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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q



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



FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004



COMMISSION FILE NUMBER: 000-32647



KNOLOGY, INC.

(Exact name of
registrant as specified in its charter)



|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                      |  | 58-2424258                          
|(State or other jurisdiction ofincorporation 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



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 an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No x



As of April 30, 2004, we had 21,514,527 shares of common stock and
2,170,127 shares of non-voting common stock outstanding.



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KNOLOGY, INC. AND SUBSIDIARIES

QUARTER ENDED MARCH 31, 2004



INDEX



|        |  |                                                                                       |  |     
|------- |  | ------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                       |  | PAGE
|PART I  |  | FINANCIAL INFORMATION                                                                 |  |     
|        |  |                                                                                      
|ITEM 1  |  | FINANCIAL STATEMENTS                                                                  |  | 2   
|        |  | Condensed Consolidated Balance Sheets                                                 |  | 2   
|        |  | Condensed Consolidated Statements of Operations                                       |  | 3   
|        |  | Condensed Consolidated Statement of Cash Flows                                        |  | 4   
|        |  | Notes to Condensed Consolidated Financial Statements                                  |  | 5   
|ITEM 2  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 8   
|ITEM 3  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 16  
|ITEM 4  |  | CONTROLS AND PROCEDURES                                                               |  | 17  
|        |  |                                                                                      
|PART II |  | OTHER INFORMATION                                                                     |  |     
|        |  |                                                                                      
|ITEM 1  |  | LEGAL PROCEEDINGS                                                                     |  | 18  
|ITEM 2  |  | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES      |  | 18  
|ITEM 3  |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 18  
|ITEM 4  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 18  
|ITEM 5  |  | OTHER INFORMATION                                                                     |  | 18  
|ITEM 6  |  | EXHIBITS AND REPORTS ON FORM 8-K                                                      |  | 18  



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|ITEM 1. | FINANCIAL STATEMENT
|------- | -------------------



KNOLOGY, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)



|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                                                                                             |  | December 31,2003 |          |   | March 31,2004 |  
|ASSETS                                                                                                                                                                                       |  |                  |          |   |               |   |          |  
|CURRENT ASSETS:                                                                                                                                                                              |  |                  |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                                                                                    |  | $                | 52,021   |   |               | $ | 56,895   |  
|Restricted cash                                                                                                                                                                              |  |                  | 11,314   |   |               |   | 13,381   |  
|Accounts receivable, net of an allowance for doubtful accounts of $1,449 and $972 at December 31, 2003 and March 31, 2004,
respectively                                                      |  |                  | 19,284   |   |               |   | 17,511   |  
|Prepaid expenses and other                                                                                                                                                                   |  |                  | 1,818    |   |               |   | 1,238    |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|Total current assets                                                                                                                                                                         |  |                  | 84,437   |   |               |   | 89,025   |  
|PROPERTY, PLANT AND EQUIPMENT, net                                                                                                                                                           |  |                  | 336,060  |   |               |   | 329,614  |  
|INVESTMENT                                                                                                                                                                                   |  |                  | 1,243    |   |               |   | 1,243    |  
|GOODWILL                                                                                                                                                                                     |  |                  | 40,834   |   |               |   | 40,834   |  
|INTANGIBLE AND OTHER ASSETS, net                                                                                                                                                             |  |                  | 1,138    |   |               |   | 1,647    |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|Total assets                                                                                                                                                                                 |  | $                | 463,712  |   |               | $ | 462,363  |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                         |  |                  |          |   |               |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                                         |  |                  |          |   |               |   |          |  
|Current portion of notes payable                                                                                                                                                             |  | $                | 5,213    |   |               | $ | 6,828    |  
|Accounts payable                                                                                                                                                                             |  |                  | 15,520   |   |               |   | 19,063   |  
|Accrued liabilities                                                                                                                                                                          |  |                  | 9,136    |   |               |   | 8,593    |  
|Unearned revenue                                                                                                                                                                             |  |                  | 11,633   |   |               |   | 11,745   |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|Total current liabilities                                                                                                                                                                    |  |                  | 41,502   |   |               |   | 46,229   |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|NONCURRENT LIABILITIES:                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|Notes payable                                                                                                                                                                                |  |                  | 45,309   |   |               |   | 42,812   |  
|Unamortized investment tax credits                                                                                                                                                           |  |                  | 39       |   |               |   | 23       |  
|Senior unsecured notes, net of discount                                                                                                                                                      |  |                  | 225,037  |   |               |   | 232,272  |  
|Warrants                                                                                                                                                                                     |  |                  | 932      |   |               |   | 711      |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|Total noncurrent liabilities                                                                                                                                                                 |  |                  | 271,317  |   |               |   | 275,818  |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|Total liabilities                                                                                                                                                                            |  |                  | 312,819  |   |               |   | 322,047  |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|COMMITMENTS AND CONTINGENCIES (Note 9)                                                                                                                                                       |  |                  |          |   |               |   |          |  
|STOCKHOLDERS EQUITY:                                                                                                                                                                        |  |                  |          |   |               |   |          |  
|Common stock, $.01 par value per share; 175,000,000 shares authorized, 20,605,430 and 21,514,527 shares issued and outstanding at December 31,
2003 and March 31, 2004, respectively         |  |                  | 207      |   |               |   | 216      |  
|Non-voting common stock, $.01 par value per share; 25,000,000 shares authorized, 2,170,127 and 2,170,127 shares issued and outstanding at
December 31, 2003 and March 31, 2004, respectively |  |                  | 21       |   |               |   | 21       |  
|Additional paid-in capital                                                                                                                                                                   |  |                  | 548,518  |   |               |   | 556,299  |  
|Accumulated deficit                                                                                                                                                                          |  |                  | (397,853 | ) |               |   | (416,220 | )
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|Total stockholders equity                                                                                                                                                                   |  |                  | 150,893  |   |               |   | 140,316  |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  
|Total liabilities and stockholders equity                                                                                                                                                   |  | $                | 463,712  |   |               | $ | 462,363  |  
|                                                                                                                                                                                             |  |                  |          |   |               |   |          |  



See notes to condensed
consolidated financial statements.



