months ended June 30, 2006.

Interest expense. Interest expense increased from $17.7 million for the six months ended June 30, 2006, to $19.2 million for
the six months ended June 30, 2007. The increase in interest expense is primarily a result of the amendment of our term loan for the PrairieWave acquisition.

Loss on debt extinguishment.We recorded a loss of $27.4 million on the early extinguishment of debt related to the prepayment penalty payment and writeoff of debt issuance costs for the existing credit
facilities for the six months ended June 30, 2007.

Gain (loss) on interest rate hedge instrument. We paid $1.3 million for a
hedge instrument, which became effective July 29, 2005 and was scheduled to terminate July 29, 2008. We terminated this hedge instrument on April 18, 2007 for cash proceeds of $716,000 in connection with our entry into a new hedge
agreement with a notional amount of $555 million. See Note 6 Debt. Our interest rate hedge instrument had a fair value of $1.5 million as of December 31, 2005, and $3.4 million as of June 30, 2006, resulting in a derivative gain of $1.9
million. The cap agreement had a fair value of $1.5 million as of December 31, 2006. The Company has recorded a loss of $758,000 for the six months ended June 30, 2007.

Gain (loss) on the adjustment of warrants to market. During the six months ended June 30, 2006, we adjusted the carrying value



17



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##### Table of Contents

of the outstanding warrants to purchase our common stock to market value based on the published market per share value of our common stock. The published
market per share value of our common stock on June 30, 2006 was $9.30 resulting in a $391,000 loss on the adjustment of warrants to market value. During the six months ended June 30, 2007, we adjusted the carrying value of the outstanding
warrants to purchase our common stock to market value based on the published market per share value of our common stock. The published market per share value of our common stock on June 30, 2007 was $17.37 resulting in a $373,000 loss on the
adjustment of warrants to market.

Preferred stock dividends. We issued 74,596 additional shares of the Series AA preferred stock
during the six months ended June 30, 2006 as a stock dividend, and recognized an expense of $747,000 for the six months ended June 30, 2006. All of the outstanding shares of our Series AA preferred stock converted into shares of common
stock in June 2006.

Net loss attributable to common stockholders. We incurred a net loss attributable to common stockholders of
$21.3 million and $40.0 million for the six months ended June 30, 2006, and 2007, respectively.

Liquidity and Capital Resources

Overview.

On June 29, 2005, the Company entered
into a first lien credit agreement and second lien credit agreement providing the Company with aggregate cash proceeds of $280 million. These proceeds, together with cash on hand, were used to repay all amounts outstanding under the Companys
then existing credit facilities and to redeem its 12% senior notes due 2009, which were redeemed on July 29, 2005. The second lien was issued at a discount of 4% for $95 million, which accreted up to a face amount of $99 million on
June 29, 2011.

The first lien credit agreement provided for a five-year senior secured $185 million term loan facility and a $25
million revolving loan and credit facility. The first lien term facility, as amended, bore interest at a LIBOR base rate plus 2.5%, with interest due quarterly. The first lien term facility amortized at a rate of 1.0% per annum, payable
quarterly, and matured on June 29, 2010. We had the ability to prepay amounts outstanding under the first lien term facility prior to maturity, but we were required to pay a premium if we prepay prior to June 29, 2008, except for
prepayments made with the proceeds from the sale of our equity securities.

The second lien credit agreement provided for a six-year senior
secured term loan facility with an aggregate principal amount at maturity of approximately $99 million. On June 29, 2005, we received proceeds of $95 million. Borrowings under the second lien term facility bear interest at a LIBOR base rate
plus 10.0%. This facility did not amortize and the entire unpaid principal amount was due in full on the maturity date of June 29, 2011. We did not have the ability to prepay any amount outstanding prior to June 29, 2008, except for
prepayments made with the proceeds from the sale of our equity securities. If we prepaid any amounts after June 29, 2008 but prior to June 29, 2011, we were required to pay a premium.

On June 30, 2006, we entered into Amendment No. 1 to the first lien credit agreement dated as of June 29, 2005. The amendment reduced the
interest rate on our first lien term loan to LIBOR plus 2.5% from LIBOR plus 5.5%. The amendment also amended certain operating covenants contained in the first lien credit agreement so that they were consistent with those contained in the second
lien credit agreement. In accordance with the provisions of the first lien credit agreement, a 2% pre-payment premium, of approximately $3.5 million, was required with this amendment.

