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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

COMMISSION FILE NUMBER: 000-32647



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KNOLOGY, INC.

(Exact name of registrant as specified in its charter)



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

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



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Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.  Yes  x    No ̈

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

Large accelerated filer ̈Accelerated filer  x                Non-accelerated Filer ̈

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

As of April 30, 2007, Knology, Inc. had 35,044,375 shares of common stock outstanding.



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##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

QUARTER ENDED MARCH 31, 2007

INDEX



|        |  |                                                                                                              |  |   
|------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|        |  |                                                                                                              |  |   
|PART I  |  | FINANCIAL INFORMATION                                                                                        |  | 3 
|        |  |                                                                                                             
|ITEM 1  |  | FINANCIAL STATEMENTS                                                                                         |  | 3 
|        |  | Condensed Consolidated Balance Sheets as of December 31, 2006 and Unaudited March 31, 2007                   |  | 3 
|        |  | Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2006 and 2007 |  | 4 
|        |  | Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2007 |  | 5 
|        |  | Notes to Unaudited Condensed Consolidated Financial Statements                                               |  | 6 
|        |  |                                                                                                             
|ITEM 2  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 10
|        |  |                                                                                                             
|ITEM 3  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 18
|        |  |                                                                                                             
|ITEM 4  |  | CONTROLS AND PROCEDURES                                                                                      |  | 19
|        |  |                                                                                                             
|PART II |  | OTHER INFORMATION                                                                                            |  | 20
|        |  |                                                                                                             
|ITEM 1  |  | LEGAL PROCEEDINGS                                                                                            |  | 20
|        |  |                                                                                                             
|ITEM 1A |  | RISK FACTORS                                                                                                 |  | 20
|        |  |                                                                                                             
|ITEM 2  |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                  |  | 20
|        |  |                                                                                                             
|ITEM 3  |  | DEFAULTS UPON SENIOR SECURITIES                                                                              |  | 20
|        |  |                                                                                                             
|ITEM 4  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |  | 20
|        |  |                                                                                                             
|ITEM 5  |  | OTHER INFORMATION                                                                                            |  | 20
|        |  |                                                                                                             
|ITEM 6  |  | EXHIBITS                                                                                                     |  | 21
|        |  | SIGNATURES                                                                                                   |  | 22
|        |  | EXHIBIT INDEX                                                                                                |  |   



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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)



|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | -------- | - | ------------------------ | - | -------- | -
|                                                                                                                                                                                     |  | December 31,2006 |          |   | March 31,2007(Unaudited) |  
|ASSETS                                                                                                                                                                               |  |                  |          |   |                          |   |          |  
|CURRENT ASSETS:                                                                                                                                                                      |  |                  |          |   |                          |   |          |  
|Cash and cash equivalents                                                                                                                                                            |  | $                | 11,577   |   |                          | $ | 9,667    |  
|Restricted cash                                                                                                                                                                      |  |                  | 1,620    |   |                          |   | 1,195    |  
|Accounts receivable, net of allowance for doubtful accounts of $687 and $670 as of December 31, 2006 and March 31, 2007,
respectively                                                |  |                  | 22,511   |   |                          |   | 21,115   |  
|Prepaid expenses and other                                                                                                                                                           |  |                  | 2,509    |   |                          |   | 3,340    |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total current assets                                                                                                                                                                 |  |                  | 38,217   |   |                          |   | 35,317   |  
|PROPERTY, PLANT AND EQUIPMENT, NET                                                                                                                                                   |  |                  | 243,831  |   |                          |   | 235,554  |  
|GOODWILL                                                                                                                                                                             |  |                  | 40,834   |   |                          |   | 40,834   |  
|DEFERRED DEBT ISSUANCE COSTS, NET                                                                                                                                                    |  |                  | 9,912    |   |                          |   | 9,630    |  
|INTEREST RATE CAP AGREEMENT                                                                                                                                                          |  |                  | 1,474    |   |                          |   | 1,019    |  
|INVESTMENTS                                                                                                                                                                          |  |                  | 1,243    |   |                          |   | 1,243    |  
|INTANGIBLE AND OTHER ASSETS, NET                                                                                                                                                     |  |                  | 1,050    |   |                          |   | 1,053    |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total assets                                                                                                                                                                         |  | $                | 336,561  |   |                          | $ | 324,650  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                 |  |                  |          |   |                          |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                                 |  |                  |          |   |                          |   |          |  
|Current portion of notes payable                                                                                                                                                     |  | $                | 2,302    |   |                          | $ | 2,315    |  
|Accounts payable                                                                                                                                                                     |  |                  | 19,076   |   |                          |   | 20,235   |  
|Accrued liabilities                                                                                                                                                                  |  |                  | 15,525   |   |                          |   | 7,790    |  
|Unearned revenue                                                                                                                                                                     |  |                  | 10,984   |   |                          |   | 11,356   |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total current liabilities                                                                                                                                                            |  |                  | 47,887   |   |                          |   | 41,696   |  
|NONCURRENT LIABILITIES:                                                                                                                                                              |  |                  |          |   |                          |   |          |  
|Notes payable                                                                                                                                                                        |  |                  | 270,711  |   |                          |   | 270,428  |  
|Warrants                                                                                                                                                                             |  |                  | 590      |   |                          |   | 878      |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total noncurrent liabilities                                                                                                                                                         |  |                  | 271,301  |   |                          |   | 271,306  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total liabilities                                                                                                                                                                    |  |                  | 319,188  |   |                          |   | 313,002  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                        |  |                  |          |   |                          |   |          |  
|STOCKHOLDERS EQUITY:                                                                                                                                                                |  |                  |          |   |                          |   |          |  
|Preferred stock, $.01 par value per share;                                                                                                                                           |  |                  |          |   |                          |   |          |  
|199,000,000 shares authorized, none outstanding                                                                                                                                      |  |                  | 0        |   |                          |   | 0        |  
|Non-voting common stock, $.01 par value per share; 25,000,000 shares authorized, none outstanding                                                                                    |  |                  | 0        |   |                          |   | 0        |  
|Common stock, $.01 par value per share; 200,000,000 shares authorized, 34,758,682 and 34,957,433 shares issued and outstanding at
December 31, 2006 and March 31, 2007, respectively |  |                  | 348      |   |                          |   | 350      |  
|Additional paid-in capital                                                                                                                                                           |  |                  | 584,017  |   |                          |   | 584,984  |  
|Accumulated deficit                                                                                                                                                                  |  |                  | (566,992 | ) |                          |   | (573,686 | )
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total stockholders equity                                                                                                                                                           |  |                  | 17,373   |   |                          |   | 11,648   |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total liabilities and stockholders equity                                                                                                                                           |  | $                | 336,561  |   |                          | $ | 324,650  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  

See notes to condensed consolidated financial statements.