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KNOLOGY, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



|                                                            |  |                             |         |   |      |   |            |  
|----------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ---------- | -
|                                                            |  | Three Months EndedMarch 31, |        
|                                                            |  | 2003                        |         |   | 2004 |  
|OPERATING REVENUES                                          |  | $                           | 40,687  |   |      | $ | 53,794     |  
|                                                            |  |                             |         |   |      |   |            |  
|OPERATING EXPENSES:                                         |  |                             |         |   |      |   |            |  
|Costs and expenses, excluding depreciation and amortization |  |                             | 34,329  |   |      |   | 44,759     |  
|Depreciation and amortization                               |  |                             | 19,420  |   |      |   | 19,261     |  
|Expenses associated with capital market activities          |  |                             | 0       |   |      |   | 412        |  
|Non-cash stock option compensation                          |  |                             | 427     |   |      |   | 477        |  
|Litigation fees                                             |  |                             | 199     |   |      |   | 0          |  
|                                                            |  |                             |         |   |      |   |            |  
|                                                            |  |                             | 54,375  |   |      |   | 64,909     |  
|                                                            |  |                             |         |   |      |   |            |  
|OPERATING LOSS                                              |  |                             | (13,688 | ) |      |   | (11,115    | )
|OTHER INCOME (EXPENSE):                                     |  |                             |         |   |      |   |            |  
|Interest income                                             |  |                             | 113     |   |      |   | 159        |  
|Interest expense                                            |  |                             | (6,980  | ) |      |   | (7,783     | )
|Gain on adjustment of warrants to fair market value         |  |                             | 0       |   |      |   | 221        |  
|Other income, net                                           |  |                             | 86      |   |      |   | 128        |  
|                                                            |  |                             |         |   |      |   |            |  
|                                                            |  |                             | (6,781  | ) |      |   | (7,275     | )
|                                                            |  |                             |         |   |      |   |            |  
|LOSS BEFORE INCOME TAXES                                    |  |                             | (20,469 | ) |      |   | (18,390    | )
|INCOME TAX BENEFIT                                          |  |                             | 0       |   |      |   | 24         |  
|                                                            |  |                             |         |   |      |   |            |  
|NET LOSS                                                    |  | $                           | (20,469 | ) |      | $ | (18,366    | )
|                                                            |  |                             |         |   |      |   |            |  
|BASIC AND DILUTED NET LOSS PER SHARE                        |  | $                           | (406.69 | ) |      | $ | (0.78      | )
|                                                            |  |                             |         |   |      |   |            |  
|BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF                |  |                             |         |   |      |   |            |  
|SHARES OUTSTANDING                                          |  |                             | 50,331  |   |      |   | 23,552,210 |  
|                                                            |  |                             |         |   |      |   |            |  



See notes to condensed
consolidated financial statements.



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KNOLOGY, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



(DOLLARS IN THOUSANDS)



|                                                                                |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                |  | Three Months EndedMarch 31, |        
|                                                                                |  | 2003                        |         |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                             |         |   |      |   |         |  
|Net loss                                                                        |  | $                           | (20,469 | ) |      | $ | (18,366 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Depreciation and amortization                                                   |  |                             | 19,420  |   |      |   | 19,261  |  
|Non-cash stock option compensation                                              |  |                             | 427     |   |      |   | 477     |  
|Gain on adjustment of warrants to fair market value                             |  |                             | 0       |   |      |   | (221    | )
|Non-cash bond interest expense                                                  |  |                             | 6,326   |   |      |   | 7,235   |  
|Provision for bad debt                                                          |  |                             | 1,166   |   |      |   | 1,098   |  
|Loss (gain) on disposition of assets                                            |  |                             | 2       |   |      |   | (22     | )
|Changes in operating assets and liabilities:                                    |  |                             |         |   |      |   |         |  
|Accounts receivable                                                             |  |                             | (1,321  | ) |      |   | 675     |  
|Prepaid expenses and other                                                      |  |                             | 79      |   |      |   | 134     |  
|Accounts payable                                                                |  |                             | (2,401  | ) |      |   | 3,542   |  
|Accrued liabilities                                                             |  |                             | (2,095  | ) |      |   | (543    | )
|Unearned revenue                                                                |  |                             | 1,159   |   |      |   | 112     |  
|                                                                                |  |                             |         |   |      |   |         |  
|Total adjustments                                                               |  |                             | 22,762  |   |      |   | 31,748  |  
|                                                                                |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                             | 2,293   |   |      |   | 13,382  |  
|                                                                                |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                             |         |   |      |   |         |  
|Capital expenditures                                                            |  |                             | (9,411  | ) |      |   | (12,867 | )
|Expenditures for intangible assets                                              |  |                             | (48     | ) |      |   | (144    | )
|Proceeds from sale of assets                                                    |  |                             | 1       |   |      |   | 140     |  
|                                                                                |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                           |  |                             | (9,458  | ) |      |   | (12,871 | )
|                                                                                |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |                             |         |   |      |   |         |  
|Principal payments on debt                                                      |  |                             | (819    | ) |      |   | (883    | )
|Proceeds from issuance of common stock, net of $796 offering costs              |  |                             | 0       |   |      |   | 7,313   |  
|                                                                                |  |                             |         |   |      |   |         |  
|Net cash (used in) provided by financing activities                             |  |                             | (819    | ) |      |   | 6,430   |  
|                                                                                |  |                             |         |   |      |   |         |  
|NET (DECREASE) INCREASE IN CASH                                                 |  |                             | (7,984  | ) |      |   | 6,941   |  
|CASH AT BEGINNING OF PERIOD                                                     |  |                             | 43,913  |   |      |   | 63,335  |  
|                                                                                |  |                             |         |   |      |   |         |  
|CASH AT END OF PERIOD                                                           |  | $                           | 35,929  |   |      | $ | 70,276  |  
|                                                                                |  |                             |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                               |  |                             |         |   |      |   |         |  
|Cash paid during the period for interest                                        |  | $                           | 607     |   |      | $ | 587     |  
|                                                                                |  |                             |         |   |      |   |         |  
|Cash received during the period for income taxes                                |  | $                           |        |   |      | $ | 24      |  
|                                                                                |  |                             |         |   |      |   |         |  



See notes to condensed
consolidated financial statements.



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KNOLOGY, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



MARCH 31, 2004

(UNAUDITED)



(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)



|1. | ORGANIZATION AND NATURE OF BUSINESS
|-- | -----------------------------------



Knology, Inc. (including its predecessors, Knology or the Company) is a publicly traded company incorporated under the laws of the
State of Delaware in September 1998. The purpose of incorporating the Company was to enable ITC Holding Company, Inc. to complete a reorganization of certain of its wholly owned and majority-owned subsidiaries on November 23, 1999.