As discussed above, the borrowings under our credit facilities bore interest at variable rates and exposed us to interest rate risk. If interest rates
increased, our debt service obligations on our variable rate debt would also increase even though the amount borrowed remained the same. In 2005, the Company entered into an interest rate hedge instrument for a notional amount of $280 million to cap
its variable LIBOR rate at 5%, mitigating interest rate risk on its first and second lien term loans. On April 18, 2007, the Company unwound its existing interest rate hedge instrument for $716,000 cash proceeds. The Company has recorded a loss
of $758,000 for the six months ended June 30, 2007.

On March 14, 2007, the Company entered into an Amended and Restated Credit
Agreement which provides for a $580 million credit facility, consisting of a $555 million term loan and a $25 million revolving credit facility. On April 3, 2007, the Company received proceeds of the term loan to fund the PrairieWave Holdings,
Inc. acquisition purchase price, refinance the Companys first and second lien credit agreements, and pay transaction costs associated with the transactions. The Company recognized a loss on debt extinguishment of $27.5 million related to the
prepayment penalty and the writeoff of debt issuance costs on the existing credit facilities. The $555 million term loan bears interest at LIBOR plus 2.25% and amortizes at a rate of 1.0% per annum, payable quarterly, with a June 30, 2012
maturity date. As of June 30, 2007, $555 million is outstanding under the term loan and $317,000 is outstanding under the revolving credit facility as unused letter of credits. The credit facility is guaranteed by all of our subsidiaries. The
credit facility is also secured by first liens on all of our assets and the assets of our guarantor subsidiaries. The credit agreement contains customary representations, warranties, various affirmative and negative covenants and customary events of
default.

On May 3, 2007, the Company entered into a new interest rate hedge instrument on a notional amount of $555 million
amortizing 1% annually. The swap agreement fixes 100% of the floating rate at 4.977% until June 30, 2010.

We believe there is
adequate liquidity from cash on hand, cash provided from operations and funds available under a $25 million revolver to meet our capital spending requirements and to execute our current business plan.



18



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##### Table of Contents

As of June 30, 2007 we are in compliance with all of our debt covenants.

Operating, Investing and Financing Activities.

As of
June 30, 2007, we had a net working capital deficit of $10.9 million, compared to a net working capital deficit of $9.7 million as of December 31, 2006.

Net cash provided by operating activities totaled $13.6 million and $31.1 million for the six months ended June 30, 2006 and 2007, respectively. The net cash flow activity related to operations consists primarily
of changes in operating assets and liabilities and adjustments to net income for non-cash transactions including:



| |  |  | depreciation and amortization;
| | - |  | ------------------------------



| |  |  | loss on debt extinguishment
| | - |  | ---------------------------



| |  |  | non-cash stock option compensation;
| | - |  | -----------------------------------



| |  |  | accretion of second term lien loan;
| | - |  | -----------------------------------



| |  |  | non-cash bank loan interest expense;
| | - |  | ------------------------------------



| |  |  | non-cash gain (loss) on interest rate hedge instrument;
| | - |  | -------------------------------------------------------



| |  |  | provision for bad debt;
| | - |  | -----------------------



| |  |  | loss on disposition of assets; and
| | - |  | ----------------------------------



| |  |  | loss on adjustment of warrants to market.
| | - |  | -----------------------------------------

Net cash used by investing activities was $14.8 million and $275.6 million for the six months ended June 30, 2006 and 2007, respectively. Our investing activities for the six months ended June 30, 2006 consisted primarily of $15.9
million of capital expenditures and $128,000 of franchise and other intangible expenditures, partially offset by $73,000 of proceeds from the sale of property and $1.2 million of restricted cash returned. Investing activities for the six months
ended June 30, 2007 consisted of $256.1 million of purchase of acquisition, $20.5 million of capital expenditures, $170,000 of franchise and other intangible expenditures, partially offset by $59,000 of proceeds from the sale of property and
$1.0 million of restricted cash returned.

Net cash used by our financing activities was $4.2 million for the six months ended
June 30, 2006 and net cash provided by financing activities was $255.0 million for the six months ended June 30, 2007. Financing activities for the six months ended June 30, 2006 consisted of $1.1 million in principal payment on debt
and $3.5 million of expenditures relate to the issuance of long-term debt partially offset by $332,000 from the exercise of warrants and stock options.For the six months ended June 30, 2007, financing activities consisted of $270.6
million in principal payment on debt, $18.1 million in penalty payments related to debt refinancing, and $13.3 million of expenditures relate to the issuance of long-term debt, offset by $555,000 million proceeds from long term debt, $1.4 million
from the exercise of stock options and $716,000 proceeds from the unwind on interest rate hedge instrument.