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KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)



|                                                                         |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                         |  | Three Months Ended March 31, |           
|                                                                         |  | 2006                         |            |   | 2007 |  
|OPERATING REVENUES:                                                      |  |                              |            |   |      |   |            |  
|Video                                                                    |  | $                            | 27,696     |   |      | $ | 30,718     |  
|Voice                                                                    |  |                              | 20,440     |   |      |   | 21,067     |  
|Data                                                                     |  |                              | 13,737     |   |      |   | 16,276     |  
|Other                                                                    |  |                              | 826        |   |      |   | 958        |  
|                                                                         |  |                              |            |   |      |   |            |  
|Total operating revenues                                                 |  |                              | 62,699     |   |      |   | 69,019     |  
|                                                                         |  |                              |            |   |      |   |            |  
|OPERATING EXPENSES:                                                      |  |                              |            |   |      |   |            |  
|Direct costs (excluding depreciation and amortization)                   |  |                              | 18,514     |   |      |   | 20,479     |  
|Selling, general and administrative expenses                             |  |                              | 29,430     |   |      |   | 29,671     |  
|Depreciation and amortization                                            |  |                              | 17,384     |   |      |   | 16,706     |  
|                                                                         |  |                              |            |   |      |   |            |  
|Total operating expenses                                                 |  |                              | 65,328     |   |      |   | 66,856     |  
|                                                                         |  |                              |            |   |      |   |            |  
|OPERATING LOSS (INCOME)                                                  |  |                              | (2,629     | ) |      |   | 2,163      |  
|                                                                         |  |                              |            |   |      |   |            |  
|OTHER INCOME (EXPENSE):                                                  |  |                              |            |   |      |   |            |  
|Interest income                                                          |  |                              | 88         |   |      |   | 127        |  
|Interest expense                                                         |  |                              | (8,618     | ) |      |   | (8,156     | )
|Gain (loss) on interest rate cap agreement                               |  |                              | 727        |   |      |   | (455       | )
|Loss on adjustment of warrants to market                                 |  |                              | (222       | ) |      |   | (288       | )
|Other expense, net                                                       |  |                              | (20        | ) |      |   | (85        | )
|                                                                         |  |                              |            |   |      |   |            |  
|Total other expense                                                      |  |                              | (8,045     | ) |      |   | (8,857     | )
|                                                                         |  |                              |            |   |      |   |            |  
|NET LOSS                                                                 |  |                              | (10,674    | ) |      |   | (6,694     | )
|PREFERRED STOCK DIVIDENDS                                                |  |                              | (391       | ) |      |   | 0          |  
|                                                                         |  |                              |            |   |      |   |            |  
|NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                             |  | $                            | (11,065    | ) |      | $ | (6,694     | )
|                                                                         |  |                              |            |   |      |   |            |  
|BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS |  | $                            | (0.46      | ) |      | $ | (0.19      | )
|                                                                         |  |                              |            |   |      |   |            |  
|BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   |  |                              | 24,295,867 |   |      |   | 34,845,922 |  
|                                                                         |  |                              |            |   |      |   |            |  

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, |        
|                                                                                |  | 2006                        |         |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                             |         |   |      |   |        |  
|Net loss                                                                        |  | $                           | (10,674 | ) |      | $ | (6,694 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                             |         |   |      |   |        |  
|Depreciation and amortization                                                   |  |                             | 17,384  |   |      |   | 16,706 |  
|Non-cash stock option compensation                                              |  |                             | 792     |   |      |   | 458    |  
|Accretion of second lien term loan                                              |  |                             | 165     |   |      |   | 165    |  
|Non-cash bank loan interest expense                                             |  |                             | 831     |   |      |   | 829    |  
|Non-cash (gain) loss on interest rate cap agreement                             |  |                             | (727    | ) |      |   | 455    |  
|Provision for bad debt                                                          |  |                             | 779     |   |      |   | 824    |  
|Loss on disposition of assets                                                   |  |                             | 22      |   |      |   | 88     |  
|Loss on adjustment of warrants to market                                        |  |                             | 222     |   |      |   | 288    |  
|Changes in operating assets and liabilities:                                    |  |                             |         |   |      |   |        |  
|Accounts receivable                                                             |  |                             | 461     |   |      |   | 572    |  
|Prepaid expenses and other                                                      |  |                             | 138     |   |      |   | (833   | )
|Accounts payable                                                                |  |                             | (2,146  | ) |      |   | 1,159  |  
|Accrued liabilities                                                             |  |                             | (96     | ) |      |   | (7,735 | )
|Unearned revenue                                                                |  |                             | 247     |   |      |   | 372    |  
|                                                                                |  |                             |         |   |      |   |        |  
|Total adjustments                                                               |  |                             | 18,072  |   |      |   | 13,348 |  
|                                                                                |  |                             |         |   |      |   |        |  
|Net cash provided by operating activities                                       |  |                             | 7,398   |   |      |   | 6,654  |  
|                                                                                |  |                             |         |   |      |   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                             |         |   |      |   |        |  
|Capital expenditures                                                            |  |                             | (6,663  | ) |      |   | (8,528 | )
|Franchise and other intangible expenditures                                     |  |                             | (5      | ) |      |   | (40    | )
|Proceeds from sale of property                                                  |  |                             | 27      |   |      |   | 51     |  
|Change in restricted cash                                                       |  |                             | 1,209   |   |      |   | 425    |  
|                                                                                |  |                             |         |   |      |   |        |  
|Net cash used in investing activities                                           |  |                             | (5,432  | ) |      |   | (8,092 | )
|                                                                                |  |                             |         |   |      |   |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |                             |         |   |      |   |        |  
|Principal payments on debt and short-term borrowings                            |  |                             | (551    | ) |      |   | (569   | )
|Expenditures related to issuance of long term debt                              |  |                             | (9      | ) |      |   | (413   | )
|Stock options exercised                                                         |  |                             | 28      |   |      |   | 510    |  
|                                                                                |  |                             |         |   |      |   |        |  
|Net cash used in financing activities                                           |  |                             | (532    | ) |      |   | (472   | )
|                                                                                |  |                             |         |   |      |   |        |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            |  |                             | 1,434   |   |      |   | (1,910 | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                  |  |                             | 12,183  |   |      |   | 11,577 |  
|                                                                                |  |                             |         |   |      |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      |  | $                           | 13,617  |   |      | $ | 9,667  |  
|                                                                                |  |                             |         |   |      |   |        |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              |  |                             |         |   |      |   |        |  
|Cash paid during the periods for interest                                       |  | $                           | 7,507   |   |      | $ | 11,657 |  
|                                                                                |  |                             |         |   |      |   |        |  
|Non-cash financing activities:                                                  |  |                             |         |   |      |   |        |  
|Debt acquired in capital lease transactions                                     |  | $                           | 14      |   |      | $ | 0      |  
|                                                                                |  |                             |         |   |      |   |        |  
|Preferred stock dividend paid in kind                                           |  | $                           | 391     |   |      | $ | 0      |  
|                                                                                |  |                             |         |   |      |   |        |  