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 United States.



Our
telephone operations group, consisting of Interstate Telephone Company, Globe Telecommunications, Inc., ITC Globe, Inc., and Valley Telephone Co., Inc. (our 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



|2. | BASIS OF PRESENTATION
|-- | ---------------------



The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted 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. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.
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, 2003.



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, 2004, or any other interim period.



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|3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



RECENT ACCOUNTING PRONOUNCEMENTS



On January 1, 2003, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that a liability be recognized for an
asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. Certain of the Companys franchise agreements and lease agreements contain provisions requiring it to restore facilities or
remove equipment in the event that the franchise or lease agreement is not renewed. The Companys management expects to continually renew these franchise agreements and lease agreements related to the continued operation of its broadband
network, and has concluded that the related franchise right is an indefinite-lived intangible asset. Accordingly, the Companys management has concluded that the timing of the settlement related to any potential asset retirement obligation is
indeterminate. The Company will continually monitor the renewal status of its franchise agreements and its lease agreements. In the unlikely event that it is anticipated that a franchise agreement or lease agreement containing such a provision will
not be renewed and the Company is required to remove its equipment (and accordingly the timing of the settlement related to any potential asset retirement obligation can be estimated), it will record an estimated asset retirement obligation, if
material.



In January 2003, the FASB issued FIN No. 46
Consolidation of Variable Interest Entities. This interpretation of Accounting Research Bulletin 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities that
possess certain characteristics. The interpretation requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity
must be included in the consolidated financial statements with those of the business enterprise. This interpretation applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an
enterprise obtains an interest after that date. We do not have any ownership in any variable interest entities as of March 31, 2004. We will apply the consolidation requirement of the interpretation in future periods if we should own any interest in
any variable interest entity.



In December 2003, the FASB
revised SFAS No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits. The revised statement does not change the measurement or recognition of those plans required by FASB Statements No. 87, No. 88 and
No. 106. It retains and revises employers disclosures about pension plans and other postretirement benefits from the originally issued SFAS No. 132. We expect no material change in our disclosure.



|4. | CASH
|-- | ----



As of March 31, 2004, the Company had $13,381 of cash that was restricted in use. Of this amount, $10,612 was held at the Telephone Operations Group and restricted for use by these entities. Also, the Company has
pledged $2,769 of cash as collateral for amounts potentially payable under certain 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, 2004 impairment test.



Intangible assets as of December 31, 2003 and March 31, 2004, respectively, were as follows:



|                                                                  |  |                  |        |               |   |                            |  |     
|----------------------------------------------------------------- |  | ---------------- | ------ | ------------- | - | -------------------------- |  | ----
|                                                                  |  | December 31,2003 |        | March 31,2004 |   | AmortizationPeriod (Years)
|Customer base                                                     |  | $                | 326    |               | $ | 399                        |  | 3   
|Other                                                             |  |                  | 225    |               |   | 296                        |  | 1-15
|                                                                  |  |                  |        |               |   |                            |  |     
|Gross carrying value of intangible assets subject to amortization |  |                  | 551    |               |   | 695                        |  |     
|Less accumulated amortization                                     |  |                  | 235    |               |   | 304                        |  |     
|                                                                  |  |                  |        |               |   |                            |  |     
|Net carrying value                                                |  |                  | 316    |               |   | 391                        |  |     
|Goodwill                                                          |  |                  | 40,834 |               |   | 40,834                     |  |     
|                                                                  |  |                  |        |               |   |                            |  |     
|Total intangibles, net                                            |  | $                | 41,150 |               | $ | 41,225                     |  |     
|                                                                  |  |                  |        |               |   |                            |  |     



There were no
intangible assets reclassified to goodwill upon adoption of SFAS No. 142.



Amortization expense related to intangible assets was $114 and $69 for the three months ended March 31, 2003 and 2004, respectively.



|6. | LONG-TERM DEBT
|-- | --------------



Long-term debt at December 31, 2003 and March 31, 2004 consists of the following:



|                                                                                                                                                                                                                                                                        |  |                  |         |                |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | -------------- | - | -------
|                                                                                                                                                                                                                                                                        |  | December 31,2003 |         | March 31, 2003
|Senior Unsecured Notes including accrued interest, with a face value of $194,659 bearing interest in-kind at 13% beginning November 6, 2002,
interest payable semiannually at 12% beginning November 30, 2004, with principal and unpaid interest due November 30, 2009 |  | $                | 225,037 |                | $ | 232,272
|Senior secured Wachovia credit facility, at a rate of LIBOR plus 2.5%, interest payable quarterly with remaining principal and any unpaid
interest due June 15, 2006                                                                                                    |  |                  | 15,465  |                |   | 15,465 
|Senior secured CoBank term credit facility, currently at a rate of 7.5%, interest payable quarterly, principal payments due quarterly
beginning July 20, 2002 with final principal and any unpaid interest due April 20, 2011                                           |  |                  | 34,588  |                |   | 33,707 
|Capitalized lease obligation, at a rate of 7%, with monthly principal and interest payments through October 2011                                                                                                                                                        |  |                  | 470     |                |   | 468    
|                                                                                                                                                                                                                                                                        |  |                  | 275,560 |                |   | 281,912
|Less current maturities                                                                                                                                                                                                                                                 |  |                  | 5,213   |                |   | 6,828  
|                                                                                                                                                                                                                                                                        |  | $                | 270,347 |                | $ | 275,084



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As of March 31, 2004, the Company was in compliance with all of its debt covenants.



|7. | EQUITY INTERESTS
|-- | ----------------



On January 13, 2004, pursuant to the exercise of the underwriters over-allotment option, the Company issued approximately 900,000 shares at a per
share price to the public of $9.00, with net proceeds of approximately $7.3 million.