Capital Expenditures

We spent approximately $20.5 million in capital expenditures during the six months ended June 30, 2007, of which $12.3 million related to the
purchase and installation of customer premise equipment, $4.8 million related to plant extensions and enhancements and $3.4 million related to network equipment, billing and information systems and other capital items.

We expect to spend approximately $39 million in capital expenditures during 2007. We believe we will have sufficient cash on hand and cash from
internally generated cash flow to cover our planned operating expenses, capital expenditures and service our debt during 2007. The credit agreements and covenants on our new debt limit the amount of our capital expenditures on an annual basis.

On April 3, 2007, the Company completed its acquisition of PrairieWave Holdings, a voice, video and high-speed internet broadband
services provider in the Rapid City and Sioux Falls, South Dakota regions, as well as portions of Minnesota and Iowa. The Company used the proceeds from the $555 million term loan to fund the $255 million purchase price and related transaction costs
for the PrairieWave acquisition.

We do not intend to expand into other markets or make acquisitions until the required funding is
available. We estimate the cost of constructing our network and funding initial customer premise equipment in new markets to be approximately $750 to $1,000 per home passed. The actual costs of each new market may vary significantly from this range
and will depend on the number of miles of network to be constructed, the geographic and demographic characteristics of the city, population density, costs associated with the cable franchise in each city, the number of customers in each city, the
mix of services purchased, the cost of customer premise equipment we pay for or finance, utility requirements and other factors.



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Recent Accounting Pronouncements

See our notes to condensed consolidated financial statements elsewhere in this filing and related notes thereto contained in our Annual Report on Form 10-K.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We are exposed to market risk from changes in interest rates. We manage our exposure to this market risk through our regular operating and financing activities. Derivative instruments, if used, are employed as risk management tools and not
for trading purposes.

We have adopted FASB Statement No. 133 (subsequently amended by SFAS Nos. 137 and 138), Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133). This statement requires that all derivatives be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in fair value be
recognized currently in earnings unless specific hedge accounting criteria are met. During the third quarter of 2005, we entered into a hedging agreement to cap our adjustable LIBOR rate at 5%, mitigating interest rate risk on the first and second
lien term loans. On April 18, 2007, the Company unwound its existing interest rate hedge instrument for $716,000 cash proceeds. The Company has recorded a loss of $758,000 for the six months ended June 30, 2007. The changes in the fair
value of the hedge instrument were recorded as a Gain (loss) on interest rate hedge instrument in other income (expense) since the hedge instrument was not designated as a hedge under SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. On May 3, 2007, the Company entered into a new interest rate hedge instrument on a notional amount of $555 million amortizing 1% annually. The hedge instrument fixes 100% of the floating rate at 4.977%
until June 30, 2010. The interest rate hedge instrument is designated as a hedge under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. Changes in the fair value of the hedge instrument are recorded as
Comprehensive Income in the equity section of the balance sheet.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of
Disclosure Controls and Procedures. The Companys management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2007. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30,
2007, the Companys disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



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PART II. OTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------

We are subject to litigation in
the normal course of our business. However, in our opinion, there is no legal proceeding pending against us which would have a material adverse effect on our financial position, results of operations or liquidity. We are also a party to regulatory
proceedings affecting the segments of the communications industry generally in which we engage in business.



|ITEM 1A. | Risk Factors
|-------- | ------------

In addition to the other information
set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business,
financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating results.



|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None



|ITEM 3. | Default Upon Senior Securities
|------- | ------------------------------

None



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

On May 2,
2007, we held our annual meeting of stockholders. At the meeting, our stockholders:



| |  |  | approved the ratification of the appointment of BDO Seidman, LLP as our independent registered public accounting firm for the fiscal year ending December 31,
2007 (with 30,340,874 shares voting in favor, 72,315 shares voting against and 3,351 shares abstaining);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | re-elected Mr. Alan A. Burgess (with 29,914,117 shares voting in favor and 502,423 shares withholding authority) to our Board of Directors, to serve until
the 2009 annual meeting of stockholders and until his successor is duly elected and qualified; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | re-elected Mr. Donald W. Burton and Mr. William H. Scott, III (with 29,869,300 shares voting in favor and 547,240 shares withholding authority)
to our Board of Directors, to serve until the 2010 annual meeting of stockholders and until their respective successors are duly elected and qualified:
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The other directors, whose terms of office continued after the annual meeting, are: Eugene I. Davis, O. Gene Gabbard, Rodger L. Johnson and Campbell N. Lanier.