See notes to condensed consolidated financial statements



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KNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Three Months Ended MARCH 31, 2007

(UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1. ORGANIZATION AND NATURE OF BUSINESS

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

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

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

On April 3, 2007, the Company completed its acquisition of PrairieWave Holdings, Inc., a voice, video and high-speed internet broadband
services provider in the Rapid City and Sioux Falls, South Dakota regions, as well as portions of Minnesota and Iowa. The Companys presented consolidated financial statements do not include PrairieWave Holdings, Inc. financial condition or
results of operations.

2. BASIS OF PRESENTATION

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

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

In 2006, the Company revised its presentation of pole attachment rent and network hub rent costs to properly classify them as a component
of direct costs. The Company had previously classified these costs as selling, general and administrative expenses. The reclassification amounted to $1,003 for first quarter 2006. Certain other prior year amounts have been reclassified to conform to
current year presentation. Corresponding changes have been made to the Companys Consolidated Statements of Operations as appropriate.

The Company
operates as one operating segment.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING ESTIMATES

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

RECENT ACCOUNTING PRONOUNCEMENTS

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



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

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

4. CASH AND CASH EQUIVALENTS

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

As of
March 31, 2007, the Company has $1,195 of cash that is restricted in use, all of which the Company has pledged as collateral for amounts potentially payable under certain insurance and surety bond agreements.

5. GOODWILL AND INTANGIBLE ASSETS

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

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



|                                                                  |  |                  |        |               |   |                             |  |     
|----------------------------------------------------------------- |  | ---------------- | ------ | ------------- | - | --------------------------- |  | ----
|                                                                  |  | December 31,2006 |        | March 31,2007 |   | Amortization Period (Years)
|Customer base                                                     |  | $                | 460    |               | $ | 460                         |  | 2-3 
|Other                                                             |  |                  | 914    |               |   | 955                         |  | 4-10
|                                                                  |  |                  |        |               |   |                             |  |     
|Gross carrying value of intangible assets subject to amortization |  |                  | 1,374  |               |   | 1,415                       |  |     
|Less accumulated amortization                                     |  |                  | 742    |               |   | 783                         |  |     
|                                                                  |  |                  |        |               |   |                             |  |     
|Net carrying value of intangible assets subject to amortization   |  | $                | 632    |               | $ | 632                         |  |     
|                                                                  |  |                  |        |               |   |                             |  |     
|Goodwill                                                          |  | $                | 40,834 |               | $ | 40,834                      |  |     
|                                                                  |  |                  |        |               |   |                             |  |     

6. DEBT

On
June 29, 2005, the Company entered into a first lien credit agreement and second lien credit agreement providing the Company with aggregate cash proceeds of $280,000. Credit Suisse acted as administrative agent and sole lead arranger. These
proceeds, together with cash on hand, were used to repay all amounts outstanding under the Companys credit facilities with Wachovia Bank, National Association and Cobank, ACB and to redeem its 12% senior notes due 2009, which were redeemed on
July 29, 2005. The first lien credit agreement also provides a five year senior secured revolving loan and letter of credit facility up to $25,000, of which $317 was outstanding as unused letters of credits as of March 31, 2007. The second
lien was purchased at a discount of 4% for $95,000, which accretes up to a face amount of $99,000 on June 29, 2011.

In 2005, the Company entered into
an interest rate cap agreement with Credit Suisse on a notional amount of $280,000 to cap its variable LIBOR rate at 5%, mitigating interest rate risk on its first and second lien term loans. The cap agreement has a fair value of $1,019 as of
March 31, 2007, resulting in a loss of $455 for the three months ended March 31, 2007. The changes in the fair value of the cap agreement are recorded as a Gain (loss) on interest rate cap agreement in other income (expense).
Changes in fair value will continue to be recorded in earnings since the cap rate agreement was not designated as a hedge under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities.