These consolidated financial statements have been revised to give effect to the reverse stock split on November 28, 2003, which was a one-for-ten stock split of our common and non-voting common stock. As a result of
the stock split, each of the outstanding shares of common stock was reclassified as one-tenth (1/10) of a share of common stock and each of the outstanding shares of non-voting common stock was reclassified as one-tenth (1/10) of a share of
non-voting common stock.



|8. | LOSS PER SHARE
|-- | --------------



The Company computes loss per share in accordance with SFAS No. 128, Earnings per Share. Basic loss per share is computed by dividing income from
continuing operations by the weighed-average number of common shares outstanding for the period. Diluted loss per share is computed in the same manner, but also includes the dilutive effect of common stock equivalents and other financial instruments
that are convertible or exercisable for the Companys common stock. For the three months ended March 31, 2003 and 2004, the Company had 18,815,732 and 3,226,237 shares related to stock options and warrants outstanding that were not included in
the computation of diluted loss per share because such effects would have been antidilutive for the respective periods.



|9. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------



LEGAL PROCEEDINGS



In September 2000, the City of Louisville, Kentucky granted Knology of Louisville, Inc., our subsidiary, a cable television franchise. On November 2,
2000, Insight filed a complaint against the City of Louisville in Kentucky Circuit Court in Jefferson County, Kentucky claiming that our franchise was more favorable than Insights franchise. Insights complaint suspended our franchise
until there is a final, nonappealable order in Insights Kentucky Circuit Court case. In April 2001 the City of Louisville moved for summary judgment in Kentucky Circuit Court against Insight. In March 2002, the Kentucky Circuit Court ruled
that Insights complaint had no merit and the Kentucky Circuit Court granted the City of Louisvilles motion to dismiss Insights complaint. Insight appealed the Kentucky Circuit Court order dismissing their complaint and in June 2003
the Kentucky Court of Appeals upheld the Kentucky Circuit Court ruling. Insight sought discretionary review of the Kentucky Court of Appeals ruling by the Kentucky Supreme Court and that request is pending.



On November 8, 2000, we filed an action in the U.S. District Court for the
Western District of Kentucky against Insight seeking monetary damages, declaratory and injunctive relief from Insight and the City arising out of Insights complaint and the suspension of our franchise. In March 2001, the U.S. District Court
issued an order granting our motion for preliminary injunctive relief and denying Insights motion to dismiss. In June 2003, the U.S. District Court ruled on the parties cross motions for summary judgment, resolving certain claims and
setting others down for trial. The U.S. District Court granted our motion for summary judgment based on causation on certain claims. In August 2003, the U.S. District Court granted Insights motion for an immediate interlocutory appeal on
certain issues, which was accepted in October 2003 by the U.S. Court of Appeals for the Sixth Circuit. At this time it is impossible to determine with certainty the ultimate outcome of the litigation.



On November 21, 2001, we filed a complaint against Georgia Power Company
requesting FCC adjudication of a dispute regarding amounts Georgia Power charged us in connection with the construction of our network in Augusta, Georgia. We requested the FCC to review these charges to determine whether they were
reasonable in accordance with FCC pole attachment regulations. We requested reimbursement from Georgia Power of approximately $2.5 million. Georgia Power responded to the FCC complaint by asserting we owed Georgia Power approximately
$900,000 for additional construction-related charges. In May 2003, Georgia Power filed a complaint against Broadband, our subsidiary, in the Superior Court of Troup County, State of Georgia, re-asserting claims for construction related charges.
Georgia Powers claim duplicates its claim pending before the FCC. We responded to Georgia Powers complaint in state court by re-asserting our claims that are currently pending before the FCC. We also sought to remove the state court
action to federal court and moved to dismiss the lawsuit or to stay the action to allow the FCC time to issue its decision. Georgia Power has moved to remand the case to state



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court. On November 20, 2003, the FCC issued an order determining that certain pole attachment fees charged by Georgia Power were improper. At this time, it
is impossible to determine with certainty the ultimate outcome of the litigation.



We are also subject to other 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.



|10. | SEGMENT INFORMATION
|--- | -------------------



The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which established revised standards for
the reporting of financial and descriptive information about operating segments in financial statements.



The Company owns and operates advanced interactive broadband networks and provides residential and business customers broadband communications services,
including analog and digital cable television, local and long distance telephone, and high-speed Internet access, which the Company refers to as video, voice, and data services. We also provide other services including broadband carrier services,
which includes local transport services such as local Internet transport, special access, local private line, and local loop services.



While management of the Company monitors the revenue generated from each of the various broadband services, operations are managed and financial
performance is evaluated based upon the delivery of multiple services to customers over a single network. As a result of multiple services being provided over a single network, many expenses and assets are shared related to providing the various
broadband services to customers. Management believes that any allocation of the shared expenses or assets to the broadband services would be subjective and impractical.



Revenues by broadband communications service are as follows:



|                      |  |                              |        |      |   |       
|--------------------- |  | ---------------------------- | ------ | ---- | - | ------
|                      |  | THREE MONTHS ENDED MARCH 31,
|                      |  | 2003                         |        | 2004
|Video                 |  | $                            | 17,177 |      | $ | 25,414
|Voice                 |  |                              | 16,564 |      |   | 18,048
|Data and other        |  |                              | 6,946  |      |   | 10,332
|                      |  |                              |        |      |   |       
|Consolidated revenues |  | $                            | 40,687 |      | $ | 53,794
|                      |  |                              |        |      |   |       



|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 OUR
SUPPLIERS AND CUSTOMERS MAY REFUSE TO CONTINUE DOING BUSINESS WITH US OR MAY REFUSE TO EXTEND TRADE CREDIT TO US, (3) THAT WE WILL FAIL TO BE COMPETITIVE WITH EXISTING AND NEW COMPETITORS, (4) THAT WE WILL NOT ADEQUATELY RESPOND TO TECHNOLOGICAL
DEVELOPMENTS IMPACTING OUR INDUSTRY AND MARKETS, (5) THAT NEEDED FINANCING WILL NOT BE AVAILABLE, (6) THAT A SIGNIFICANT CHANGE IN THE GROWTH RATE OF THE OVERALL U.S. ECONOMY WILL OCCUR SUCH THAT CONSUMER AND CORPORATE SPENDING ARE MATERIALLY
IMPACTED, (7) 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 (8) 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, 2003, WHICH ARE INCORPORATED HEREIN BY REFERENCE.



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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.



The following is a
discussion of our consolidated financial condition and results of operations for the three months ended March 31, 2004, 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.



Introduction



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. We provide a full suite of video, voice and data services in Huntsville and Montgomery, Alabama; Panama City, Florida; Augusta, Columbus and West Point, Georgia; Charleston, South Carolina; and Knoxville, Tennessee. We
provide video and data services in Pinellas County, Florida, and we provide video services in Cerritos, California. 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 other cable companies, networks and franchises;
| | - | ---------------------------------------------------------------



| |  | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------



To date, we have experienced operating losses as a result of the expansion of
our service territories and the construction of our network. We expect to continue to focus on increasing our customer base and expanding our broadband operations. Our ability to generate profits and positive cash flow from operations will depend in
large part on our ability to increase revenues to offset the costs of construction and operation of our network.