|ITEM 5. | Other Information
|------- | -----------------

None



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|ITEM 6. | Exhibits
|------- | --------



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.1            |  | Amended and Restated Certificate of Incorporation of Knology, Inc. (Incorporated herein by reference to Exhibit 3.1 to Knology, Inc.s Quarterly Report Form 10-Q for the period ended
June 30, 2004).                                                                                                                                                                                                                                                                                                                                                                                 
|               | 
|3.3            |  | Certificate of Designations of Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Series X Junior Participating Preferred Stock of Knology, Inc. (Incorporated herein
by reference to Exhibit 3.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005).                                                                                                                                                                                                                                                                                        
|               | 
|3.4            |  | Bylaws of Knology, Inc. (Incorporated herein by reference to Exhibit 3.2 to Knology Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                                                                                                                                                                                                                                                                                                                                                                                                                                   
|               | 
|4.1            |  | Shareholder Protection Rights Agreement, dated as of July 27, 2005, by and between Knology, Inc. and Wachovia Bank, N.A., acting as Rights Agent (which includes as Exhibit A thereto the
Form of Rights Certificate) (Incorporated herein by reference to Exhibit 4.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005).                                                                                                                                                                                                                                             
|               | 
|10.1           |  | Amended and Restated Credit Agreement, dated as of March 14, 2007, by and among Knology, Inc., the Lenders and Issuers party thereto (as defined therein), Credit Suisse, as
Administrative Agent and Collateral Agent, Jefferies & Company, Inc., as Syndication Agent, Royal Bank of Canada and CIT Lending Services Corporation, as Co-Documentation Agents, and Credit Suisse Securities (USA) LLC, as Sole Bookrunner and
Sole Lead Arranger (Incorporated herein by reference to Exhibit 10.1 to Knology, Inc.s Quarterly Report Form 10-Q for the period ended March 31, 2007).
|               | 
|10.2           |  | Revolving Note dated as of April 3, 2007 in favor of Royal Bank of Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|               | 
|10.3           |  | Revolving Note dated as of April 3, 2007 in favor of CoBank, ACB.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|               | 
|10.4           |  | Amended and Restated Pledge and Security Agreement, dated as of April 3, 2007, by and among Knology, Inc., as a Grantor and each other Grantor from time to time party thereto and Credit
Suisse, Cayman Islands Branch, as Collateral Agent.                                                                                                                                                                                                                                                                                                                                          
|               | 
|10.5           |  | Amended and Restated Trademark Security Agreement, dated as of April 3, 2007, by and among Knology, Inc., Knology Broadband, Inc, Valley Telephone Co., LLC, Black Hills FiberCom, LLC and
PrairieWave Communications, Inc., each as a Grantor and each other Grantor from time to time party thereto and Credit Suisse, acting through its Cayman Islands Branch, as Collateral Agent.                                                                                                                                                                                                
|               | 
|10.6           |  | Amended and Restated Guaranty, dated as of April 3, 2007, executed by each Guarantor from time to time party thereto in favor of the Administrative Agent, the Collateral Agent, each
Lender, each Issuer and each other holder of an Obligation.                                                                                                                                                                                                                                                                                                                                      
|               | 
|31.1           |  | Certification of Chief Executive Officer of Knology, Inc. pursuant to Securities Exchange Act Rules 13a-14.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|               | 
|31.2           |  | Certification of Chief Financial Officer of Knology, Inc. pursuant to Securities Exchange Act Rules 13a-14.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|               | 
|32.1           |  | Statement of the Chief Executive Officer of Knology, Inc. pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|               | 
|32.2           |  | Statement of the Chief Financial Officer of Knology, Inc. pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.



|               |  |  |  |               |  |                                      
|-------------- |  |  |  | ------------- |  | -------------------------------------
|               |  |  |  | KNOLOGY, INC.
|               |  |  | 
|August 9, 2007 |  |  |  | By:           |  | /s/ Rodger L. Johnson                
|               |  |  |  |               |  | Rodger L. Johnson                    
|               |  |  |  |               |  | President and Chief Executive Officer
|               |  |  | 
|August 9, 2007 |  |  |  | By:           |  | /s/ M. Todd Holt                     
|               |  |  |  |               |  | M. Todd Holt                         
|               |  |  |  |               |  | Chief Financial Officer              



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