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



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



|                                                                                                                                                                                                                                                  |  |                  |         |               |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------- | - | -------
|                                                                                                                                                                                                                                                  |  | December 31,2006 |         | March 31,2007
|First Lien term loan, at a rate of LIBOR plus 2.5%, with $1,850 annual principal amortization, interest payable quarterly with final principal
and any unpaid interest due June 29, 2010.                                                         |  | $                | 171,825 |               | $ | 171,362
|Second Lien term loan, with a face amount of $99,000, at a rate of LIBOR plus 10% (8.5% cash and 1.5% PIK, $387 for the three months ended
March 31, 2007), interest payable quarterly, with principal and any unpaid interest due June 29, 2011. |  |                  | 98,286  |               |   | 98,585 
|Capitalized lease obligation, at rates between 7% and 8%, with monthly principal and interest payments through December 2012.                                                                                                                     |  |                  | 2,902   |               |   | 2,796  
|                                                                                                                                                                                                                                                  |  |                  |         |               |   |        
|                                                                                                                                                                                                                                                  |  |                  | 273,013 |               |   | 272,743
|Less current maturities                                                                                                                                                                                                                           |  |                  | 2,302   |               |   | 2,315  
|                                                                                                                                                                                                                                                  |  |                  |         |               |   |        
|                                                                                                                                                                                                                                                  |  | $                | 270,711 |               | $ | 270,428
|                                                                                                                                                                                                                                                  |  |                  |         |               |   |        

Both of the first and second lien credit facilities entered into on June 29, 2005 were guaranteed by all of
the Companys subsidiaries. The credit facilities were also secured by first and second liens on all of the Companys assets and the assets of its guarantor subsidiaries. The Company has no independent assets or operations, the guarantees
were full and unconditional and joint and several and any subsidiaries of the Company other than the subsidiary guarantors are minor.

The credit
agreements both contain customary representations and warranties and various affirmative and negative covenants. The credit agreements also include customary events of default, including but not limited to:



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



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



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



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



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



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



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



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



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



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



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

As of March 31, 2007, the Company was in compliance with all of its debt covenants.

The Company had outstanding warrants (issued in connection with the 1997 high-yield debt offering) with a fair value of $878 at March 31, 2007. Knology adjusts the carrying value of the warrants based on the
closing price of the Companys common stock at the end of each reporting period. For the three months ended March 31, 2007, the Company recorded a loss of $288 as a (Loss) gain on adjustment of warrants to market in other
(expense) income.

7. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

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

UNUSED LETTERS OF CREDIT

The Companys unused letters of credit for vendors and suppliers was $317 as of March 31, 2007, which reduces the funds available under the $25,000 five year senior secured revolving loan and letter of
credit facility.



8



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##### Table of Contents

8. NONCASH COMPENSATION EXPENSE

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

During the first quarter of 2007, the Company granted 203,460 shares
with a market value of $2,653. The shares vest equally over the next 4 years. During the first of quarter of 2007, the Company also granted 244,800 shares of performance-based restricted shares with a market value of $3,192 to certain officers. The
shares vest equally over the next 3 years.

The Company has recognized stock-based compensation of $498 and $792 in the three months ended March 31,
2007 and 2006, respectively.

9. INCOME TAXES

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

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

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

10. SUBSEQUENT EVENTS

On April 3, 2007, the Company completed its acquisition of PrairieWave
Holdings, Inc., a voice, video and high-speed internet broadband services provider in the Rapid City and Sioux Falls, South Dakota regions, as well as portions of Minnesota and Iowa.At December 31, 2006, PrairieWave Holdings, Inc. had a
shareholders equity of $29,533. The Company used the proceeds of the Amended and Restated Credit Agreement to fund the $255,000 purchase price and related transaction costs of the PrairieWave acquisition, as well as refinance all amounts
outstanding under the Companys existing first and second lien credit facilities dated June 29, 2005. The Amended and Restated Credit Agreement provides for a $580,000 credit facility, consisting of a $555,000 first lien term loan and a
$25,000 revolving credit facility. The first term loan bears interest at LIBOR plus 2.25% and amortizes at a rate of 1.0% per annum, payable quarterly, with a June 30, 2012 maturity date.

On April 18, 2007, the Company unwound its existing interest rate cap agreement for $927. The Company entered into a new swap contract on a notional amount of
$555,000 amortizing 1% annually that fixes 100% of the floating rate at 4.977%. The hedge agreement is effective May 3, 2007 with a June 30, 2010 termination date.



9



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##### Table of Contents

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

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

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

Overview

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

We have built our business through:



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



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



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



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

The following is a discussion of our consolidated financial condition and results of operations for the three months ended March 31, 2007, and
certain factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this Form 10-Q.

Recent Developments

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



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



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##### Table of Contents

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



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



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

The
Company used the proceeds of the Amended and Restated Credit Agreement to fund the $255.0 million purchase price and related transaction costs of the PrairieWave acquisition, as well as refinance all amounts outstanding under the Companys
existing credit facilities dated June 29, 2005. The Amended and Restated Credit Agreement provides for a $580.0 million credit facility, consisting of a $555.0 million first lien term loan and a $25.0 million revolving credit facility. The
first term loan bears interest at LIBOR plus 2.25% and amortizes at a rate of 1.0% per annum, payable quarterly, with a June 30, 2012 maturity date.

On April 18, 2007, the Company unwound its existing interest rate cap agreement for $927,000. The Company entered into a new swap contract on a notional amount of $555.0 million amortizing 1% annually that fixes
100% of the floating rate at 4.977%. The hedge agreement was effective May 3, 2007 with a June 30, 2010 termination date.

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.

The following table summarizes the number of
marketable homes passed and connections as of March 31, 2006 and 2007.



|                        |  |                 |  |        
|----------------------- |  | --------------- |  | -------
|                        |  | AS OF MARCH 31,
|                        |  | 2006            |  | 2007   
|Connections:(1)         |  |                 |  |        
|Video                   |  | 177,546         |  | 180,876
|Voice:                  |  |                 |  |        
|On-net                  |  | 149,069         |  | 157,818
|Off-net                 |  | 6,268           |  | 6,154  
|Data                    |  | 111,476         |  | 126,723
|                        |  |                 |  |        
|Total connections       |  | 444,359         |  | 471,571
|                        |  |                 |  |        
|Residential connections |  | 398,524         |  | 418,103
|Business connections    |  | 45,835          |  | 53,468 
|Homes passed            |  | 960,034         |  | 971,566
|Marketable homes passed |  | 751,574         |  | 762,003

---

|(1) | All of our video and data connections are provided over our networks. Our voice connections consist of
both On-net and Off-net connections. On-net refers to lines provided over our networks. It includes 21,894 and 20,607 lines as of March 31, 2006 and 2007, respectively, using traditional copper telephone lines. Off-net
refers to telephone connections provided over telephone lines leased from third parties.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us
to make estimates and assumptions. We believe that, of our significant accounting policies described in Note 2 to our audited consolidated financial statements included in Item 8 of our Annual Report on Form 10-K, the following may involve a
higher degree of judgment and complexity.