History



On December 23, 2003, we completed a public offering of our common stock. Including the shares issued on January 13, 2004, pursuant to the exercise of the underwriters over-allotment option, we issued 6.9
million shares at a per share price to the public of $9.00, and our net proceeds were approximately $56.3 million.



In December 2003, we also completed the acquisition of certain assets from Verizon Media, including the cable television systems and franchise rights in
Pinellas County, Florida and Cerritos, California. We paid Verizon Media an aggregate of approximately $17.0 million in cash, which was funded with the net proceeds of our common stock offering. In connection with the completion of the Verizon Media
acquisition, we also issued to a prior prospective purchaser and certain of its employees warrants to purchase one million shares of our common stock with an exercise price of $9.00 per share in exchange for the release of the prospective
purchasers exclusivity rights with Verizon Media.



Homes Passed and
Connections



We report homes passed as the number of
residential and business units, such as single residence 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.



9



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As of March 31, 2004, 100% of our video and data connections and over 95% of our voice connections were
provided over our own network. In addition, as of March 31, 2004, more than 70% of our connections were delivered in a bundled offering of two or more of our video, voice and data services. The following table set forth the number of marketable
homes passed and connections as of March 31, 2003 and 2004.



|                        |  |                 |  |        
|----------------------- |  | --------------- |  | -------
|                        |  | AS OF MARCH 31,
|                        |  | 2003            |  | 2004   
|Connections:(1)         |  |                 |  |        
|Video                   |  | 132,385         |  | 178,550
|Voice:                  |  |                 |  |        
|On-net                  |  | 113,899         |  | 121,012
|Off-net                 |  | 5,268           |  | 5,902  
|Data                    |  | 55,000          |  | 75,220 
|                        |  |                 |  |        
|Total connections       |  | 306,552         |  | 380,684
|                        |  |                 |  |        
|Homes passed            |  | 527,511         |  | 943,459
|Marketable homes passed |  | 439,025         |  | 742,717
|                        |  |                 |  |        



|(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 26,018 and 24,526 lines as of March 31, 2003 and 2004, respectively, using traditional copper telephone lines. Off-net refers to telephone connections provided over telephone lines
leased from third parties.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Revenues



We can group our revenues into the following categories:



| |  | 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 47.2% of our consolidated revenues for the three months ended March 31, 2004 compared to 42.2%
for the three months ended March 31, 2003. In providing video services we currently compete with Bright House Networks, Comcast, Time Warner, Mediacom and Charter. We also compete with satellite television providers DirecTV and Echostar. Other
competitors include broadcast television stations and other satellite television companies.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Voice revenues. Our voice revenues consist primarily of fixed monthly fees for local service and enhanced services, such as call waiting and voice mail, and usage fees for
long-distance service. Voice revenues accounted for approximately 33.6% of our consolidated revenues for the three months ended March 31, 2004 compared to 40.7% for the three months ended March 31, 2003. In providing local and long-distance
telephone services, we compete with the incumbent local phone company, competitive local phone companies, various long distance providers and voice over Internet Protocol providers in each of our markets. BellSouth is the incumbent local and long
distance phone company except for Pinellas County, Florida, where Verizon is our competitor, and both are particularly strong competitors in our current markets and throughout the southeastern United States. We also compete with long-distance phone
companies such as AT&T, WorldCom, BellSouth and Sprint.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Data revenues and other revenues.Our data revenues consist primarily of fixed monthly fees for data service and rental of cable modems. Other revenues result principally
from broadband carrier services and video production services. These combined revenues accounted for approximately 19.2% of our consolidated revenues for the three months ended March 31, 2004 compared to 17.1% for the three months ended March 31,
2003. 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. In providing data services, we compete with traditional dial-up Internet service providers; incumbent local exchange providers that provide dial-up and DSL services subscriber lines; providers of satellite-based Internet access
services; long-distance telephone companies; and cable television companies. We also compete with providers of wireless high-speed data services.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We expect the growth of new video connections to decrease as the video segment matures in our current
markets. While the number of new video connections may decrease, management feels that opportunity to increase revenue and margins is available with the introduction of new products and new technology. New voice and data connections are expected to
increase with sales and marketing efforts directed at selling new customers a bundle of services, penetrating untapped market segments and offering new services to existing and new customers.



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



Cost of services include:



| |  | Video cost of services.Video cost of services consists primarily of monthly fees to the National Cable Television Cooperative and other programming providers and are
generally based on the average number of subscribers to each program. Programming costs are our largest single cost and we expect this trend to continue. Programming costs as a percentage of video revenue were approximately 48.8% for the three ended
March 31, 2004 compared to the 47.9% for the three months ended March 31, 2003. 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Voice cost of services.Voice cost of services consists primarily of transport cost and network access fees. The voice cost of services as a percentage of voice
revenues were approximately 16.0% for the three ended March 31, 2004 compared to the 17.7% for the three months ended March 31, 2003.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Data and other cost of services.Data and other cost of services consist primarily of transport cost and network access fees. The data and other cost of services as a
percentage of data and other revenue were approximately 4.8% for the three months ended March 31, 2004 compared to the 5.8% for the three months ended March 31, 2003. The decrease in data cost of services as a percentage of revenue for the three
months ended March 31, 2004 resulted from price increases for our data products in 2004 and the grooming of our network for increased capacity at reduced costs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 margins. Based on the anticipated changes in our revenue mix, we expect that our consolidated cost of service as a percentage of our consolidated revenue 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 maintenance monitoring and
maintenance.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Service and installation expenses. Service and installation expenses include payroll and departmental cost incurred for customer installation and service personnel.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Customer service expenses. Customer service expenses include payroll and departmental costs incurred for customer service representatives and management.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 operating expenses, including depreciation and amortization, to increase as we expand our networks and business.



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We have experienced operating losses as a result of the expansion of our advanced broadband
communications networks and services into new and existing markets. We expect to continue to focus on increasing our customer base and expanding our broadband operations. Accordingly, we expect that our operating expenses and capital expenditures
will continue to increase as we extend our interactive broadband networks in existing and new markets in accordance with our business plan.



RESULTS OF OPERATIONS



THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004



The following table sets forth financial data as a percentage of operating revenues for the three months ended March 31, 2003 and 2004.



|                                      |  |                              |    |  |      |   
|------------------------------------- |  | ---------------------------- | -- |  | ---- | --
|                                      |  | THREE MONTHS ENDED MARCH 31, |   
|                                      |  | 2003                         |    |  | 2004 |   
|Operating revenues:                   |  |                              |    |  |      |   
|Video                                 |  | 42                           | %  |  | 47   | % 
|Voice                                 |  | 41                           |    |  | 34   |   
|Data                                  |  | 17                           |    |  | 19   |   
|                                      |  |                              |    |  |      |   
|Total                                 |  | 100                          |    |  | 100  |   
|Cost of services:                     |  |                              |    |  |      |   
|Video                                 |  | 20                           |    |  | 23   |   
|Voice                                 |  | 7                            |    |  | 5    |   
|Data                                  |  | 1                            |    |  | 1    |   
|                                      |  |                              |    |  |      |   
|Total                                 |  | 28                           |    |  | 29   |   
|Gross profit                          |  |                              |    |  |      |   
|Video                                 |  | 22                           |    |  | 24   |   
|Voice                                 |  | 34                           |    |  | 29   |   
|Data                                  |  | 16                           |    |  | 18   |   
|                                      |  |                              |    |  |      |   
|Total                                 |  | 72                           |    |  | 71   |   
|Operating expenses:                   |  |                              |    |  |      |   
|Selling, operating and administrative |  | 56                           |    |  | 54   |   
|Depreciation and amortization         |  | 48                           |    |  | 35   |   
|Reorganization professional fees      |  | 0                            |    |  | 1    |   
|Non-cash stock option compensation    |  | 0                            |    |  | 1    |   
|Litigation fees                       |  | 1                            |    |  | 0    |   
|                                      |  |                              |    |  |      |   
|Total                                 |  | 105                          |    |  | 91   |   
|                                      |  |                              |    |  |      |   
|Operating loss                        |  | (33                          | )  |  | (20  | ) 
|Other income and (expense)            |  | (17                          | )  |  | (14  | ) 
|                                      |  |                              |    |  |      |   
|Loss before income taxes              |  | (50                          | )  |  | (34  | ) 
|Income tax benefit (provision)        |  | 0                            |    |  | 0    |   
|                                      |  |                              |    |  |      |   
|Net loss                              |  | (50                          | )% |  | (34  | )%
|                                      |  |                              |    |  |      |   



Revenues.
Operating revenues increased 32.2% from $40.7 million for the three months ended March 31, 2003, to $53.8 million for the three months ended March 31, 2004. Operating revenues from video services increased 48.0% from $17.2 million for the three
months ended March 31, 2003, to $25.4 million for the same period in 2004. Operating revenues from voice services increased 9.0% from $16.6 million for the three months ended March 31, 2003, to $18.0 million for the same period in 2004. Operating
revenues from data and other services increased 48.7% from $6.9 million for the three months ended March 31, 2003, to $10.4 million for the same period in 2004.



The increased revenues from video, voice and data and other services are due primarily to an increase in the number of connections, from 306,552 as of
March 31, 2003, to 380,684 as of March 31, 2004. Rate increases accounted for approximately



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8% of the increased revenues for the three months ended March 31, 2004, and the increase in the number of connections accounted for approximately 92% of the
increased revenue for the same period. The additional connections resulted primarily from:



| |  | The acquisition of certain cable system assets in Cerritos, California and Pinellas County, Florida from Verizon Media which provided an additional 58,422 connections.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | New service offerings specifically marketed to increase sales and penetration.
| | - | ------------------------------------------------------------------------------



| |  | The continued construction of the broadband network in the Knoxville market.
| | - | ----------------------------------------------------------------------------



We expect the rate of growth in the number of new video connections to decrease as the video segment matures in our current markets. While the number
of new video connections may decrease, we believe that the opportunity to increase revenue and video gross profits is available through the introduction of new products and new technology. New voice and data connections are expected to increase with
sales and marketing efforts directed at selling customers a bundle of services, penetrating untapped market segments and offering new services. 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 consolidated revenues will decrease. As our markets
mature and the opportunity to grow connections in our current network becomes more limited, with internally generated funds or additional equity infusions, we may seek to expand our network through acquisitions or additional network buildout.



Cost of services. Cost of services increased 36.5% from
$11.6 million for the three months ended March 31, 2003, to $15.8 million for the three months ended March 31, 2004. Cost of services for video services increased 50.8% from $8.2 million for the three months ended March 31, 2003, to $12.4 million
for the same period in 2004. Cost of services for voice services decreased 1.5% from $2.9 million for the three months ended March 31, 2003, to $2.9 million for the same period in 2004. Cost of services for data and other services increased 21.5%
from $405,000 for the three months ended March 31, 2003, to $493,000 million for the same period in 2004. We expect our cost of services to continue to increase as we add more connections. Programming costs, which are our largest single expense
item, 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. We may not be able to
pass these higher costs on to customers because of competitive forces, which would adversely affect our cash flow and gross profit.



Gross profit. Gross profit increased 30.5% from $29.1 million for the three months ended March 31, 2003, to $38.0 million for the three months
ended March 31, 2004. Gross profit for video services increased 45.4% from $8.9 million for the three months ended March 31, 2003, to $13.0 million for the same period in 2004. Gross profit for voice services increased 11.2% from $13.7 million for
the three months ended March 31, 2003, to $15.2 million for the same period in 2004. Gross profit for data and other services increased 50.4% from $6.5 million for the three months ended March 31, 2003, to $9.8 million for the same period in 2004.



Operating expenses. Our operating expenses, excluding
depreciation and amortization, increased 30.4% from $34.3 million for the three months ended March 31, 2003, to $44.8 for the three months ended March 31, 2004. The increase in our operating expenses is consistent with the growth in revenues and is
a result of the expansion of our operations and an increase in the number of employees associated with such expansion and growth in our markets. Selling, operations and administrative expenses will continue to increase as we expand into new markets
and our existing markets mature.



Our depreciation and
amortization decreased from $19.4 million for the three months ended March 31, 2003, to $19.3 million for the three months ended March 31, 2004. The decrease in depreciation and amortization resulted from a combination of lower spending for
additions in property, plant, equipment and intangible assets in 2004 and a portion of our long-lived assets becoming fully depreciated. We expect depreciation and amortization expense to increase as we make capital expenditures to extend our
existing networks and build additional networks.