Revenue Recognition. Installation revenue for residential cable services is recognized in
accordance with SFAS No. 51, Financial Reporting by Cable Television Companies, to the extent of direct selling costs incurred. Direct selling costs have exceeded installation revenue in all reported periods. Credit risk is managed by
disconnecting services to customers who are delinquent.



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All other revenue is accounted for in accordance with Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition. In accordance with SAB No. 104, revenue from advertising sales is recognized as the advertising is transmitted over Knologys broadband network. Revenue derived from other sources, including commercial data and other
services, is recognized as services are provided, as persuasive evidence of an arrangement exists, the price to the customer is fixed and determinable and collectibility is reasonably assured.

We generate recurring revenues for our broadband offerings of video, voice and data and other services. Revenues generated from these services primarily
consist 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 unearned 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 delinquent customer accounts receivable.

Capitalization of labor and
overhead costs. Our business is capital intensive, and a large portion of the capital we have raised to date has been spent on activities associated with building, extending, upgrading and enhancing our network. As of December 31, 2006 and
March 31, 2007, the net carrying amount of our property, plant and equipment was approximately $243.8 million, 72% of total assets, and $235.6 million, 73% of total assets, respectively. Total capital expenditures for the three months
ended March 31, 2007 and 2006 were approximately $8.5 million and $6.7 million, respectively.

Costs associated with network
construction, network enhancements and initial customer installation are capitalized. Costs capitalized as part of the initial customer installation include materials, direct labor, and certain indirect costs. These indirect costs are associated
with the activities of personnel who assist in connecting and activating the new service and consist of compensation and overhead costs associated with these support functions. The costs of disconnecting service at a customers premise or
reconnecting service to a previously installed premise are charged to operating expense in the period incurred. Costs for repairs and maintenance are charged to operating expense as incurred, while equipment replacement and significant enhancements,
including replacement of cable drops from the pole to the premise, are capitalized.

We make judgments regarding the installation and
construction activities to be capitalized. We capitalize direct labor and certain indirect costs using operational data and estimations of capital activity. We calculate standards for items such as the labor rates, overhead rates and the actual
amount of time required to perform a capitalizable activity. Overhead rates are established based on an estimation of the nature of costs incurred in support of capitalizable activities and a determination of the portion of costs that is directly
attributable to capitalizable activities.

Judgment is required to determine the extent to which overhead is incurred as a result of
specific capital activities, and therefore should be capitalized. The primary costs that are included in the determination of the overhead rate are (i) employee benefits and payroll taxes associated with capitalized direct labor,
(ii) direct variable costs associated with capitalizable activities, consisting primarily of installation costs, (iii) the cost of support personnel that directly assist with capitalizable installation activities, and (iv) indirect
costs directly attributable to capitalizable activities.

While we believe our existing capitalization policies are reasonable, a
significant change in the nature or extent of our system activities could affect managements judgment about the extent to which we should capitalize direct labor or overhead in the future. We monitor the appropriateness of our capitalization
policies, and perform updates to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies.

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 SFAS No. 142 and 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 assets or significant changes in our overall business strategy; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



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

Significant and Subjective Estimates. The following discussion and analysis of our results of operations and financial condition is based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States for interim financial information. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and contingent liabilities. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting



12



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##### Table of Contents

principles generally accepted in the United States, with no need for us to judge the application. We base our judgments on historical experience and on
various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions. See our condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report, which contain accounting policies and other
disclosures required by accounting principles generally accepted in the United States.

The foregoing list of critical accounting policies
is 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 contained in our
Annual Report on Form 10-K, which contains accounting policies and other disclosures required by accounting principles generally accepted in the United States.

Revenues

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



| |  |  | Video revenues. Our video revenues consist of fixed monthly fees for expanded basic, premium and digital cable television services, as well as fees from
pay-per-view movies, fees for video-on-demand and events such as boxing matches and concerts that involve a charge for each viewing. Video revenues accounted for approximately 44.5% of our consolidated revenues for the three months ended
March 31, 2007, compared to 44.2% for the three months ended March 31, 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Voice revenues. Our voice revenues consist primarily of fixed monthly fees for local service and enhanced services, such as call waiting, voice mail and
measured and flat rate long-distance service. Voice revenues accounted for approximately 30.5% of our consolidated revenues for the three months ended March 31, 2007, compared to 32.6% for the three months ended March 31, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data revenues. Our data revenues consist primarily of fixed monthly fees for data service and rental of cable modems. Data revenues accounted for
approximately 23.6% of our consolidated revenues for the three months ended March 31, 2007, compared to 21.9% for the three months ended March 31, 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other revenues. Other revenues result principally from broadband carrier services. Other revenues accounted for approximately 1.4% of our consolidated
revenues for the three months ended March 31, 2007, compared to 1.3% for the three months ended March 31, 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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



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



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

Costs and Expenses

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



13



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##### Table of Contents

Direct costs of services include:



| |  |  | Direct costs of video services. Direct costs of video services consist primarily of monthly fees to the National Cable Television Cooperative and other
programming providers. Programming costs are our largest single cost and we expect this trend to continue. Programming costs as a percentage of video revenue were approximately 49.5% for the three months ended March 31, 2007, compared to 49.4%
for the three months ended March 31, 2006. We have entered into contracts with various entities to provide programming to be aired on our network. We pay a monthly fee for these programming services, generally based on the average number of
subscribers to the program, although some fees are adjusted based on the total number of subscribers to the system and/or the system penetration percentage. Since programming cost is partially based on numbers of subscribers, it will increase as we
add more subscribers. It will also increase as costs per channel increase over time.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct cost of voice services. Direct costs of voice services consist primarily of transport cost and network access fees. The direct cost of voice services
as a percentage of voice revenues was approximately 16.1% for the three months ended March 31, 2007, compared to 16.0% for the three months ended March 31, 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct cost of data services. Direct costs of data services consist primarily of transport cost and network access fees. The direct cost of data services as
a percentage of data revenue was approximately 3.7% for the three months ended March 31, 2007, compared to 3.0% for the three months ended March 31, 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct cost of other services. Direct costs of other services consist primarily of transport cost and network access fees. The direct cost of other services
as a percentage of other revenue was approximately 17.0% for the three months ended March 31, 2007, compared to 16.8% for the three months ended March 31, 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pole attachment and other network rental expenses. Pole attachment and other network rental expenses consist primarily of pole attachment rents paid to
utility companies for space on their utility poles to deliver our various services and network hub rents. Pole attachment and other network rental expenses as a percentage of total revenue was approximately 1.6% for the three months ended
March 31, 2007 and for the three months ended March 31, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Selling, operations and administrative expenses include:



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



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



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



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



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

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

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



14



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##### Table of Contents

Results of Operations

Three months ended March 31, 2007 compared to three months ended March 31, 2006

The following table sets forth
financial data as a percentage of operating revenues for the three months ended March 31, 2006 and 2007.



|                                                   |  |                              |   |  |      |  
|-------------------------------------------------- |  | ---------------------------- | - |  | ---- | -
|                                                   |  | Three months ended March 31, |  
|                                                   |  | 2006                         |   |  | 2007 |  
|Operating revenues:                                |  |                              |   |  |      |  
|Video                                              |  | 44                           | % |  | 45   | %
|Voice                                              |  | 33                           |   |  | 30   |  
|Data                                               |  | 22                           |   |  | 24   |  
|Other                                              |  | 1                            |   |  | 1    |  
|                                                   |  |                              |   |  |      |  
|Total                                              |  | 100                          |   |  | 100  |  
|Operating expenses:                                |  |                              |   |  |      |  
|Cost of services                                   |  | 29                           |   |  | 30   |  
|Selling, operating and administrative              |  | 47                           |   |  | 43   |  
|Depreciation and amortization                      |  | 28                           |   |  | 24   |  
|                                                   |  |                              |   |  |      |  
|Total                                              |  | 104                          |   |  | 97   |  
|                                                   |  |                              |   |  |      |  
|Operating (loss) income                            |  | (4                           | ) |  | 3    |  
|Interest income                                    |  | 0                            |   |  | 0    |  
|Interest expense                                   |  | (14                          | ) |  | (12  | )
|Gain (loss) on interest rate cap agreement         |  | 1                            |   |  | (1   | )
|Loss on adjustment of warrants to market agreement |  | 0                            |   |  | (0   | )
|Other expenses, net                                |  | 0                            |   |  | 0    |  
|                                                   |  |                              |   |  |      |  
|Total other income and (expense)                   |  | (13                          | ) |  | (13  | )
|                                                   |  |                              |   |  |      |  
|Net loss                                           |  | (17                          | ) |  | (10  | )
|Preferred stock dividends                          |  | (1                           | ) |  | (0   | )
|                                                   |  |                              |   |  |      |  
|Net loss attributable to common stockholders       |  | (18                          | ) |  | (10  | )
|                                                   |  |                              |   |  |      |  

Revenues. Operating revenues increased 10.1% from $62.7 million for the three months ended
March 31, 2006, to $69.0 million for three months ended March 31, 2007. Operating revenues from video services increased 10.9% from $27.7 million for the three months ended March 31, 2006, to $30.7 million for the same period in 2007.
Operating revenues from voice services increased 3.1% from $20.4 million for the three months ended March 31, 2006, to $21.1 million for the same period in 2007. Operating revenues from data services increased 18.5% from $13.8 million for the
three months ended March 31, 2006, to $16.3 million for the same period in 2007. Operating revenues from other services increased 16% from $826,000 for the three months ended March 31, 2006, to $958,000 for the same period in 2007.

The increased revenues are due primarily to an increase in the number of connections, from 444,359 as of March 31, 2006, to 471,571
as of March 31, 2007, and rate increases effective in the first quarter of 2007. The additional connections resulted primarily from:



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



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



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

Direct Costs. Direct costs increased 10.6% from $18.5 million for the three months ended March 31, 2006, to $20.5 million for the three months ended March 31, 2007. Direct costs of video services increased 11.1% from $13.7
million for the three months ended March 31, 2006, to $15.2 million for the same period in 2007. Direct costs of voice services increased 3.8%, with $3.3 million for the three months ended March 31, 2006 to $3.4 million for the same period
in 2007. Direct costs of data services increased 43.0% from $419,000 for the three months ended March 31, 2006, to $599,000 for the same period in 2007. Direct costs of other services increased 17.8% from $138,000 for the three months ended
March 31, 2006, to $163,000 for the same period in 2007. Pole attachment and other network rental expenses increased 12.0% from $1.0 million for the three months ended March 31, 2006, to $1.1 million for the same period in 2007. We expect
our cost of services to increase as we add more connections. The increase in direct costs of video services are primarily due to programming costs increases, which have been increasing over the last several years on an aggregate basis due to an
increase in subscribers and on a per subscriber basis due to an increase in costs per program channel. We expect this trend to continue and we may not be able to pass these higher costs on to customers because of competitive factors, which could
adversely affect our cash flow and gross profit. We expect increases in voice, data and other direct costs of services with the additions of leased facilities used to backhaul our traffic to our switching facilities as connections and data capacity
requirements increase.

Selling, general and administrative. Our selling, general and administrative increased .8% from
$29.4 million for the three months ended March 31, 2006, to $29.7 for the three months ended March 31, 2007. The increase in our operating costs, included in selling, general and administrative, is consistent with our growth in
connections and customers in 2007, and included increases in sales and marketing and outside or contract labor expense, that were partially offset by reductions in personnel cost and other general office expenses. Our non-cash stock option
compensation expense, included in selling, general and administrative, decreased from $792,000 for the three months ended March 31, 2006, to $458,000 for the three months ended March 31, 2007.



15



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##### Table of Contents

Depreciation and amortization. Our depreciation and amortization decreased from $17.4 million
for the three months ended March 31, 2006, to $16.7 million for the three months ended March 31, 2007. We expect depreciation and amortization expense to decrease as our overall capital expenditures decrease and existing long-lived
assets become fully depreciated.