We
have adopted SFAS No. 123 and SFAS No. 148 and recorded a non-cash stock option compensation expense of $427,000 million for the three months ended March 31, 2003 and $477,000 for the three months ended March 31, 2004.



Other income and expense, including interest income and interest
expense. Our total other expenses increased from $6.8 million for the three months ended March 31, 2003, to $7.3 million for the three months ended March 31, 2004. Interest income was $113,000 for the three months ended March 31, 2003, compared
to $159,000 for the same period in 2004. The increase ininterest income primarily reflects a higher average cash balance for the three months ended March 31, 2004. Interest expense



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increased from $7.0 million for the three months ended March 31, 2003, to $7.8 million for the three months ended March 31, 2004. The interest expense is
principally the in-kind interest on our 12% senior notes due 2009.



In the first quarter of 2004, 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 March 31, 2004 was $6.89 resulting in a $221,000 gain on the adjustment of warrants to market value. Other income, net increased from $86,000 for the three months ended March 31, 2003 to $129,000 for the three months ended March
31, 2004.



Income tax benefit. We recorded no income tax
benefit for the three months ended March 31, 2003 and a tax benefit of $24,000 for the three months ended March 31, 2004.



Net loss. We incurred a net loss of $20.5 million and $18.4 million for the three months ended March 31, 2003 and 2004, respectively. We expect net
losses to continue as our business matures.



Liquidity and Capital Resources



As of March 31, 2004, we had net working capital of $42.8 million,
compared to net working capital of $42.9 million as of December 31, 2003. The increase in cash from December 31, 2003 to March 31, 2004, was offset by an increase in the current portion of notes payable and an increase in accounts payable. The
proceeds from the exercise of the underwriters over-allotment option in connection with our public offering of common stock completed in January 2004 generated additional cash, and the completion of the Verizon Media acquisition increased our
payables. We believe we can satisfy all of our anticipated funding requirements, including capital expenditures, through 2004 using a combination of improved cash flow from operations, our cash on hand and the net proceeds of this offering. In order
to satisfy funding requirements, including capital expenditures, beyond 2004, we will need to raise additional capital through equity offerings, assets sales or debt financing, including refinancing our existing debt.



Net cash provided by operations totaled $2.3 million and $13.4 million for
the three months ended March 31, 2003 and 2004, 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;
| | - | ------------------------------



| |  | reorganization professional fees;
| | - | ---------------------------------



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



| |  | gain on adjustment of warrants to market;
| | - | -----------------------------------------



| |  | non-cash bond interest expense;
| | - | -------------------------------



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



| |  | loss on disposition of assets.
| | - | ------------------------------



Net cash used for investing activities was $9.5 million and $12.9 million for the three months ended March 31, 2003 and 2004, respectively. Our investing
activities for the three months ended March 31, 2003 consisted of $9.4 million of capital expenditures, $48,000 in organizational and franchise expenditures partially offset by $1,000 of proceeds from the sale of assets. Our investing activities for
the three months ended March 31, 2004 consisted of $12.9 million of capital expenditures, $144,000 of organizational and franchise expenditures partially offset by $140,000 of proceeds from the sale of assets.



Financing activities used cash of $819,000 for the three months ended March
31, 2003, and provided cash of $6.4 million for the three months ended March 31, 2004. Financing activities for the three months ended March 31, 2003 consisted of $819,000 of principal payments on debt. Financing activities for the three months
ended March 31, 2004 consisted $7.3 million of net proceeds from the exercise of the underwriters over-allotment option of 900,000 shares, partially offset by $883,000 of principal payments on debt.



As of March 31, 2004, we were in compliance with all of our debt covenants.



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Capital Expenditures



We have spent approximately $12.9 million in capital expenditures during 2004 through March 31, and we expect to spend an additional $54.8 million for the
remainder of 2004. Of the capital expenditures through March 31, 2004, $5.6 million relates to network construction and the remainder relates to the purchase of customer premise equipment, such as cable set-top boxes and cable modems, network
equipment, including switching and transport equipment, and billing and information systems. We believe we have sufficient cash on hand and cash from internally generated cash flow to cover our planned operating expenses and capital expenditures
during the remainder of 2004. If we decide to expand our broadband network into new markets (such as in the Louisville, Kentucky or Nashville, Tennessee markets), we would require additional funding to operate and for the capital expenditures
necessary to finance the construction and purchase of customer premise equipment.



We have received franchises to build the network in Louisville, Kentucky and Nashville, Tennessee, although our franchise in Louisville is currently being contested by the incumbent cable provider in that city. We
spent approximately $6.6 million to obtain franchise agreements and perform preliminary construction activity in Louisville and Nashville. The indenture governing our 12% senior notes due 2009 includes a covenant limiting our ability to fund
expansion into new markets, including Louisville and Nashville, from operating cash flows or new borrowings.



We do not intend to expand into Nashville, Louisville or other markets 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.



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. We believe that the following may involve a higher degree of judgment and
complexity.



Revenue recognition. We generate recurring
or multi-period operating revenues, as well as nonrecurring revenues. We recognize revenue in accordance with SEC Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition, requires that the following four basic criteria must be
satisfied before revenues can be recognized:



| |  | There is persuasive evidence that an arrangement exists;
| | - | --------------------------------------------------------



| |  | Delivery has occurred or services rendered;
| | - | -------------------------------------------



| |  | The fee is fixed and determinable; and,
| | - | ---------------------------------------



| |  | Collectibility is reasonably assured.
| | - | -------------------------------------



We base our determination of the third and fourth criteria above on our judgment regarding the fixed nature of the fee we have charged for the services
rendered and products delivered, and the prospect that those fees will be collected. If changes in conditions should cause us to determine that these criteria likely will not be met for certain future transactions, revenue recognized for any
reporting period could be materially affected.



We generate
recurring revenues for our broadband offerings of video, voice and data and other services. Revenues generated from these services primarily consists of a fixed monthly fee for access to cable programming, local phone services and enhanced services
and access to the internet. Additional fees are charged for services including pay-per-view movies, events such as boxing matches and concerts, long distance service and cable modem rental. Revenues are recognized as services are provided and
advance billings or cash payments received in advance of services performed are recorded as deferred revenue.