Interest income. Interest income was $88,000 for the three months ended March 31, 2006,
compared to $127,000 for the same period in 2007.

Interest expense. Interest expense decreased from $8.6 million for the three
months ended March 31, 2006, to $8.1 million for the three months ended March 31, 2007. The decrease in interest expense for 2006 is primarily a result of the amendment of our first lien term loan reducing the effective interest rate to
LIBOR plus 2.5 percent from LIBOR plus 5.5 percent. In 2005, we entered into an interest rate cap agreement, covering the first and second liens, to cap our adjustable LIBOR rate at 5%, mitigating interest rate risk on the loans.

Gain (loss) on interest rate cap agreement. We paid $1.3 million for an cap agreement, which became effective July 29, 2005 and was scheduled
to terminate July 29, 2008. The cap agreement had a fair value of $1.5 million as of December 31, 2006, and $1.0 million as of March 31, 2007, resulting in a derivative loss of $.5 million. We terminated this cap agreement on
April 18, 2007 in connection with our entry into a new swap agreement with a notional amount of $555.0 million. See Recent Developments.

Loss on the adjustment of warrants to market. During the three months ended March 31, 2006, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on
the published market per share value of our common stock. The published market per share value of our common stock on March 31, 2006 was $6.83 resulting in a $222,000 loss on the adjustment of warrants to market value. During the three months
ended March 31, 2007, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on the published market per share value of our common stock. The published market per share value of our common
stock on March 31, 2007 was $15.83 resulting in a $288,000 loss on the adjustment of warrants to market.

Other expense, net.
Other expense, net increased from $20,000 for the three months ended March 31, 2006, to $85,000 for the three months ended March 31, 2007.

Income tax provision. We recorded no income tax benefit for the three months ended March 31, 2006 and 2007, respectively, as our net operating losses are fully offset by a valuation allowance.

Preferred stock dividends. We issued 39,090 additional shares of the Series AA preferred stock during the three months ended March 31,
2006, as a stock dividend, and recognized an expense of $391,000 for the three months ended March 31, 2006. All of the outstanding shares of our Series AA preferred stock converted into shares of common stock in June 2006.

Net loss attributable to common stockholders. We incurred a net loss attributable to common stockholders of $11.1 million and
$6.7 million for the three months ended March 31, 2006, and 2007, respectively. We expect net losses to decrease as our business matures.

Liquidity and Capital Resources

Overview.

In 2005, we entered into first and second lien agreements, as arranged by Credit Suisse, to repay all amounts outstanding under our previous credit facilities.

The first lien credit agreement provided for a five-year senior secured $185 million term loan facility, of which $171.3 million was currently
outstanding as of March 31, 2007, and a $25 million revolving loan and letter of credit facility of which $317,000 was outstanding as unused letters of credits as of March 31, 2007. The first lien term facility, as amended, bore interest
at a LIBOR base rate plus 2.5%. The unused portion of the first lien revolving facility was subject to an annual fee of between .375% and .75%, depending on usage of the facility. Interest on the first lien facility was payable quarterly. The first
lien term facility amortized at a rate of 1.0% per annum, payable quarterly, and matured on June 29, 2010. We had the ability to may prepay amounts outstanding under the first lien term facility prior to maturity, but we were required to
pay a premium if we prepay prior to June 29, 2008, except for prepayments made with the proceeds from the sale of our equity securities.

The second lien credit agreement provided for a six-year senior secured term loan facility with an aggregate principal amount at maturity of approximately $99 million. On June 29, 2005, we received proceeds of $95 million, of which
$98.6 million was outstanding as of March 31, 2007. Borrowings under the second lien term facility bear interest at a LIBOR base rate plus 10.0%. This facility did not amortize and the entire unpaid principal amount was due in full on the
maturity date of June 29, 2011. We did not have the ability to prepay any amount outstanding prior to June 29, 2008, except for prepayments made with the proceeds from the sale of our equity securities. If we prepaid any amounts after
June 29, 2008 but prior to June 29, 2011, we were required to pay a premium.

Both credit facilities were guaranteed by all of
our subsidiaries. The credit facilities were also secured by first and second liens on all of our assets and the assets of our guarantor subsidiaries. Both credit agreements contained customary representations, warranties, various affirmative and
negative covenants and customary events of default.



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##### Table of Contents

As discussed above, the borrowings under our credit facilities bore interest at variable rates and
exposed us to interest rate risk. If interest rates increased, our debt service obligations on our variable rate debt would also increase even though the amount borrowed remained the same. We entered into hedging arrangements to mitigate our risk
with respect to our variable rate debt. For the three months ended March 31, 2007 we recognized a loss on our interest rate cap agreement of $455,000.

On June 30, 2006, we entered into Amendment No. 1 dated as of June 30, 2006 to the first lien credit agreement dated as of June 29, 2005. The amendment reduced the interest rate on our first lien
term loan to LIBOR plus 2.5% from LIBOR plus 5.5%. The amendment also amended certain operating covenants contained in the first lien credit agreement so that they were consistent with those contained in the second lien credit agreement. In
accordance with the provisions of the first lien credit agreement, a 2% pre-payment premium, of approximately $3.5 million, was required with this amendment. The decrease in the interest rate reduced our annual interest expense by approximately $5.0
million.

We believe there is adequate liquidity from cash on hand, cash provided from operations and funds available under a $25.0 million
revolver to meet our capital spending requirements and to execute our current business plan.

As of March 31, 2007 we are in
compliance with all of our debt covenants.

Operating, Investing and Financing Activities.

As of March 31, 2007, we had a net working capital deficit of $6.4 million, compared to a net working capital deficit of $9.7 million as of
December 31, 2006.

Net cash provided by operating activities totaled $7.4 million and $6.7 million for the three months ended
March 31, 2006 and 2007, respectively. The net cash flow activity related to operations consists primarily of changes in operating assets and liabilities and adjustments to net income for non-cash transactions including:



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



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



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



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



| |  |  | non-cash gain (loss) on interest rate cap agreement;
| | - |  | ----------------------------------------------------



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



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



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

Net cash used by investing activities was $5.4 million and $8.1 million for the three months ended March 31, 2006 and 2007, respectively. Our investing activities for the three months ended March 31, 2006, consisted primarily of
$6.7 million of capital expenditures, partially offset by $1.2 million return of previously restricted cash and $27,000 of proceeds from the sale of property. Investing activities for the three months ended March 31, 2007 consisted primarily of
$8.5 million of capital expenditures, partially offset by $425,000 of cash returned as security and $51,000 of proceeds from the sale of property.