Allowance for doubtful accounts. We use estimates to determine our allowance for bad debts. These estimates are based on historical collection
experience, current trends, credit policy and a percentage of our customer accounts receivable. In determining these percentages, we look at historical write-offs of our receivables, but our history is limited.



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Plant and equipment. The cost associated with the construction of our broadband transmission and
distribution facilities and new service installations are capitalized. Capitalized costs include all direct labor and materials, as well as some indirect costs. We perform periodic evaluations of any estimates associated with indirect costs and
changes to the estimates, which are significant, are included prospectively in the period in which the evaluations are completed.



Valuation of long-lived and intangible assets and goodwill. We assess the impairment of identifiable long-lived assets and related goodwill
whenever events or changes in circumstances indicate that the carrying value may not be recoverable in accordance with Statement of Financial Accounting Standards, or SFAS No. 121, and beginning January 1, 2002 SFAS No. 144. Factors we consider
important and that could trigger an impairment review include the following:



| |  | Significant underperformance of our assets relative to expected historical or projected future operating results;
| | - | -----------------------------------------------------------------------------------------------------------------



| |  | Significant changes in the manner in which we use our asset or in our overall business strategy; and,
| | - | -----------------------------------------------------------------------------------------------------



| |  | Significant negative industry of economic trends.
| | - | -------------------------------------------------



In July 2001, the FASB issued SFAS No. 144, Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after
December 15, 2001. The provisions of this statement provide a single accounting model for impairment of long-lived assets. We recorded no asset impairment during the three months ended March 31, 2003 and 2004, respectively, in accordance with SFAS
No. 144.



We adopted SFAS No. 142 on January 1, 2002 and have
performed a goodwill impairment test in accordance with SFAS No. 142. As a result of the impairment test in January 2003 and 2004, no impairments were identified.



The foregoing list in not intended to be a comprehensive list of all of our accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for us to judge the application. There are also areas in which our judgment in selecting any
available alternative would not produce a materially different result. See our consolidated financial statements and related notes thereto included elsewhere in this annual report, which contain accounting policies and other disclosures required by
accounting principles generally accepted in the United States.



Recent
Accounting Pronouncements



In January 2003, the FASB
issued FIN No. 46 Consolidation of Variable Interest Entities. This interpretation of Accounting Research Bulletin 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest
entities that possess certain characteristics. The interpretation requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable
interest entity must be included in the consolidated financial statements with those of the business enterprise. This interpretation applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities
in which an enterprise obtains an interest after that date. We do not have any ownership in any variable interest entities as of March 31, 2004. We will apply the consolidation requirement of the interpretation in future periods if we should own any
interest in any variable interest entity.



In December 2003,
the FASB revised SFAS No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits. The revised statement does not change the measurement or recognition of those plans required by FASB Statements No. 87,
No. 88 and No. 106, it retains and revises employers disclosures about pension plans and other postretirement benefits from the originally issued SFAS No. 132. We expect no material change in our disclosure.



|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 are not currently used and, if used, are employed as risk management tools and not for trading purposes.

We have no derivative financial instruments outstanding to hedge interest rate risk. Our only borrowings subject to market conditions are our borrowings under our credit facilities, which are based on either a prime or federal funds rate
plus



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applicable margin or LIBOR plus applicable margin. Any changes in these rates would affect the rate at which we could borrow funds under our bank credit
facilities. A hypothetical 10% increase in interest rates on our variable rate bank debt for the duration of one year would increase interest expense by an immaterial amount.



|ITEM 4. | CONTROL AND PROCEDURES
|------- | ----------------------



Based on an evaluation carried out, as of the end of the period covered by this report, under the supervision and with the participation of the our
management, including its Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) are effective. As of the end of the period covered by this report, there have been no significant changes in our internal control over financial reporting 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 2. | Changes in Securities and Use of Proceeds
|------- | -----------------------------------------



None



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



None



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



None



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



None



|ITEM 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------



(A) EXHIBITS



|              |  |                                                                                                                                                   
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                               
|              | 
|3.1           |  | Amended and Restated Certificate of Incorporation of Knology, Inc.                                                                                
|              | 
|3.2           |  | Bylaws of Knology, Inc. (Incorporated herein by reference to Exhibit 3.2 to Knology Inc. Registration Statement on Form S-1 (File No. 333-89179)).
|              | 
|31.1          |  | Certification of President and 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.                                                           



(B) REPORTS ON FORM 8-K



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On January 14, 2004 Knology filed a current report on Form 8-K, under item 2, that it had completed the
acquisition from Verizon Media Ventures, Inc., of the cable television system and franchise rights in Cerritos, California and Pinellas County, Florida and in connection with the completion of the Verizon Media acquisition, Knology issued to a prior
prospective purchaser and certain of its employees warrants to purchase an aggregate of 1,000,000 shares of Knology common stock. The warrants have an exercise price of $9.00 per share. Also provided, under item 7, were financial statements of the
acquired business and pro forma financial statements.



On
February 19, 2004, Knology filed a current report on Form 8-K, under item 5, announcing that it plans to offer up to $280.0 million of senior notes in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities
Act of 1933 and foreign purchasers outside the United States pursuant to Regulation S under the Securities Act of 1933. Knology also furnished, under item 12 a press release announcing its preliminary estimates for revenue, net income and EBITDA, as
adjusted for 2003.



On March 3, 2004, Knology filed a current
report on Form 8-K, under item 5, announcing that, in light of current market conditions, it was withdrawing its proposed private offering of senior notes.



On March 16, 2004, Knology furnished a current report on Form 8-K, under item 9, with guidance for 2004 on revenue, EBITDA, as adjusted and net loss, and
also furnished, under item 12, a press release announcing its fourth quarter and year end results for 2003.



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



|             |  |  |  |               |  |                       |  |                                                                      
|------------ |  |  |  | ------------- |  | --------------------- |  | ---------------------------------------------------------------------
|             |  |  |  | KNOLOGY, INC.
|             |  |  | 
|May 14, 2004 |  |  |  | By:           |  | /s/ Rodger L. Johnson
|             |  |  |  |               |  |                       | 
|             |  |  |  |               |  |                       |  | Rodger L. Johnson President and Chief Executive Officer              
|             |  |  | 
|May 14, 2004 |  |  |  | By:           |  | /s/ Robert K. Mills  
|             |  |  |  |               |  |                       | 
|             |  |  |  |               |  |                       |  | Robert K. Mills Chief Financial Officer (Principal Financial Officer)



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