Net cash used by our financing activities was $532,000 and $472,000 for the three months ended March 31, 2006 and 2007, respectively. Financing activities for the three months ended March 31, 2006 consisted of $551,000 in
principal payments on debt and $9,000 of expenditures related to the issuance of long-term debt, partially offset by $28,000 from the exercise of stock options. For the three months ended March 31, 2007, financing activities primarily consisted
of $569,000 in principal payment on debt and $413,000 of expenditures relate to the issuance of long-term debt, partially offset by $510,000 from the exercise of stock options.

Capital Expenditures

We spent approximately $8.5 million in capital expenditures during the three
months ended March 31, 2007, of which approximately $5.7 million related to the purchase and installation of customer premise equipment, $2.2 million related to plant extensions and enhancements and $600,000 related to network equipment,
billing and information systems and other capital items.

We expect to spend approximately $30.4 million in capital expenditures during
2007. We believe we will have sufficient cash on hand and cash from internally generated cash flow to cover our planned operating expenses, capital expenditures and service our debt during 2007. The credit agreements and covenants on our new debt
limit the amount of our capital expenditures on an annual basis.



17



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##### Table of Contents

On April 3, 2007, the Company completed its acquisition of PrairieWave Holdings, a voice, video and
high-speed internet broadband services provider in the Rapid City and Sioux Falls, South Dakota regions, as well as portions of Minnesota and Iowa. The Company used the proceeds from the $555.0 million term loan to fund the $255.0 million purchase
price and related transaction costs for the PrairieWave acquisition.

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

Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 allows companies to measure certain financial instruments at fair value without having to apply
complex hedge accounting provisions and to report unrealized gains and losses on items elected items in earnings. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does
not expect that the adoption of SFAS No. 159 will have a material impact on its results of operations or financial position.

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

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

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

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. For federal tax purposes, the
Companys 2003 through 2006 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. Generally, for state tax purposes, the Companys 2002 through 2006 tax years remain open for
examination by the tax authorities under a four year statute of limitations. The Company and its subsidiaries are no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2003, except in a limited
number of state jurisdictions in which the operations of the Company and its subsidiaries individually and collectively are not significant for 2002. The adoption of FIN No. 48 on January 1, 2007, did not have a material effect on the
Companys consolidated results of operations or financial condition.



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

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

We have adopted FASB Statement No. 133 (subsequently amended by SFAS Nos. 137 and 138), Accounting
for Derivative Instruments and Hedging Activities (SFAS No. 133). This statement requires that all derivatives be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in fair
value be recognized currently in earnings unless specific hedge accounting criteria are met. During the third quarter of 2005, we entered into a hedging agreement to cap our adjustable LIBOR rate at 5%, mitigating interest rate risk on the first and
second lien term loans. We did not designate the cap agreement as an accounting hedge under SFAS No. 133, accordingly changes in fair value of the cap agreement are recorded through earnings as derivative gains/(losses) and are classified
within interest expense.



18



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##### Table of Contents

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

Evaluation of
Disclosure Controls and Procedures. The Companys management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2007. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of
March 31, 2007, the Companys disclosure controls and procedures are effective.

Changes in Internal Control Over Financial
Reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.



19



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##### Table of Contents

PART II. OTHER INFORMATION



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

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



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

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



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

None



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

None



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

None



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

None



20



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##### Table of Contents

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



|               |  |                                                                                                                                                                                                                                                                                                                                                                                             
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                         
|2.1            |  | Agreement and Plan of Merger, dated as of January 8, 2007, by and among Knology, Inc., PrairieWave Holdings, Inc., Knology Acquisition Sub, Inc., ALTA Communications VIII, L.P., and certain
equity holders of PrairieWave Holdings, Inc.                                                                                                                                                  
|               | 
|3.1            |  | Amended and Restated Certificate of Incorporation of Knology, Inc. (Incorporated herein by reference to Exhibit 3.1 to Knology, Inc.s Quarterly Report Form 10-Q for the period ended June
30, 2004).                                                                                                                                                                                      
|               | 
|3.3            |  | Certificate of Designations of Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Series X Junior Participating Preferred Stock of Knology, Inc. (Incorporated herein by
reference to Exhibit 3.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005).                                                                                             
|               | 
|3.4            |  | Bylaws of Knology, Inc. (Incorporated herein by reference to Exhibit 3.2 to Knology Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                                                                                                                                                                                                                                        
|               | 
|4.1            |  | Shareholder Protection Rights Agreement, dated as of July 27, 2005, by and between Knology, Inc. and Wachovia Bank, N.A., acting as Rights Agent (which includes as Exhibit A thereto the Form of
Rights Certificate) (Incorporated herein by reference to Exhibit 4.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005).                                                  
|               | 
|10.1           |  | Amended and Restated Credit Agreement, dated as of March 14, 2007, among Knology, Inc., the Lenders and Issuers thereto (as defined therein), Credit Suisse, as administrative agent and
collateral agent, Jefferies & Company, Inc., as syndication agent, Royal Bank of Canada, as documentation agent, and Credit Suisse Securities (USA) LLC, as sole bookrunner and sole lead arranger.
|               | 
|31.1           |  | Certification of Chief Executive Officer of Knology, Inc. pursuant to Securities Exchange Act Rules 13a-14.                                                                                                                                                                                                                                                                                 
|               | 
|31.2           |  | Certification of Chief Financial Officer of Knology, Inc. pursuant to Securities Exchange Act Rules 13a-14.                                                                                                                                                                                                                                                                                 
|               | 
|32.1           |  | Statement of the Chief Executive Officer of Knology, Inc. pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                                                                                                                     
|               | 
|32.2           |  | Statement of the Chief Financial Officer of Knology, Inc. pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                                                                                                                     



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



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



22